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The Regional Director, ESI Corporation, Madras-31 v/s Prakash Metal Industries

    C.M.A.(NPD) No.788 of 2000

    Decided On, 09 January 2008

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE P.P.S. JANARTHANA RAJA

    For the Appellant : G. Desappan, Advocate. For the Respondent: J. Josephath, Advocate.



Judgment Text

(Appeal under Section 82 of the Employees State Insurance Act, 1948 against the order of the learned Principal Judge, City Civil Court, Chennai (The ESI Court, Chennai) dated 14.11.1996 made in ESIOP No.99 of 1989.)


This Civil Miscellaneous Appeal is filed against the order of the learned Principal Judge, City Civil Court, Chennai (The ESI Court, Chennai) dated 14.11.1996 made in ESIOP No.99 of 1989, raising the following substantial questions of law:-


a) Whether treating Usha Industries and the respondent as one Unit is wrong in the teeth of the Supreme Court reported in AIR 1974 SC 759?


b) Whether Usha Industries even otherwise, is not an immediate employer of the respondent?


c) If Usha Industries is an immediate employer, whether it is wrong to take its employees into account for the purpose of coverage?


2. Background facts in a nutshell are as follows:-


The respondent is a Small Scale Industry. It is a partnership firm consisting of two partners, engaged in the business of manufacturing stainless steel vessels, using power with the aid of power press. Since the power press is used after manufacturing the vessels, no further polishing was done by the respondent and they were sold to the customers in the condition in which the vessels were manufactured except when required by them. Till February 1982, the respondent employed one Polisher. From March 1982, he left the service and polishing whenever required was done through independent contractors outside without the supervision of the respondent. The respondent employed for wages not more than 9 persons on any day except in January 1982 and February 1982. The respondent did not employ on any day more than 9 persons either in 1983 or even in 1984. The appellant, ESI Corporation, by communication dated 1.12.1982, covered the respondent establishment under ESI Act with effect from 01.01.1982. A Demand Notice was also issued to the respondent by letter dated 11.01.1985 calling upon the respondent to pay a contribution of Rs.13,874.78 for the period from 01.01.1982 to 26.05.1984 and also directed to appear for a personal hearing on 21.01.1985. The respondent replied that the establishment is not coverable under the ESI Act as the strength of the employees is always below 10. He also raised a contention that some of the persons counted as employees by the Inspector were outsiders. After hearing, the respondent passed an order dated 13.11.1989 under Section 45-A of the ESI Act, 1948 stating that out of the contribution of Rs.13,874.78 to be paid by the respondent for the period from 01.01.1982 to 26.05.1984, as the respondent had already paid Rs.5,407.83, the balance contribution that should be paid by the respondent was Rs.8,466.95 plus interest. Aggrieved by the order, the respondent has filed an appeal to the City Civil Court, Madras under Section 75 of the ESI Act contending that the respondent is not liable for payment of contribution as the establishment is not covered from 29.05.1982 and they are entitled for refund of the excess amount paid. After considering the arguments advanced on both the sides, the Lower Court passed an order and held that the establishment is not liable to pay the amount under Section 45-A of the ESI Act. Aggrieved by the order, the ESI Corporation has filed the present appeal.


3. Learned counsel appearing on behalf of the appellant submitted that the Lower Court is wrong in holding that the respondent establishment is not liable to pay the ESI contribution. Further it is contended that both the units are situated in the same building and they are very much connected to each other as one of the partners in the respondent-firm is related to the other unit which is a proprietory concern. It is therefore, the two units should be considered as one unit. Further it is contended that the Tribunal is wrong in holding that both the units are different and relied on the Supreme Court judgment in the case of B.M.Lakshmanamurthy v. The Employees' State Insurance Corporation, Bangalore, AIR 1974 SUPREME COURT 759.


4. Learned counsel appearing for the respondent submitted that the Lower Court had considered all the relevant facts and circumstances of the case and rendered a finding that both the units are entirely different and they are not depending on each other and also the nature of the work done by them are different. It is also submitted that the other unit is paying the rent to the respondent and they are independently managed and hence they are two separate entities. Therefore, it is submitted that the order passed by the Lower Court is in accordance with law and the same has to be confirmed.


