National Agencies (Cochin) Pvt Ltd v. Regional Director, ESI Corporation & Deputy Director, ESI Corporation

**Ins.APP.No.16 OF 2015** 1 ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR.JUSTICE C.S.DIAS** **WEDNESDAY, THE 24TH DAY OF MARCH 2021 / 3RD CHAITHRA, 1943** **Ins.APP.No.16 OF 2015** **AGAINST THE JUDGMENT IN IC 66/2007 DATED 30-06-2011 OF EMPLOYEES INSURANCE COURT, ALAPPUZHA** ## **APPELLANTS/RESPONDENTS:** - **1 THE REGIONAL DIRECTOR, ESI CORPORATION ESI CORPORATION,NORTH SWARAJ ROUND,THRISSUR20.** - **2 THE DEPUTY DIRECTOR** - **ESI CORPORATION,PANCHADEEP BHAVAN,SURVEY ROAD, THRISSUR.** **BY ADV. SRI.ADARSH KUMAR** ## **RESPONDENT/APPLICANT:** **NATIONAL AGENCIES (COCHIN) PVT LTD NO.4,CHACKOLA COLONY,THEVARA,COCHIN682013,REPRESENTED BY ITS MANAGING DIRECTOR.** **R1 BY ADV. SRI.VIVEK VARGHESE P.J. R1 BY ADV. SRI.VARUGHESE M EASO** **THIS INSURANCE APPEAL HAVING BEEN FINALLY HEARD ON 24.03.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **Ins.APP.No.16 OF 2015** 2 ## **JUDGMENT** ## **Dated this the 24th day of March 2021** The appellants were the respondents in IC No.66/2007 of the Employees Insurance Court (in short 'E.I.Court'), Alappuzha. The respondent in the appeal was the applicant before the E.I. Court. The parties are, for the sake of convenience, referred to as per their status in I.C No.66/2007. 2. The applicant had filed an application under Section 75 read with Section 77 of the Employees' State Insurance Act, 1948 (in short “Act”) seeking for a declaration that Ext.P1 order dated 30.4.2007 issued by the respondents, assessing an amount of Rs.47,343/- as contribution on omitted wages for the period from 2002-2003 to 2004-2005, is arbitrary and unsustainable in law. 3. The applicant contended that the Insurance Inspector attached to the 1[st] respondent Corporation **Ins.APP.No.16 OF 2015** **==> picture [7 x 7] intentionally omitted <==** inspected the records of the applicant on 12.7.2006 and submitted a report on the same day to the Regional Office setting forth that the applicant had accounted Rs.1,91,500/- towards remuneration of the Managing Director and Rs.5,36,850/- towards handling charges during the period 2002-2003 to 2004-2005. Based on the report, the respondents issued Ext.C18 (adhoc basis) notice on 23.10.2006 assessing an amount of Rs.12,448/- as contribution of the Managing Director of the applicant and Rs.34,985/- as a handling charges relating to the above-said period and offering an opportunity for personal hearing on 8.11.2006. The applicant submitted Ext.D1 representation. However, the respondents, by Ext.P1 order confirmed the proposal of the Insurance Inspector. Hence, the application. **Ins.APP.No.16 OF 2015** 4 4. The sheet-anchor of the applicant in the application was that it was not provided with adequate and effective opportunity to raise their contentions. Therefore, Ext.P1 order is arbitrary and contrary to the existing legal principles of natural justice. Even though the applicant is going serious financial it was through stringency, committed to remit the actual ESI dues/arrears, which was not considered by the respondents. Hence the applicant was left with no other remedy, but to approach the E.I.Court under Section 75 of the Act. 5. The applicant was examined as PW1 and Exts.P1 to P4 were marked through him. The respondents examined DW1 and Exts.D1 to D4 were marked through him in evidence. 6. The E.I.Court, after analysing the pleadings and materials on record, by the impugned judgment found the assessment of the Insurance Inspector **Ins.APP.No.16 OF 2015** 5 with regard to the handling charges was correct, but the assessment with respect to the contribution of the Managing Director to be erroneous, since the Managing Director is the principal employer of the applicant and he cannot be treated as an employee for any legal purpose. Accordingly, the application was allowed, in part, by declaring that the applicant was exempted from paying contribution in respect of the Managing Director at the rate of Rs.12,448/-. 7. Aggrieved by the impugned judgment rejecting the assessment made by the respondents with respect to the omission of the contribution of the Managing Director, the respondents are in appeal. 8. Heard Sri.Sasank Devan, the learned counsel representing the learned counsel appearing for the appellants/respondents and Sri. Varghese M.Easo, the learned counsel appearing for the respondent/applicant. **Ins.APP.No.16 OF 2015** 6 9. The learned counsel appearing for the appellants invited the attention of this Court to subsections (9) and (17) of Section 2 of the Employees State Insurance Act, 1948. According to him, so long as there is no material to substantiate that the Managing Director is the owner of the company, it cannot be said that the Managing Director is not liable to pay contribution to the Corporation. He fortified his arguments by relying on the decision of the Hon'ble Supreme Court in **Employees State Insurance Corporation Ltdv. Apex Engineering Pvt.Ltd** [ (1998) 1 SCC 86] and prayed that the appeal be allowed. 10. Sri.Varghese.M.Easo, the learned counsel appearing for the respondent on the other hand, contended that the question involved in the appeal is squarely covered by the Division Bench decision of this Court in **Cochin Cadalac Pvt.Ltd v. ESI Corporation [** 2001 KHC 996] **.** This Court has held **Ins.APP.No.16 OF 2015** **==> picture [7 x 7] intentionally omitted <==** that a Managing Director is the owner of a company and, therefore , he is not liable to pay the contribution. Therefore, the substantial question of law is covered against the appellants and the appeal be dismissed. 11. The substantial question of law that arises for consideration in the appeal is whether the Managing Director of a Company falls within the definition of Section 2 (9) and section 2(17) of the Employees State Insurance Act, 1948. 