Regional Director, Employees State Insurance Corporation v. Parekara Motor Service

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR. JUSTICE A.HARIPRASAD** **TUESDAY, THE 22ND DAY OF NOVEMBER 2016/1ST AGRAHAYANA, 1938** **Ins.APP.No. 68 of 2011 ( )** **---------------------------** **AGAINST THE JUDGMENT IN IC 42/2007 of EMPLOYEES INSURANCE COURT, ALAPPUZHA DATED 09-04-2010** **--------------------------** ## **APPELLANT/RESPONDENT:** **----------------------------------------** **THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION, PANCHADEEP BHAVAN, THRISSUR-20.** ## **BY ADV. SRI.P.SANKARANKUTTY NAIR** **RESPONDENT/APPLICANT:** **-------------------------------------** **PAREKARA MOTOR SERVICE, KOTHAMANGALAM P.O., ERNAKULAM, PIN 686691, REPRESENTED BY ITS MANAGING PARTNER, P.I.ELIAS.** ## **BY ADV. SRI.A.JAYASANKAR SRI.MANU GOVIND** **THIS INSURANCE APPEAL HAVING BEEN FINALLY HEARD ON 22-11-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **STK** ## **A. HARIPRASAD, J.** ## **-------------------------------** ## **Ins. Appeal No.68 of 2011** ## **---------------------------------------------Dated this the 22[nd] day of November, 2016** ## **JUDGMENT** This appeal is preferred challenging the order passed on I.C.42/2007 on the file of the Employees' Insurance Court, Alappuzha. Respondent in I.C.42/2007 is the appellant herein. 2. Heard the learned counsel appearing on both sides. 3. An application was filed by the respondent in this appeal before the Employees' Insurance Court under Section 75 r/w Section 77 of the Employees State Insurance Act, 1948 (shortly stated as E.S.I. Act) seeking a declaration that the action of the respondent in clubbing M/s.Parekara Motor Service, the applicant establishment with M/s.Parekara Motors and M/s.Parekara Bus Services and imposing coverage, treating them as a single unit and enforcing the provisions of the E.S.I. Act is illegal. The Insurance Court ## **Ins. Appeal No.68 of 2011 2** dismissed the application on 17.03.94. Against that judgment, the applicant/respondent filed M.F.A.427/1994 before this Court. As per judgment dated 23.08.2001, this Court set aside the judgment of the Insurance Court and remanded the matter for a fresh enquiry and disposal. Pursuant to that, the application was reregistered as I.C.137/2001 and after further enquiry, it passed a judgment on 7.11.2002, reiterating its earlier judgment. Again, the applicant preferred M.F.A.23/2003 before this Court and vide judgment dated 10.04.2007, this Court again set aside the E.I. Court's judgment and remanded the matter for a further fresh enquiry. Accordingly, the case was taken up in the 3[rd] round before the Insurance Court. 4. Applicant's case is that the respondent has unlawfully clubbed the applicant establishment with two other establishments namely M/s.Parekara Motors and M/s.Parekara Bus Services and imposed coverage treating them as a single unit and initiated proceedings to ## **Ins. Appeal No.68 of 2011 3** enforce the provisions of the E.S.I.Act. Admittedly, the applicant is a firm registered under the Partnership Act. Likewise, M/s.Parekara Motors and M/s.Parekara Bus Services are also different firms registered under the said Act. The applicant firm is engaged in motor transport business. It employs less than 20 persons and therefore, it is not to be covered under the E.S.I.Act. Applicant contended that there is no functional integrality among these three firms. According to the applicant, the firms are not in any way interdependent. The employees in each firm are separate and there was no interchange of employees from one firm to the other. Despite this, the appellant imposed coverage and wrongly assessed the respondent. 5. The respondent (appellant herein) contended that their Insurance Inspector visited the applicant establishment on 23.12.87 for conducting a survey. Thereafter, a report was submitted setting forth that, no records were produced. The Insurance Inspector again ## **Ins. Appeal No.68 of 2011 4** visited the establishment on 14.07.88 and submitted yet another report. It was noted in the report that the applicant establishment was a partnership firm and also the existence of two other firms. One aspect noticed by the Inspector is that, the Managing Partner of the three firms was one and the same person. The Deputy Regional Director conducted a test survey of the applicant establishment on 3.5.89 and reported that the three firms were engaged in operation of bus transport service. As per the partnership deeds of the three firms, Sri.P.I.Elias was the Managing Partner and he was responsible for management of the entire three partnership businesses. Considering the fact that all the three firms were engaged in the same business activity and that Shri.P.I.A.iyas was common Managing Partner in respect of all the three firms, the authorities held that the applicant firm is liable to be covered by the E.S.I.Act. 6. The substantial questions of law raised in this appeal are as follows: ## **Ins. Appeal No.68 of 2011 5** (i) Whether the E.I.Court was correct in holding that M/s.Parekara Motor Services, M/s.Parekara Motors and M/s.Parekara Bus Services are not liable to be clubbed for ESI coverage when the evidence on records has established that there is unity in ownership, management, and control and also financial dependency as regards the above three firms? (ii) Whether the E.I. Court was correct in finding that the 3 firms cannot be clubbed for ESI coverage for the reason that they are employing separate workers and are maintaining separate employment records and books of accounts? (iii) Whether the clubbed coverage is not sustainable in view of the principles laid down by the Apex Court in the Associate Cement Company case? (iv) Is not the finding is based on perverse appreciation of evidence in this case? (v) When there are documentary evidence to establish coverage whether the reliance given to oral evidence is justifiable? 7. Learned counsel for the appellant Corporation contended that the lower court went wrong in declaring that the applicant establishment is not liable to be clubbed with M/s.Parekara Bus Service and M/s.Parekara Motors. It also wrongly decided that the ## **Ins. Appeal No.68 of 2011 6** applicant was not covered under the E.S.I.Act treating all the three as a single unit. Per contra, learned counsel for the respondent/applicant contended that the evidence adduced before the Insurance Court clearly established that all the three firms, though engaged in bus service, were independent of one another and there was no nexus between the firms, except the commonality of the Managing Partner. 