5. Heard the counsel. The respondent is a partnership firm consisting of two partners. They are Smt.Vijayakumari and his brother Shri.Prakash. The respondent-firm is engaged in the manufacture and sale of stainless steel. Shri.Inderchand is the husband of Smt.Vijayakumari. M/s. Usha Industries is owned by Shri.Inderchand. According to the appellant, the said M/s. Usha Industries has been functioning in the same premises doing polishing of stainless steel vessels. The authorities under the Act passed an order dated 13.11.1989 bearing No.TN/INS/11/51-19932-56/259/RO/89 under Section 45-A of the ESI Act, wherein it was held as follows:-


"The Employer's main contention is that the establishment is not covered under the Act from 1-1-83 as its strength being below 10. But as per the records produced to me he has employed 10 or more persons upto 27-2-82 and therefore the establishment is definitely covered upto 26-2-83. The strength of the establishment from February 83 to December 84 was throughout 9 excepting November '83 when there were only 8 employees. During the same period another unit by name Usha Industries has been functioning in the same premises doing polishing of stainless steel vessels which is a process incidental to the manufacturing process of the employer, viz. Manufacturer of stainless steel vessels. Usha Industries is owned by Shri Inderchand while Prakash Metal Industries is owned by his wife Smt.Vijayakumari and his brother Shri Prakash. Shri Inderchand is having transactions with Prakash Metal Industries as per page 107 of the General Ledger for 1983 and the owners of Prakash Metal Industries who own the premises also do not collected any rent in respect of Usha Industries. On 6-1-88 I had asked Shri Inderchand who appeared for this Personal Hearing to produce certain records in respect of Usha Industries which he had not produced so far. Under the circumstances, in view of the inter-link in the manufacturing process and the nexus between the two units I can only infer that both the units viz. Prakash Metal Industries and Usha Industries have to be treated as one for the purpose of ESI coverage. And even if there was only one employee in Usha Industries during the period, by adding it to the strength of 9 of Prakash Metal Industries, the establishments stands covered under the Act for the period of the claim and as such contribution is payable for the claim period as per the demand.


I have thus applied my mind to all the relevant facts of the case and determine that the employer is liable to pay contributions of Rs.13,874-78 for the period from 1-1-82 to 26-5-84. Against this the employer has already paid Rs.5407-83 and the balance contribution due to be paid by the employer now is Rs.8466-95 plus interest."


From a reading of the above, it is clear that the reasons given by the appellant for the respondent to pay the ESI contribution are as under:-


1. M/s. Usha Industries functioning in the same premises.


2. One of the partners is related to the brother of M/s. Usha Industries.


3. The said M/s. Usha Industries is having transaction with the respondent.


4. No rent was collected by the respondent from M/s. Usha Industries.


Relying on the above reasons, the Regional Officer, ESI Corporation came to the conclusion that both the units, i.e., M/s. Prakash Metal Industries and M/s. Usha Industries are one and the same for the purpose of ESI recovery, against which the respondent filed an appeal to the City Civil Court. On the side of the respondent, one Prakash was examined as P.W.1, who is one of the Partner and documents Ex.A1 to Ex.A9 were marked. Ex.A1 is the letter from the appellant to the respondent. Ex.A2 is C-18 notice. Ex.A3 and Ex.A4 are the letters from respondent to the appellant. Ex.A5 is the order dated 13.11.1989 passed by the appellant. Ex.A6 to Ex.A9 are the ledgers for the years 1981-82, 1982-83, 1983-84 and 1984-85 respectively. On behalf of the appellant, one Govindarajulu was examined as R.W.1 and no documents were marked. R.W.1 is the E.S.I. Inspector and he has retired from service. Even though the building belongs to the two partners of M/s. Prakash Metal Industries, they used to collect rent from M/s. Usha Industries and the same was also entered in the ledgers. Ex.A6 to Ex.A9 are the ledgers for the period 1981 to 1985. R.W.1, the E.S.I. Inspector, inspected the establishment of the respondent on 16.02.1983 and the period of coverage is 01.01.1982 to 31.07.1982. After considering the oral and documentary evidence, the Lower Court had given a finding, which reads as under:-


