Annie John, J.
1. The above appeal is filed against the Judgment of the Employee's Insurance Court declaring that Ext.P2 order passed by the appellant under Section 45 A of the ESI Act assessing Rs. 5,05,971/- as ESI contribution on omitted wages relating to the period from 2005-2006 to 2007-2008 is unsustainable as it is against the provision contained in the ESI Act.
2. The respondent is an establishment engaged in the business of undertaking job works relating to marine vessels which is covered under the ESI Act w.e.f. 11.07.1983.
3. On inspection conducted by the Social Security Inspector of the ESI Corporation on 25th and 28th of May 2009 at the respondent, it was found out that during the period from 2005-06 to 2007-08, major portion of the works of the respondent were got done by M/s Sea Blue Marine Engineering (P) Ltd. on the basis of Ext.D1 agreement dated 01.01.2004 executed between them.
4. As per the Ext.D1 agreement, the respondent agreed to give on sub contract the works procured by them to M/s Sea Blue Marine Engineering (P) Ltd. and latter has agreed to execute those works. As per Ext.D1, latter company is entitled to utilize all the machineries and equipments, slip way, factory sheds, office building and other infrastructure facilities of the respondent. The latter company has to employ the permanent workers of the respondent. The above works are to be executed by M/s Sea Blue Marine Engineering (P) Ltd., in time to the satisfaction of the respondent. Hence there is supervision and control over the aforesaid works by the respondent.
5. In the above circumstances, the employees of the respondent as well as others engaged for the above works by M/s Sea Blue Marine Engineering (P) Ltd. Could come within the definition of the 'employee' as provided under Section 2(9) of the ESI Act and the payments made to them are wages under Section 2(22) of the Act. Hence the respondent, being the principal employer of those employees, is liable to pay contribution in respect of those employees as provided under Section 40(1) of the ESI Act.
6. In the above view, the appellant passed Ext.P2 order determining ESI contribution for an amount of Rs. 4,05,971/- on omitted wages relating to the period 2005-06 to 2007-08. I.C No.74/2010 had been filed by the respondent, challenging Ext.P2 order. The EI Court after considering the evidence on record declared that Ext.P2 order is unsustainable. Highly aggrieved by the said order, this appeal has been preferred before this Court.
7. According to the appellant, findings entered by the EI Court that the employee of the respondent received wages as per the sub contract arrangements will not constitute employees under Section 2(9) of the ESI Act and the payments made to them will not constitute wages as per Section 2(22) of the ESI Act are incorrect. The EI Court has found that there was no control or supervision by the applicant or his agent over the contract workers, who carried out the relevant works, and these works are not carried out in the premises of the applicant establishment. Now, the appellant has approached this Court by challenging the said finding in the order passed in I.C. No.74/2010.
8. M/s Western Marine Engineers is a factory situated at Edakochi covered under the provisions of the ESI Act w.e.f. 11.07.1983 under code No.47-5488- 67. It is accepted case of the applicant that the respondent has employed 30 regular employees and the compliance of the provisions of the ESI Act with regard to their regular employees is satisfactory. The insurance Inspector attached to the appellant Corporation conducted verification of general ledger of the respondent establishment on 26.05.2009 and 28.05.2009 relating to the period 2005-06 to 2007-08 and filed a report on 01.06.2009, which is marked as Ext.D2 series. Ext.D1 is an agreement executed between the respondent and M/s Sea Blue Marine Engineering (P) Ltd. As per the above agreement, the respondent gives sub contract of the works procured by them to M/s Sea Blue Marine Engineering (P) Ltd., except design and construction works of the self propelled vessels. Consideration of the respondent is the commission in respect of the turnover of work done at the prescribed percentage. It was also stated in Ext.D1 agreement that Sea Blue Company is entitled to utilize all the machineries and equipments, factory sheds, office building and other infrastructure facilities of the respondent. The respondent has to pay all the advances/bill amounts within three days of receipt of the amounts in respect of works executed, on sub contract, by Sea Blue Marine Engineers after deducting the commission payable in this regard. It was also stated in the Ext.D1 agreement that the Sea Blue Marine Engineering Company could employ outside workers, when permanent workers of the respondent are not available. The respondent has given sub contract all the works to the Sea Blue Company and they can give works on sub contract to outsiders only with the written consent of the Sea Blue Company. The marketing and canvassing of the business till the procurement of work orders are the responsibility of the respondent and the Sea Blue Company shall execute the works to the satisfaction of the respondent and their clients. It was also stated in