8. The Insurance Court placed reliance on **Associate Cement Company v. Their workmen** , [1961 (I)LLJ (I) (Supreme Court)]. The proposition of law stated is to the effect that the question of unity or oneness presents difficulties when the industrial establishment consists of parts, units, departments, branches, etc. If it is strictly unitary in the sense of having one location and one unit only, there is little difficulty in saying that it is one establishment. Where, however, the industrial undertaking has parts, branches, departments, units etc. with different locations, near or distant, the question ## **Ins. Appeal No.68 of 2011 7** arises what tests should be applied for determining what constitutes “one establishment”. The Supreme Court further held that the real purpose of the tests is to find out the true relation between the parts, branches, units, etc. If in their true relation, they constitute one integrated whole we say that the establishment is one; if on the contrary they do not constitute one integrated whole, each unit is then a separate unit. The Supreme Court further stated that how the relation between the units will be judged must depend on the facts proved. The Supreme Court observed that in one case, the unity of ownership, management and control may be the important test; in another case, functional integrality or general unity may be the important test; and in still another case, the important test may be the unity of employment. 9. It is well settled that an appeal from an order of the Insurance Court can be entertained only if it involves a substantial question of law. Indubitable is the ## **Ins. Appeal No.68 of 2011 8** proposition that questions of facts cannot be re-agitated in an appeal of this nature. 10. Learned counsel for the respondent contended that evidence adduced before the Insurance Court by the witnesses examined on the side of the appellant itself would show that the employees in the three services were working in water tight compartments and they were not interchanged. That apart, separate accounts were maintained in respect of the three firms. It is therefore contended that there is no functional integrality between respondent's firm and the other two firms. 11. Per contra, learned counsel for the appellant contended that on inspection of the accounts it was revealed that there were financial transactions between three firms and the presence of a common Managing Director fortifies the contention that, all the three firms are parts of the same entity. It may be true that one firm might have received financial assistance from the other firm. That cannot be taken as a confirmatory test for ## **Ins. Appeal No.68 of 2011 9** holding that there is interdependency between the business concerns. Presence of one person as the Managing Partner of three firms is also not an indication to show the oneness of business concerns. 12. Learned counsel for the respondent argued that, at no point of time the respondent firm had employees exceeding 20 and therefore it could not have covered under the Act. If there is no unity of interest or oneness between the respondent firm and the other two firms, certainly the total number of employees cannot be clubbed together to reckon the applicant firm as one covered under the Act. 13. Learned counsel for the appellant strongly relied on **Madona Textiles v. E.S.I. Corporation** (2000 (2)KLT 741) to content that the test that should be applied in a case of this nature could be one of geographical proximity, unity of ownership, management and control and unity of employment and conditions of service. The facts in that case are totally different from ## **Ins. Appeal No.68 of 2011 10** the facts available in this case. A Division Bench of this Court in **Madona’s** case noticed that the firm stared functioning on 28.08.1986 and the number of persons engaged were more than 20. Subsequently, new firms have been started functioning at different floors of the same building with effect from 10.01.91. In that factual background the decision was rendered. None of the records produced before the Insurance Court showed that at any point of time the applicant firm was having more than 20 employees working. Therefore, the facts in **Madona's** case has no application. Learned counsel for the appellant placed reliance on **Sumangali v. Regional Director, Employees’ State Insurance Corporation** (2008(9) SCC 106) to contend that unity in management, supervision and control, geographical proximity, financial unity, general unity of purpose and functional integrality between the different units should be considered for finding whether all the establishments are one establishment or not. Facts relied on by the Insurance ## **Ins. Appeal No.68 of 2011 11** Court do not show that any of the tests laid down as above has been satisfied. 14. Learned counsel for the appellant further relied on **L.N.Gadodia and Sons and Another v. Regional Provident Fund Commissioner,** (2011(13) SCC 517). The facts in that decision are clearly distinguishable and therefore the ratio cannot be applied to this case. 15. Learned counsel for the respondent placed reliance on **Vrindavan Hotels (P) Ltd. v. E.S.I. Corporation,** (2005 KHC 1010), where this Court had held that the employees working in a lodge, wherein a restaurant was run on a lease basis, cannot be clubbed to decide the coverage. After hearing the learned counsel on both sides and on perusal of the impugned judgment, I am of the view that, the Insurance Court, on facts has clearly found that the respondent establishment is distinct and different from two other establishments clubbed with the respondent establishment. None of the legal propositions ## **Ins. Appeal No.68 of 2011 12** urged would support the plea of the appellant to hold that merely because the Managing Partner is one and the same person, the respondent establishment has functional integrality with M/s. Parekara Motors and M/s.Parekara Bus Service. I find no reason to interfere with the findings of the Insurance Court. The questions of law framed can only be decided against the appellant. Therefore, the appeal fails. Hence it is dismissed. All pending interlocutory applications will stand dismissed. STK Sd/- **A. HARIPRASAD, JUDGE** //TRUE COPY// //P.A. TO JUDGE//