Regional Director, E.S.I.Corporation v. M/S Arjun Associates

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE P.R.RAMACHANDRA MENON & THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN THURSDAY, THE 10TH DAY OF MARCH 2016/20TH PHALGUNA, 1937 Ins.APP.No. 17 of 2010 ( ) --------------------------- AGAINST THE ORDER IN IC 71/2004 of EMPLOYEES' INSURANCE COURT, KOZHIKODE DATED 24-04-2009 APPELLANT/RESPONDENT: --------------------------------- THE REGIONAL DIRECTOR, E.S.I.CORPORATION PANCHADEEP BHAVAN, THRISSUR -20. ## BY ADV. SRI.THOMAS MATHEW NELLIMOOTTIL RESPONDENT/APPLICANT: ------------------------------------- M/S.ARJUN ASSOCIATES DOOR.NO.18/476, FIRST FLOOR, JAIL ROAD, CALICUT, REPRESENTED BY ITS MANAGING, PARTNER, T.D.GEOGO. BY ADV. SRI.K.M.FIROZ THIS INSURANCE APPEAL HAVING COME UP FOR ADMISSION ON 10-03-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **P.R. RAMACHANDRA MENON, & ANIL K. NARENDRAN, JJ.** **-------------------------------------Ins. Appeal No. 17 of 2010 ---------------------------------------Dated this the 10[th] day of March, 2016** ## **J U D G M E N T** ## **Anil K. Narendran,J.** This appeal arises out of an order passed by the Employees Insurance Court, Kozhikode in I.C No. 71/04, an application filed by the respondent herein under Section 75 read with Section 77 of the Employees State Insurance Act, 1948 (herein after referred to as 'the Act') seeking for a declaration that demand of 1,56,843/- as₹ contribution on omitted wages and interest amounting to 17,983/-₹ for the period from 01.04.2000 to 31.03.2001 in connection with the construction of the upstair portion of the building bearing No.TPN.285 A of Kannur Municipality is unsustainable. 2. The Employees Insurance Court by order dated 24.04.2009 allowed the application declaring that the demand of contribution on the amount spent for the construction of the upstair portion of the respondent establishment is unsustainable and cannot be sustained. The Employees Insurance Court has also declared that the demand of contribution in respect of .19,473/-₹ being the allowance paid in cash under Office Expense Account is legal and proper. **Ins. Appeal No.17 of 2010** **2** 3. Against the order passed by the Employees Insurance Court, the Corporation is before this Court in this appeal under Section 82(2) of the Act. The substantial questions of law raised in this appeal are as follows: 1. Whether the Employees Insurance Court, Kozhikode has erred in properly appreciating the evidence available on the files based on the facts and circumstances of the case? 2. Whether the Employees Insurance Court, Kozhikode has erred in declaring that the demand of contribution on the amount spent for the construction of upstairs portion of the respondent's establishment is unsustainable and that the respondent is not liable to pay any contribution on that amount under the head Repair and Maintenance, advance to Mrs.Zareena, Advance for Aluminium fabrication and Advance to Sri Kripa Ram? 4. We heard the arguments of the learned Standing Counsel for the appellant Corporation and also the learned counsel for the respondent establishment. 5. The sole issue that arises for consideration in this appeal is as to whether the Employees Insurance Court erred in declaring that the demand of contribution on the amount spent for construction of the upstair portion of the building in question is unsustainable. 6. The pleadings and materials on record would show that the respondent establishment is an authorised dealer of Hero Honda Motors Limited. It is having two business premises, one at Kannur **Ins. Appeal No.17 of 2010** **3** and another at Kasaragod. In connection with the business activities, the respondent establishment entered into Ext.P2 lease agreement dated 19.1.1990 with one Zareena in respect of the premises bearing No.TP III/66 of Kannur Municipality. The possession of the building was handed over to the respondent establishment as per the terms and conditions incorporated in the lease agreement executed between the parties. In Ext.P2 lease agreement, it has been specifically mentioned that the building owner is at liberty to construct the upstair portion of the building at any time without the consent of the occupier of the ground floor. 7. With effect from 1.1.1994, the respondent establishment was covered under the provisions of the Act and alloted with Code No.54-8993-74. The landlady constructed the upstair portion of the building occupied by the respondent establishment, which was assigned building No.TPN.285A by Kannur Municipality. As the landlady was not having sufficient fund for construction of the building, the respondent establishment was requested to advance money, with an undertaking that the amount so advanced will be adjusted in the future rent payable. Accordingly, the construction was undertaken by the landlady by engaging contractors for different works. During the construction, the respondent establishment made payment either directly to the landlady or to the concerned contractors, for which vouchers were **Ins. Appeal No.17 of 2010** **4** obtained. After construction of the upstair portion, the landlady entrusted the said premises to the respondent establishment on the strength of Ext.P3 lease agreement dated 1.9.2001, on a monthly rent of 17,500/-. ₹ 8. The respondent establishment contended that the additional construction was made by the landlady in her own property and the possession of the said premises was entrusted to the respondent establishment only after completion of the construction. The respondent establishment has not constructed the building in connection with its business activities and it is only a tenant which is put in possession of the said premises on the strength of Ext.P3 lease deed dated 1.9.2001. As such, the demand for contribution on the amount spent for the construction of the upstair portion of the building is legally unsustainable. The respondent establishment has also contended that it had not engaged any employees for the construction of the upstair portion of the building and that it had no control or supervision over the employees engaged by the contractors and not paid any wages to such employees. 