the agreement that the respondent has to provide all technical assistance to the Sea Blue Company for the execution of the works as and when required then the Sea Blue Company has to reimburse all the over head expenses and wages and salaries to the employees paid by the respondent. It is reported by the Insurance Inspector that the major part of the work of the respondent has got executed by M/s Sea Blue Company. The Sea Blue Company utilized the premises, building and machinery etc. for the repairing works of the marine vessels. The Sea Blue Company utilizes the services of regular employees of the respondent in addition to the regular employees is not in dispute between the parties. The dispute is regarding the compliance under service charges given to M/s Sea Blue Company and wages and allowances paid to M/s Cochin Shipyard, wages and allowances booked under the head in respect of Cochin shipyard Limited Employee's Union works, SM Fabricators, SMS Fabricators and Metro Tech. The respondent has produced certificate of remittances of ESI contribution obtained from M/s Cochin Shipyard Limited and it was verified and found correct that the payment was made under code No.47-231771.
9. It is contended by the respondent that the payment made under the head “service charges” to Sea Blue Company and wages and allowances to Cochin Shipyard Limited Employees Union, SM Fabricators, SMS Fabricators, Metro Tech. are payments made to various units for execution of various works under taken by the respondent. Those works were not done, in the premises of the respondent establishment. It is attached by their regular workers and in respect of them, the respondent has already paid contribution and the rest of the works are carried out outside the premises of the respondent and there was no control or supervision with regard to the work attended to by them. Accordingly, the EI Court held that the employees involved in these works cannot be treated as employees under Section 2(9) of the ESI Act and any contribution cannot be claimed in respect of them. Further it was contended that with regard to Cochin Shipyard Limited, where the works can be got done only by the union workers attached to the unit and as part of work contract they would collect contribution for them as prior condition for awarding contract. Therefore, no contribution is payable in respect of them and contribution is paid by the respondent is this regard.
10. The appellant has disputed its fact by stating that it is the responsibility of the respondent to procure work of repair of marine vessels and execute them to the satisfaction of their clients. Therefore, supervision and control by the respondent or their agent is inherent in this regard. Therefore, the employees involved in this case will come under the definition of 'employee' under Section 2(9) of the ESI Act and the payments made to them will constitute wages as per Section 2(22) of the said Act. Section 2(9) of the The Employees' State Insurance Act, 1948 says that;
“employees means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and –
(i)who is directly employed by the principal employer, on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or
(ii)who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or
(iii)whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service;
[and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment] [or any person engaged as apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), [and includes such person engaged as apprentice whose training period is extended to any length of time] but does not include]-
(a) any member of [the Indian] naval, Military or air forces; or
(b) any person so employed whose wages (excluding remuneration for overtime work) exceeds [such wages as may be prescribed by the Central Government] a month :
Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;]”
11. It is thus clear that the definition "employee" means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies, but with a caveat of that such person, whose wages exceed the maximum limit prescribed by the Central Government from time to time will not be entitled to the benefit under this Act.
12. Section 2(13A) of the ESI Act defines insurable employment as under:
"Insurable employment" means an employment in a factory or establishment to which the Act applies.
13. Section 2(14) of the ESI Act defines "insured person". It means a person, who is or was an employee in respect of whom contributions are or were payable under this Act and who is by reason thereof, entitled to any of the benefits provided by this Act.
14. Then the insured person shall be an employee as defined under Section 2(14) of the ESI Act and he or she should have been in continues insurable employment for a minimum period of 5-4+3 years as on and immediately preceding the 1st January of the year of admission and contribution in respect of him or her were paid for not less than 78 days in all. On 9/7/5 contribution periods immediately preceding 1st January of the year of the admission in the proviso that return of contribution as provided under Section 44 of the ESI Act and read with Regulation 26A of the ESI 20 Regulation be filed within 42 days of termination of contribution to which it relates.
