High Court of KeralaSingle Judge2010-12-07Remanded to ESI Court with directions to implea...

Regional Director, E.S.I. Corporation v. Bharat Hotel

Case / Petition Number:Ins.A.Nos.37 & 55 of 2007

Neutral Citation:/

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: M.N. Krishnan
Judgment Date: 2010-12-07
Court Decision / Holding: The common order of the ESI Court, Alappuzha, is set aside. The matter is remitted back to the ESI Court with a direction to implead the workmen or their representatives, to proceed with notices and hearings, permit documentary and oral evidence, and decide afresh in accordance with law, ensuring due process and consideration of all relevant factors.
Final Disposition: Remanded to ESI Court with directions to implead workmen and hear them; decide afresh in accordance with law

Parties to the Case

Appellants / Petitioners

REGIONAL DIRECTOR, E.S.I. CORPORATION, PanchaDeep Bhavan, Thrissur-20

Respondents

BHARAT HOTEL, D.H. Road, Kochi-16, represented by its Managing Partner

Legal Representation & Advocates

Counsels for Petitioners

• Sri. T.V. Ajayakumar

Counsels for Respondents

• Sri. U.K. Ramakrishnan, Senior Advocate
• Sri. V. Krishna Menon
• Smt. P. Vijayamma
• Smt. Uma Gopinath
• Sri. Devidas U.K.

Case Synopsis & Summary

These two Insurance Appeals arise from orders of the Employees’ State Insurance Court, Alappuzha, concerning whether stipends and certain allowances paid to trainees in a hotel training setup can be treated as wages for ESI contributions. The Regional Director, E.S.I. Corporation, challenges the ESI Court’s common order in IC Nos. 32/2002 and 57/2002, which had decided largely in favor of the establishment’s position that trainee stipends and certain allowances should not be tacked on to wages for the purposes of contribution (with deputation allowance being the only potentially sustainable item in IC 57/2002). Bharat Hotel, the respondent, contends that the training programme’s stipends and associated allowances are not ordinary wages, and questions relating to limitation and workers’ participation require careful examination. The High Court discusses the threshold issues, including the absence of a clear limitation principle for ESIC claims and the necessity to hear workers or their representatives in proceedings under labour statutes. Relying on Supreme Court authority, including Santhakumar, Fertilizers & Chemicals Travancore, and Bhakra Beas, the court emphasizes that the beneficiaries of the Act are the workers and that due process requires their participation. Ultimately, the common order is set aside and the matter is remitted to the ESI Court with directions to implead workmen or their representatives, permit documentary and oral evidence, and decide afresh in accordance with law, ensuring natural justice.

Provisions of Law Cited

Employees' State Insurance Act, Section 75Employees' State Insurance Act, Section 46

Legal Doctrines & Maxims

Natural justice requires that any party adversely affected by a determination must be heard before passing any order
The Act is labour legislation intended for the benefit of workers; the ESI Corporation acts as an implementing agency
Workmen or their representatives must be party to proceedings under labour statutes to safeguard beneficiaries’ rights

Submissions & Arguments

Contentions of Appellants / Petitioners

The appellants contended that the trainees’ stipend cannot be tacked on for the purpose of contribution under the ESI Act, and similarly, that performance allowances should not form part of wages for ESI contributions. They highlighted that the training school operates with stipends to trainees and that deputation allowances in IC 57/2002 are the only item potentially sustainable. The question of limitation was raised, relying on Supreme Court authority that no general limitation bars ESIC claims, but limitations may arise if ESIC has to go to court, and that workers’ participation is essential for fair proceedings.

Contentions of Respondents

The hotel argued that the trainees’ stipend and related allowances are not to be treated as non-wage elements for ESI contributions, and that at least the deputation allowance in IC 57/2002 could be sustainable; they stressed the need for a proper hearing process and pointed to the potential inclusion of workers in the proceedings to safeguard the act’s beneficiaries. They asserted that the ESI Court’s approach did not adequately address the factual intricacies and that the matter requires fresh adjudication with all relevant parties in attendance.

Cited Precedents (3)

Case Name	Citation	Treatment	Explanation
Employees' State Insurance Corporation v. Santhakumar	2007 (1) KLT 133	Positive	Held that there is no general limitation on ESIC to claim contribution; limitation arises only if ESIC must go to court, with considerations of reasonableness and empirical formula.
Fertilizers & Chemicals Travancore Ltd. v. E.S.I. Corporation	2009 (3) KLT 946 (SC)	Positive	Held that workmen or their representatives must be party to proceedings; natural justice requires hearing when the act affects workers.
Employees State Insurance Corporation v. Bhakra Beas Management Board	2009 (10) SCC 671	Positive	Reiterated that decisions affecting workers must involve hearing them to avoid violations of natural justice.

