The Regional Director, E.S.I. Corporation, Thrissur v. Rohini Plasto Pack

IN THE HIGH COURT OF KERALA AT ERNAKULAM ## PRESENT: THE HONOURABLE MR.JUSTICE HARUN-UL-RASHID WEDNESDAY, THE 13TH DAY OF MARCH 2013/22ND PHALGUNA 1934 Ins.APP.No. 63 of 2010 (F) --------------------------AGAINST THE ORDER DTD.25.2.2010 IN EIC.13/2005 of E.I.COURT, KOZHIKODE APPELLANT/RESPONDENT: ---------------------------- THE REGIONAL DIRECTOR, E.S.I.CORPORATION, THRISSUR. BY ADV. SRI.T.V.AJAYAKUMAR ## RESPONDENT/APPLICANT: ---------------------------- M/S.ROHINI PLASTO PACK, VELLIPARAMBA P.O., CALICUT-8 REPRESENTED BY ITS MANAGING PARTNER ALOK KUMAR SABOO. R BY ADV. SRI.T.R.RAVI R BY ADV. SRI.P.S.MURALI THIS INSURANCE APPEAL HAVING BEEN FINALLY HEARD ON 13-03-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **HARUN-UL-RASHID, J. -----------------------Ins.App.No.63 Of 2010 ---------------------Dated this the 13[th] day of March, 2013.** ## **J U D G M E N T** The Regional Director, ESI Corporation, Thrissur, is the appellant. The appeal is directed against the order dated 25.2.2010 in E.I.C.No.13/2005 on the file of the E.I.Court, Kozhikode. The said case was tried along with E.I.C.No.12/2005 and a common order was passed. The insurance court allowed E.I.C.No.13/2005 and declared that the claim of contributions on processing charges made by the appellant herein is unsustainable and the applicant is not liable to pay contributions on the said amount. Parties hereinafter as referred to as arrayed in E.I.C.No.13/2005. 2. The respondent herein as applicant filed E.I.C.No.13/2005 for a declaration that the demand of ` 33,779/as contribution dues on various omitted charges for the period from March, 1996 to March, 1997 and April, 1997 to March, 1998 with interest are unsustainable. Ext.P3 notice dated 6.8.2004, Ext.P4 notice dted 4.11.2001 and Ext.P5 recovey notice dated **::2::** ## **In.Ap.No.63 Of 2010** 24.11.2004 issued by the respondent against the applicant demanding contribution on omitted wages during the wage period stated above are sought to be set aside. The applicant is a registered partnership firm engaged in the business of plastic bags manufacturing and flexographic printing. The applicant is a covered unit under the ESI Act. It is the case of the applicant that on the basis of inspector's report dated 29.11.1999 the Corporation has assessed and demanded omitted wages of contribution of ` 19,459/- under the head processing charges, that the applicant had supplied them raw materials for manufacturing plastic bags to various firms and establishments, that the applicant has reserved the right to return or reject the finished products supplied by the said firms, if it is not according to the specifications agreed. The employer firm has no control over the employees of the outsider firm/establishment, that the applicant firm supplied raw materials for the production of various products to various firms and that the said firms availed raw materials from similar type of establishments. It is also stated that the outsider firms had separate entity, registration **::3::** ## **In.Ap.No.63 Of 2010** under various statutes like SSI Registration, Sales Tax Registration etc. It is contended that hence the processing charges are not liable to be treated as wages as defined under Section 2(22) of the ESI Act and hence the applicant is not liable to pay contribution under the head processing charges. The respondent inter alia contended that the applicant had supplied raw materials to the outsider firm for manufacturing plastic bags and the applicant was vested with the right to reject/return the finished products if it is not in accordance with the specifications agreed and that the applicant has supervision and control on the above goods processed by the said contractor firms. It is also contended that the works done by the contractor firms are not only in connection with the work of the applicant but also integral part of the work carried on by the establishment. Therefore, it is submitted that the remuneration paid by the applicant towards processing charges would come under the head wages as defined under Section 2(22) of the ESI Act. It is also contended that the workers of the contracting firms, therefore, would come within the definition of employee under Section 2(9)(ii) of the ESI Act **::4::** ## **In.Ap.No.63 Of 2010** and wages paid to those employees would come within the definition of wages and hence, employer is liable to pay contribution on the processing charges. 