15. It has held in B.M. Lakshmanamurthy V. The Employees' State Insurance Corporation, Bangalore [AIR 1974 SC 759] that ESI Act is passed "to provide certain benefits to employees in case of sickness, maternity ad employment injury and to make provisions for certain other matters in relation thereto.
Section 2 (4) defines "Contribution" means the sum of money payable to the Corporation by the principal employer in respect of an employee and includes any amount payable by or on behalf of the employee in accordance with the provisions of this Act.
16. It is very important to note the definition of the factory under Section 2(12) of the ESI Act.
"Factory" means "any premises including the precincts thereof whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on but does not include a mine subject to the operation of the Mines Act, 1952 or a railway running shed".
17. Now the dispute is between the principal employer and immediate employer. Here, the case of the appellant that the principal employer has done the work through his immediate employer, who was subsequently given into contract basis whether the work has been done inside or outside the factory is not a material to decide regarding the contribution to deposit with the appellant.
18. The definition under Section 2(9) of the ESI Act is more than sufficient to prove that the argument advanced by the learned counsel for the appellant will stand and the contentions raised by the respondent that the work was not done within the premises of the factory and it was done through the outside sources is not sufficient enough to discard their liability to pay the contribution to the work done by the employees.
19. In Regional Director, ESI Corporation, Thrissur and Another V. Thankamma Baby & Another (2016 KHC 549) (this case is related with making of umbrella by the factory being run by the POPY) wherein it has held that "materials for making umbrella are collected from various sources and assembling work of umbrellas entrusted to contractors/ home workers - Whether provisions of the Act are attracted. Held burden is heavily on the shoulders of the establishment to prove with cogent and convincing materials that, workers employed by contractors or home workers, engaged to carry out the assembling work of umbrellas fall outside the purview of 'employees' as defined under Section 2(9) of the ESI Act, and that, the payments made to them cannot be treated as 'wages' defined under S. 2(22) of the said Act".
20. Now, we have meticulously gone through the definition of the employee under Section 2(9) of the above said Act. It is quite clear from the definition that any person who is directly employed by the principal employer on any work of or incidental preliminary to or connected with the work of, the factory or establishment such work is done by the employee in factory or establishment or elsewhere. Here in this case of the respondent is that the work was not done in the premises of the principal employer or the sub contractor. Further the works were done on the floating vessels so the supervision and control of the respondent is not required. Therefore, the person who worked are not coming under the definition of Section 2(9) of the above said Act. As per the Section 2(9)(1), it is stated that the work is to be done within the premises of factory or establishment or elsewhere. No where it is stated that the work is done on the floated vessels that will not come under the provision of the Act and further it is submitted that the most of the work were carried out in the premises of the principal employer and sub contract. As per Ext.D1 agreement, the principal employer, has given the sub contract to M/s Sea Blue Marine Engineering (P) Ltd. to carry out the work. So definitely they cannot say that the principal employer has no control and supervision of the work which is being done by the sub contractor or other persons employed by the sub contract.
21. It is also stipulated in Ext.D1 agreement that whatever work done by the respondent, that has to be finalized by the principal employer. But EI Court has held that if a person is directly employed, he need not work in the premises of the employers concerned. If he is a person employed through an immediate employer, in order to be an employee under Section 2(9) either he shall work in the premises of the factory or establishment and if the work is carried on outside the premises, then the principal employer or his representative shall have control or supervision over the work carried on elsewhere. Further it was held that if there is no control or supervision by the principal employer or his agent, then the persons attached to the immediate employer cannot be treated as employees or the principal debtor.