"9. PW1 categorically stated that Usha Industries is a separate and independent entity and it has nothing to do with the petitioner establishment. Simply because both industries are situated in one compound, there cannot be any presumption under law that both are one and the same unit. Accounts are maintained separately and there are entries in the petitioner account to show the collection of rent in respect of Usha Industry. It is also relevant to state that the accounts are written in Hindi and as such RW1 could not have occasion to peruse the same or understand the same. A reading of the evidence of RW1 would clearly indicate that the impugned order is passed without any basis. RW1 categorically stated that he was not aware as to whether Usha Industry is run in an another portion of the block. He has not personally seen where polishing work relating to the petitioner industry is carried on in Usha Industry. He has not chosen to examine any other person excepting the partner. It is apparently clear that the order passed by the corporation is passed on mere surmise and conjecture and there is no basis to come to the conclusion that Usha Industries and the petitioner industry are one and the same. The employment of persons for Usha Industry has been wrongly taken into consideration and clubbed with the petitioner establishment. The records produced by the petitioner clearly established that only in January & February 1982, 10 persons were employed and at no point of time 10 or more persons were employed in the petitioner establishment. Taking into consideration of this fact only, the petitioner as a bonafide person, sent a cheque for Rs.5090.33 on 18-1-85 and this amount has also been rightly given credit to. When once it is admitted that for a period of two months i.e. January & February 1982, the employment is 10 persons naturally the contribution is payable for that year and accordingly the petitioner has paid the amount and the petitioner is not liable to pay the balance of amount as claimed in the impugned order. Hence these issues are answered accordingly."


The categorical finding given by the Lower Court is that the two units are separate and independent, and also there is no clear and convincing evidence to show that there is inter-linking between the two units. There are many factors to be taken into consideration for the purpose of determining whether they are two separate units or only one. They are as under:-


1. Surrounding circumstances relating to formation of several concern - whether they come into existence simultaneously or later or any one of them is the extension of the pre-existing business or not?


2. Whether they are doing the same business at the same place or at different places? If it is at the same place, whether by the same or different staff?


3. Whether they carried on their business in the same name or different names?


4. Whether there is a separate Balance Sheet and Profit and Loss Account or only one consolidated accounts?


5. Whether they come under same deed or not?


6. Whether they are holding the same bank account or different bank accounts?


7. Whether there are one Electricity connection or different connections?


8. Whether there is interconnection or interlacing or also interlocking of funds?


9. Whether there is any common management for the affairs of the business?


The above factors must be taken into consideration before deciding the issue. Any one factor certainly would not be a decisive one. All of them should be taken into consideration for the purpose of arriving at a conclusion of sameness or separateness. In this case, the appellant failed to consider the above factors. The appellant merely stated that one of the partners is related to the proprietor of other concern and also both of them are carrying on their business in the same building. It is also emphasised by the appellant that the other unit, proprietory concern also did not pay any rent to the respondent-firm. In respect of rent, there is a specific finding by the Lower Court that the other unit, proprietory concern, M/s.Usha Industries, actually paid the rent and the same is reflected in the accounts of the respondent-firm. It is therefore, based on valid materials and evidence. Merely carrying on the business in one building and also one of the partners in the respondent-firm is related to the other concern, Usha Industries, alone could not be a decisive test for arriving at a conclusion that both the units are same. The Lower Court had given a categorical finding that both the units are different and also the respondent has not employed more than 9 persons at the relevant point of time. In the Supreme Court judgment cited supra, which was relied on by the counsel appearing for the appellant, it has been held in Paragraph-24 as under:-


"24. In the instant case, on an examination of the site plan (Ext. P-1) and the evidence, it is evident there is a definite environmental as well as proximity and functional unity between the two portions, namely, the main factory (Portion A) and the contractor's factory with the precincts (Portion B) even though separated by a wall in which there was a do

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or which sometimes was closed. The work undertaken by the contractors and carried on in their portion of the area is surely componential to make it a part of the complex whole. The principal requirement of the definition, namely, that the work or the construction is undertaken on the premises of the factory and about which both sides join issue, is satisfied in the present case on the evidence on record and we hold accordingly. We are also satisfied that the workers under the contractors are employees employed by the principal-employer through the 'immediate employers' on the premises of the factory in work which is ordinarily the normal work of the factory or is, at any rate, preliminary to the work or which is certainly incidental to the purpose of the main factory of the appellant." From a bare reading of the above, it is clear that the facts involved in the present case are entirely different from the facts involved in the above Supreme Court judgment. Hence the above Supreme Court judgment will not help the appellant. Also there is a specific finding by the Lower Court that both the units are different, which is based on valid materials and evidence. Therefore, the respondent is not liable to pay any contribution under the provisions of the Act. The findings given by the Lower Court are based on valid materials and evidence and I do not find any error or illegality in the order of the Lower Court so as to warrant interference. 6. Under the circumstances, the impugned order passed by the Lower Court is in accordance with law and accordingly the Civil Miscellaneous Appeal is dismissed. No costs.
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