3. The Tribunal considered the issue as to whether payment booked under the head processing charge would come within the definition of wages under the ESI Act and whether the applicant is liable to pay contribution on the said amount. It is submitted by the applicant that processing charges are the amount paid by the applicant to other firms or establishments for the consideration of the supply of the finished goods and that the applicant has no control or supervision over the employees on the production of supplied articles by the outsider firms or establishments, that the applicant reserves only the right to return/reject the finished products supplied by the said firms, if it is not in accordance with the specifications intended for. 4. Sub clause (ii) of Section 2(9) of the ESI Act is relevant for consideration. Sub clause (ii) reads as follows: **::5::** ## **In.Ap.No.63 Of 2010** ## _**2. Definitions** :-_ **==> picture [346 x 100] intentionally omitted <==** _(i) x x x x x (ii) who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment._ 5. It is not in dispute that the applicant firm had entrusted work to outside firms on contract basis. Amount was paid to the said contractors as remuneration. The Tribunal considered the question as to whether such remuneration paid to the said firms would come within the definition of wages and whether the employee under the contractors would come under with definition of employee under the applicant firm. The court below rightly followed the decision of the Apex Court in _**Calcutta Electricity Supply Corporation (India) Ltd. v. Subhash**_ **::6::** ## **In.Ap.No.63 Of 2010** _**Chandra Bose and others**_ (AIR 1992 SC 573). An identical issue has been decided in the said case. The Apex Court held as follows: “ _When the employee is put to work under the eye and gaze of the principal employer, or his agent, where he can be watched secretly, accidentally, or occasionally, while the work is in progress, so as to scrutinise the quality thereof and to detect faults therein, as also put to timely remedial measures by directions given, finally leading to the satisfactory completion and acceptance of the work, that would be supervision for the purpose of Section 2(9)_ ”. It was also held that; “ _The employees appointed by the contractors, immediate employer would not come within the meaning of employee under the Contract Act. Checking of work after the same is completed and supervision of wok while in progress is not the same. These have different perceptions. Checking or work on its completion is an activity, the purpose of which is to finally accept or reject the work, on the touchstone of job specifications. Thereafter, if accepted, it has to be paid for. This step_ ” _by no means is supervision exercised_ . **::7::** ## **In.Ap.No.63 Of 2010** It is not disputed that the work done by the employees is under the exclusive supervision of the contractors or supervisors engaged by them. 6. The Apex Court in the decision reported in _**Managing - ' Director, Hassan Co operative Milk Producer s Society Union Ltd. v. Assistant Regional Director, ESI Corporation**_ (2010 (11) SCC 537) followed the decision reported in AIR 1992 SC 573. It was held as follows: “ _The ordinary meaning of the word “supervision” is “authority to direct” or “supervise” i.e., to oversee. The expression “supervision of the principal employer” under Section 2(9) means something more than mere exercise of some remote or indirect control over the activities or the work of the workers. Supervision for the purposes of Section 2(9) is “consistency of vigil” by the principal employer so that if need be, remedial measures may be taken or suitable directions given for satisfactory completion of work. A direct disciplinary control by the principal employer over the workers engaged by the contractors may also be covered by the expression “supervision of the principal employer”_ . 7. On the facts of the case, it is revealed that the applicant has no supervision or control over the workers or over **::8::** ## **In.Ap.No.63 Of 2010** the employees of the said firms. The applicant need only pay consideration for the supply of the finished goods. The only right exercised by the applicant is the right to return/reject the finished products supplied by the contractors, if it is not in accordance with the specifications intended for. The above said act of return/rejection does not constitute an element of supervision within the meaning of Section 2(9)(ii) of the ESI Act and hence the processing charges paid to independent firms cannot be termed as wages as defined under Section 2(22) of the ESI Act. In the said facts and circumstances, the findings recorded by the court below is legal and sustainable in law. No question of law muchless any substantial questions of law arises for consideration in the appeal. In the result, the appeal fails and accordingly, dismissed. No order as to costs. **HARUN-UL-RASHID, Judge.** bkn/-