22. The respondent was examined PW1 disposed that the job works executed through the contractors whose workers performed the works outside their premises and the marine vessels stationed in the sea waters. So there is not control or supervision by the applicant or their agent over the said work. During the cross examination, he has stated that there was no such supervision or control of the respondent or their representatives over the works given on sub contract. It was clarified that the control and supervision are exercised by the manager of the sub contractor. The ship management will give work done certificate with the sub contractor in the name of the respondent and based on this, the respondent put up bills with the Shipping Company. Anyway the evidence show that the final bill related to work which is been carried out is to be settled by the principal employer. PW2 is a Managing Director of Sea Blue Marine Engineering (P) Ltd. He has deposed that they have attended repair works of marine vessels on sub contract basis. The original contract is obtained by the Western Marine Engineering (the respondent herein)and it is carried out by them on sub contract basis. The repair works had to be carried out in the vessels which were floating in the sea lying in anchorage and wharf. It is the definite case of the respondent that the works were not supervised by the respondent or their agent. The works were attended by the regular workers of the respondent. Their wages were disbursed by the respondent. During cross examination PW2 has deposed that on sub contract basis he has carried out the works obtained from Cochin Shipyard to the respondent establishment. They have maintained all records in this regard. The lower court has relied on the evidence of PW2 and ultimately found that there is no control or supervision of the respondent or his agent with regard to the works carried out by PW2 on sub contract basis. But we do not agree with the finding entered by the EI Court because it evident from PW2 that he was doing the work, which was given on sub contract, by the respondent. As per Ext.D1 agreement there was a provision to replace the permanent employees and others of the respondent company and principal employees and principal employer.
23. The Insurance Inspector examined the legal opinion, he has deposed that he has conducted general ledger verification of the respondent establishment covering the period from 2005-06 to 2007-08 and submitted a report on 01.06.2009. The major part of the works under the head service charges were carried out by Sea Blue Company. They have carried out ship repair works. Those works were undertaken by Western Marine Engineers (the respondent) and given on sub contract to Sea Blue Company. According to him entire works were carried out in the premises of Western Marine Engineers with the employees attached to it. Apart from this, Sea Blue Company has engaged employees of their own also. The contention that since the works were carried out in the sea, no contribution is payable cannot be accepted. The major works were carried out in the premises of the respondent. The respondent has not produced any vouchers signed by the Capitan or Chief Engineer of the Ship to establish that the works was carried out under the water. DW1 was elaborately cross examined by the counsel for the respondent. During cross examination he deposed that the respondent had employed regular employees and generally compliance in respect of the regular works was satisfactory. The respondent establishment undertook repair works of ships, small vessels, barges etc. It is true that the respondent has given it on sub contract to Sea Blue Company. It is also admitted the fact that the building of the respondent establishment was very small but work area is very large.
24. He also deposed that he did not verify the wage records and did not report that the respondent had any supervision over the employees of the Sea Blue Company. He could not say at which place, the work was carried out by the Sea Blue Company. He also expressed ignorance regarding the fact that the major part of the work was carried out in the ship and only a minor part of the work was carried out in the respondent establishment. There is no evidence to show that the work was carried out in the ship, as claimed by the respondent. Accordingly, he raised a claim for contribution based on the information collected from the ledger of Sea Blue Marine Company and recommended for collection of contribution as per his report dated 01.06.2009. Now only question to be considered is whether the evidence service tendered sufficient to concl
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ude the fact that the employees as employed by the M/s. Sea Blue Company will come under the definition of Section 2(9) of the said Act. According to our view, even if the work was given by the respondent to Sea Blue Company as a sub contract, the work was carried on as per the conditions laid down in Ext.D1 agreement. As per Ext.D1 agreement, the principal employer has permitted to utilize the equipments and premises for completing work entrusted to the respondent by the appellant and it is also mentioned that if the work is being done not only within the premises of factory or establishment but in elsewhere also. So, definitely the employees who have done the work on sub contract also comes under the purview of Section 2(9) of the said Act. 25. Section 2(22) says that the defines of wages; “wages means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes 3[any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or lay-off and] other additional remuneration, if any, 4[paid at intervals not exceed sing two months], but does not include”. Section 2(17) defines the principal employer; “principal employer means — (i)in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under 7 [the Factories Act, 1948] (63 of 1948), the person so named; (ii) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is so appointed, the head of the department; (iii) in any other establishment, any person responsible for the supervision and control of the establishment; So the finding entered by the EI Court that the employees who were appointed by the sub contractor will not come under the definition of Section 2(9) is not sustainable. So considering all the arguments on either sides we have got a considered opinion that the findings entered by the EI Court is not sustainable. Hence order of setting aside Ext.D2 order is hereby set aside. In the result, this Insurance appeal is allowed.