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Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT :** **THE HONOURABLE MR. JUSTICE M.N.KRISHNAN** ## **TUESDAY, THE 7TH DECEMBER 2010 / 16TH AGRAHAYANA 1932** **Ins.APP.No. 37 of 2007()** **------------------------** **IC.32/2002 of EMPLOYEES INSURANCE COURT, ALAPPUZHA** **....................** ## **APPELLANT (S): OPPOSITE PARTY** **---------------------------------------------------** **THE REGIONAL DIRECTOR,E.S.I. CORPORATION,PANCHADEEP BHAVAN, THRISSUR-20.** **BY ADV. SRI.T.V.AJAYAKUMAR** ## **RESPONDENT(S): APPLICANT** **------------------------------------------** **BHARAT HOTEL,D.H.ROAD, KOCHI-16,REP.BY ITS MANAGING PARTNER.** **R1 BY SRI.U.K.RAMAKRISHNAN, SENIOR ADVOCATE R1 BY ADVS. SRI.V.KRISHNA MENON,** **SMT.P.VIJAYAMMA, SMT.UMA GOPINATH, SRI.DEVIDAS.U.K.** **THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 07/12/2010 , ALONG WITH INAP NO. 55 OF 2007 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **tss** ## **M.N. KRISHNAN, J.** ........................................... Ins.A.Nos.37 & 55 OF 2007 ............................................. Dated this the 7[th] day of December, 2010. ## **J U D G M E N T** These two appeals are preferred by the Regional Director of the E.S.I.Corporation against the order in I.C.Nos.32 & 57/2002 of the E.I.Court, Alappuzha. Both the cases were disposed of by a common judgment. 2. The point involved in I.C.No.32/2002 is that the applicant/establishment therein is a partnership firm running a vegetarian hotel in Ernakulam city. It is also conducting a training course relating to hotel services. It is contended that in the training school, trainees are taught by qualified persons and at the end of the training period, they are given certificates and if any vacancy arises in the hotel, they are absorbed and paid stipend. Similarly, performance allowance is also given to the other employees. It is contended that the trainees' stipend cannot be tacked on for the purpose of contribution under the Employees' State Insurance Act. So also performance allowance shall not be tacked on with the wages for the said purpose. : 2 : Ins.A.Nos.37 & 55 OF 2007 3. In I.C.No.57/2002 also the similar question had arisen. On a consideration of the entire materials it is stated that except on the deputation allowance paid by the applicant in I.C.No.57/2002, none of the demands made by the opposite party are not sustainable. It is against that decision, the E.S.I. Corporation has come up in appeal. 4. Over and above the points stated above, the question of limitation also had been raised. First I will deal with the question of limitation before going into the other aspects. The Hon'ble Supreme Court of India in ## **Employees State Insurance Corporation v. Santhakumar** (2007 (1) KLT 133) had held that there is no limitation for the Employees' State Insurance Corporation to claim contribution, but the question of limitation will arise only if there is necessity for the Employees' State Insurance Corporation to go to the court. At the same time, there is also a stipulation regarding the reasonable period and the empirical formula to be applied in such case. Now it is submitted that there are provisions introduced introducing the plea of limitation. So these are all matters which require reconsideration. : 3 : Ins.A.Nos.37 & 55 OF 2007 5. The other two points are one with regard to inclusion of stipendiary allowance and the other with regard to the performance allowance. Unfortunately this is a case where the persons to be benefited or affected is not before the court. 6. The Supreme Court of India in the decision reported in **Fertilizers & Chemicals Travancore Ltd. v. E.S.I. Corportion** (2009 (3) KLT 946 (SC) had held that in all cases under labour statutes, the workmen or at least some of them in a representative capacity or trade union representing concerned workmen must be made a party. It is stated in para 10 that: “It may be seen that Section 75 of the Act does not mention who will be the parties before the Insurance Court. Since the determination by the Insurance Court is a quasi judicial determination, natural justice requires that any party which may be adversely affected or may suffer civil consequences by such determination, must be heard before passing any order by the authority/court”. 7. In para 12 again the Hon'ble Supreme Court has made it clear that : Ins.A.Nos.37 & 55 OF 2007 : 4 : It must be remembered that the Act has been enacted for the benefit of the workers to give them medical benefits, which have been mentioned in Section 46 of the Act. Hence the principal beneficiary of the Act is the workmen and not the E.S.I Corporation. The E.S.I. Corporation is only the agency to implement and carry out the object of the Act and it has nothing to lose if the decision of the Employees Insurance Court is given in favour of the employer. It is only the workmen to have to lose if decision is given in favour of the employer. Hence, the workmen (or at least some of them in a representative capacity, or their trade union) have to be necessarily made a party/parties because the Act is a labour legislation made for the benefit of the workmen”. ## 8. In **Employees State Insurance Corporation v. Bhakra Beas Management Board** (2009 (10) SCC 671), the Supreme Court reiterated that: “Thus, if a determination is given by the Employees Insurance Court that the persons concerned are not employees of the petitioner and that determination is given even without hearing the persons concerned, it will be clearly against the rules of natural justice”. 9. Now the points that arise for determination are very crucial so far as it relates to the interest of the workmen are concerned. Therefore it has become absolutely necessary : 5 : Ins.A.Nos.37 & 55 OF 2007 in the light of the authoritative pronouncement of the Supreme Court that the workers should also be heard before a final decision is taken in the matter. 10. Therefore the common order under challenge is set aside and the mater is remitted back to the E.I. Court with a direction to the parties concerned to implead the workmen or representative of the workmen and proceed further in the matter. I make it very clear that I leave open the entire matter and let all questions raised by the parties be decided afresh after hearing all concerned and for the said purpose, let all the parties be permitted to produce documentary as well as oral evidence in support of their respective contentions and then the matter be disposed of in accordance with law. The E.I. Court is directed to issue notice to the parties fixing the date of appearance. Registry is directed to transmit the records immediately. ## **M.N. KRISHNAN, JUDGE.** **cl** : 6 : Ins.A.Nos.37 & 55 OF 2007 : 7 : ## Ins.A.Nos.37 & 55 OF 2007 ## **M.N. KRISHNAN, J.** ........................................... A.S.NO.389 OF 2001 ............................................. 11[th] day of November, 2010. **J U D G M E N T**