9. The fact that the respondent establishment is only a tenant of the ground floor of the premises bearing No.TP III/66 of Kannur Municipality, on the strength of Ext.P2 lease agreement dated 19.1.1990 is not in dispute. It is also not in dispute that the **Ins. Appeal No.17 of 2010** **5** ownership of the upstair portion constructed by the landlady, which is assigned with building No.TPN.285A of Kannur Municipality, is also with the landlady and the respondent establishment obtained possession of the said premises on the strength of Ext.P3 lease agreement dated 1.9.2001, on a monthly rent of 17,500/-. Before₹ the Employees Insurance Court, it was the admitted case of the Corporation that the respondent establishment is only a tenant and is in occupation of the premises as per the terms of Ext.P2 lease agreement dated 19.1.1990. The said agreement would show that the respondent establishment has no right whatsoever either to reconstruct the building or to make any additional construction. Further, the pleadings and materials on record make it explicitly clear that the construction of the upstair portion was undertaken by the landlady by engaging contractors, after receiving advance from the respondent establishment and on completion of the construction the upstair portion was entrusted to the respondent establishment, on the strength of Ext.P3 lease agreement dated 1.9.2001, on a monthly rent of 17,500/-. ₹ 10. Relying on the judgment of the Apex Court in **Regional** **Director, Employees State Insurance Corporation v. South India Flour Mills Pvt. Ltd. (1986 (3) SCC 238)** , the learned Standing Counsel for the appellant Corporation would contend that since the additional construction is made for the expansion of the **Ins. Appeal No.17 of 2010** **6** business activities of the respondent establishment, the persons employed for the additional construction would fall within the definition of 'employee' as defined under Section 2(9) of the Act and as such, the demand of contribution made on the amount spent for construction of the upstair portion of the building is legally sustainable. 11. In South India Flour Mill's case (supra), the question that came up for consideration before the Apex Court was as to whether the workers employed for the construction of additional buildings for the expansion of the factories in question were employees within the meaning of Section 2(9) of the Act. In Civil Appeal No.801 of 1976, M/s. South India Flour Mills Pvt. Ltd. commenced construction of additional building in the compound of the existing factory for expansion of the factory and engaged workmen for such construction on daily wage basis. In Civil Appeal No.819 of 1976, M/s. Shri Sakthi Textiles Pvt. Ltd. in connection with expansion of its mill put up new buildings and for that purpose, the Company had to employ large number of workers. Similarly, in Special Leave Petition Nos.1143-1145 of 1978 the respondent Companies owning Textile Mills employed workers for the construction of additional factory building. The Division Bench of the Madras High Court took the view that the employment of workers for putting up of additional buildings for the purpose of **Ins. Appeal No.17 of 2010** **7** commencing manufacturing process would not be employment incidental or preliminary to or connected with the work of the factory, and, accordingly, the workers employed for the purpose of construction of additional buildings are not employees within the meaning of Section 2(9) of the Act. In that context, after referring to Section 2(9) of the Act, the Apex Court held that, the definition of the term 'employee' under Section 2(9) of the Act is wide and it includes within it any person employed on any work incidental or preliminary to or connected with the work of the factory or the establishment. Because of the additional buildings, the existing factories will be expanded and, consequently, there will be increase in the production, that is to say, increase in the work of the factories concerned. So the work of construction of those additional buildings has a link with the work of the factories. Therefore, it cannot be said that the construction work has no connection with the work for the purpose of the factories. As such, it is difficult to hold that the work of construction of the additional factory buildings is not a work incidental or preliminary to or connected with the work of the factories. In that view of the matter, the Apex Court set aside the reasoning of the Division Bench of the Madras High Court that the workers employed for construction work of the additional buildings for the expansion of the factories are not employees within the meaning of Section 2(9) of the Act. **Ins. Appeal No.17 of 2010** **8** 12. A reading of the judgment of the Apex Court in South India Flour Mill's case (supra) would show that the said judgment of the Apex Court was in the context of the additional constructions made by the respective establishments in the factory premises owned by them, by engaging workmen for such construction. However, in the instant case, it is an admitted case that the premises in question is owned by the landlady and the respondent establishment is in possession of the premises with building No.TPN.III/66 of Kannur Municipality on the strength of Ext.P2 lease agreement dated 19.1.1990 and that the upstair portion of the aforesaid building was constructed by the landlady with the funds advanced by the respondent establishment, by engaging contractors for different works. After completion of the construction, the upstair portion of the building was entrusted to the respondent establishment on the strength of Ext.P3 lease agreement dated 1.9.2001, on a monthly rent of 17,500/-, on condition that the₹ amount advanced by the respondent establishment will be adjusted towards future rent. Since the upstair portion of the building is owned by the landlady, which she had constructed by engaging contractors, the respondent establishment cannot be held liable to pay contribution on the amount spent for construction on the ground that the construction of the upstair portion is for expansion of its establishment. In that view of the matter, the Employees **Ins. Appeal No.17 of 2010** **9** Insurance Court cannot be found fault with in holding that the demand of 1,56,483/- as contribution on omitted wages together₹ with interest for the period from 1.4.2000 to 31.3.2001 in connection with the construction of the upstair portion of the building in question from the respondent establishment is legally unsustainable. We find absolutely no merit in the appeal filed by the appellant Corporation and the same is accordingly dismissed. Sd/- **P.R. RAMACHANDRA MENON, JUDGE** Sd/- **ANIL K. NARENDRAN, JUDGE** lsn True copy P.A.to Judge