12. On a careful reading of the decision in **Cochin Cadalac Pvt.Ltd** (supra), it is seen that the Division Bench has referred to the decision of the Hon'ble Supreme Court in **Apex Engineering Pvt. Ltd** (supra) **.** 13. In **Employees State Insurance Corporation Ltd v. Apex Engineering Pvt.Ltd** [ (1998) 1 SCC 86], the Hon'ble Supreme Court in paragraph 7 held thus: **Ins.APP.No.16 OF 2015** 8 “However, the Division Bench of the High Court in the impugned judgment has placed emphasis on the fact that because ShriDhanwate was appointed as Managing Director with wide powers as aforesaid he could be said to be principal employer. “Principal employer” is defined by Section 2 sub-section (17) of the Act as under: ## “2.(17) '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 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.” **The above provision would apply in a case where the Managing Director is found to be the owner or occupier of the factory. Now it is obvious that Managing Director by himself cannot be said to be the owner of the factory which belongs to the private limited company, namely, the respondent herein and the working of the factory is controlled by the entire body of Board of Directors. But the Managing Director though being one of the directors cannot be said to be the sole owner of the factory.** Now can he be said to be an occupier of the factory as he does not occupy the factory only by himself. It is also not the case of the respondent that Shri.Dhanwate had been named an occupier of the factory under the Factories Act,1948. So far as the term “occupier” of the factory is concerned, it is defined by Section 2 sub-section (15) of the Act to have the meaning assigned to it in the Factories Act, 1948. Dealing with the definition of the said term as found in Section 7(1) of the Factories Act Dr.A.S.Anand, J. , speaking on behalf of **Ins.APP.No.16 OF 2015** 9 a Bench of two learned Judges of this Court in the case of J.K.Industries Ltd v. Chief Inspector of Factories and Boilers held that to be termed as an occupier of the factory within the meaning of Section 2 (n) of the Factories Act, the person concerned must have ultimate control over the affairs of the Factory. Dealing with the question as to who can be said to be having ultimate control over the affairs of the factory owned by a company the following pertinent observations were made . (SCC p.683 para 21) 21. There is a vast difference between a person having the ultimate control of the affairs of a factory and the one who has immediate or day-to-day control over the affairs of the factory. **In the case of a company, the ultimate control of the factory, where the company is the owner of the factory, always vests in the company, through its Board of Directors. The Manager or any other employee, of whatever status, can be nominated by the Board of Directors of the owner company to have immediate or day-to-day or even supervisory control over the affairs of the factory. Even where the resolution of the Board of Directors says that an officer or employee, other than one of the directors, shall have the 'ultimate ' control over the affairs of the factory, it would only be a camouflage or an artful circumvention because the ultimate' control cannot be transferred from that of the company, to one of its employees or officers, except where there is a complete transfer of the control of the affairs of the factory.** It cannot, therefore, be said as assumed by the High Court in the impugned judgment that ShriDhanwate being appointed as a Managing Director could be said to be principal employer within the meaning of Section 2 sub-section (17) of the Act as he could be said to be occupier within the meaning of Section 2 (15) of the Act read with Section 2 (n) of the Factories Act. As per the Articles of Association the ultimate control over his working was with the Board of Directors as a whole as the High Court has noted that Shri.Dhanwate was allowed to exercise all the powers exercisable bya director under the supervision and control of the Board of Directors.” (emphasis supplied) **Ins.APP.No.16 OF 2015** 10 14. The Division Bench in **Cochin Cadalac Pvt. Ltd (** supra) set aside the assessment of the Corporation solely on the ground that there was no material in that particular case to hold that the Managing Director or Executive Director is an employee as defined under Section 2(9) of the Act. The matter was remitted back to the E.I.Court for fresh consideration after affording both sides an opportunity to let in fresh evidence. I am of the considered opinion that the ratio in **Apex Engineering Pvt. Ltd (** supra) governs the field, that a Managing Director is an employee of the Company and is liable to pay contribution and that the law laid down in **Cochin Cadalac Pvt.Ltd** (supra) is per incurium in view of the particular facts and circumstances of that case. 15. It is pertinent to note that, the respondent had not raised a contention before the E.I. Court **Ins.APP.No.16 OF 2015** **==> picture [13 x 7] intentionally omitted <==** that the Managing Director was not an employee and was not liable to pay contribution to the Corporation. Nevertheless, the E.I.Court in the impugned judgment, without any foundation in the pleadings, held so. In such circumstances, I am of the firm opinion that the impugned judgment passed by the E.I. Court is erroneous and liable to be set aside. 16. Accordingly, I answer the substantial question of law that the Managing Director of the respondent is an employee, who is liable to pay contribution. In the result, the appeal is allowed. The impugned judgment exempting the Managing Director of the respondent from paying the contribution is set aside and the assessment made by the Insurance Inspector is upheld and confirmed. The respondent is granted one month's time to pay the contribution as per Ext.P1 demand, failing which **Ins.APP.No.16 OF 2015** 12 the appellants would be at liberty to take appropriate action, in accordance with law. **Sd/-** **C.S.DIAS** > ma/24.3.2021 /True copy/ **JUDGE**