The Regional Director, E.S.I. Corporation v. M/s Alappat Jewellery & Jose Alappat

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** ## **THE HONOURABLE MR.JUSTICE S.SIRI JAGAN & THE HON'BLE MR. JUSTICE BABU MATHEW P.JOSEPH** **TUESDAY, THE 26TH DAY OF FEBRUARY 2013/7TH PHALGUNA 1934** ## **Ins.APP.No. 19 of 2008 ( )** ## **-------------------------AGAINST THE ORDER/JUDGMENT IN IC.65/2002 of EMPLOYEES INSURANCE COURT, ALAPPUZHA DATED 29-06-2007 APPELLANT(S)/RESPONDENTS:** **--------------------------------------------** **1. THE REGIONAL DIRECTOR,E.S.I. CORPORATION PANCHADEEP BHAVAN, N.S.ROUND, THRISSUR-20.** **2. THE DEPUTY DIRECTOR,E.S.I. CORPORATION PANCHADEEP BHAVAN, N.S.ROUND, THRISSUR-20.** **BY ADV. SRI.T.V.AJAYAKUMAR** ## **RESPONDENT(S)/APPLICANTS:** **--------------------------------------------** **1. M/S.ALAPPAT JEWELLERY, M.G.ROAD, ERNAKULAM REPRESENTED BY ITS MANAGING PARTNER SRI.JOSE ALAPPAT.** **2. SRI.JOSE ALAPPAT, S/O.LATE P.T.ANTONY, MANAGING PARTNER, ALAPPAT JEWELLERY, M.G.ROAD ERNAKULAM.** **BY ADV. SRI.E.K.NANDAKUMAR BY ADV. SRI.A.K.JAYASANKAR NAMBIAR BY ADV. SRI.K.JOHN MATHAI BY ADV. SRI.P.BENNY THOMAS BY ADV. SRI.ANIL D. NAIR** **THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 26-02-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** S.SIRI JAGAN & BABU MATHEW P.JOSEPH, JJ. ================== Insurance Appeal No.19 of 2008 ================== Dated this the 26[th] day of February, 2013 J U D G M E N T ## Siri Jagan, J. The E.S.I. Corporation has come up in appeal against the judgment of the Employees Insurance Court, Alappuzha in I.C.No.65/2002 filed by the respondents herein. The respondents are engaged in the business of manufacturing and selling of gold ornaments. On verification of the accounts of the respondents, the inspectors of the Corporation found that the respondents have paid huge amounts by way of manufacturing charges to goldsmiths. The Corporation assessed the respondents to contributions under the Act in respect of the manufacturing charges so paid, on the ground that the goldsmiths are contractors, under whom, employees work and the contractor is getting the manufacturing of gold ornaments done through his employees under the supervision of the employer and, therefore, the contractors' employees would come within the definition of “employee” under the Employees State Insurance Act, consequent to which, the employer is liable to pay contributions as the principal employer on the manufacturing charges also. On the basis of the evidence adduced before the E.I. Court, the E.I. - : 2 :- Court came to the finding that there is no evidence adduced to prove that the goldsmiths are independent contractors under whom employees are working to manufacture gold ornaments on behalf of the respondents. It was also held that simply because the respondents had a right to reject the end product produced by the goldsmiths, that does not mean supervision by the respondents over the work done by the goldsmiths. On that finding, the E.I. Court came to the conclusion that the respondents are not liable to pay contributions in respect of manufacturing charges paid by the respondents to independent goldsmiths, who take gold from the respondents, manufacture gold ornaments out of the same as per the specifications of the respondents and return the gold ornaments. The said judgment is under challenge at the instance of the E.S.I. Corporation in this case. 2. The contention of the appellants is that the E.I. Court misunderstood the case of the appellants. The contention is that the lower court proceeded under the impression that the case of the appellants was that the goldsmiths are employees of the respondents. It is submitted that the case of the appellants as narrated in the judgment itself, was that the goldsmiths are - : 3 :- independent contractors, who engage their own labourers to make gold ornaments and since the respondents supervise the work of the goldsmiths, the respondents are liable to pay contributions in respect of the contractors' employees. 3. On the other hand, the learned counsel for the respondents would submit that that is only an alternate finding and the lower court has specifically dealt with the case of the appellants to hold that the goldsmiths are doing the manufacturing work themselves at their own premises without any supervision from the respondents and, therefore, manufacturing charges paid by the respondents to goldsmiths does not answer the definition of “wages” under the Act. Consequently, no contributions are payable in respect of manufacturing charges so paid is the contention raised. It is also submitted that no question of law arises for maintaining this appeal insofar as under Section 82 of the Act, an appeal would lie only on a substantial question of law. According to the counsel, the question involved is merely a question of fact and, therefore, the appeal itself is not maintainable. 4. We have considered the rival contentions in detail. 5. We do not agree with the learned counsel for the - : 4 :- respondents that this is a pure question of fact. We are of opinion that this is a mixed question of fact and law. The question as to whether the goldsmiths employed by the respondents are independent contractors engaging other workers to do their work is actually a mixed question of fact and law. Therefore, we do not find any merit in the contention of the respondents that no substantial question of law is involved in this case. 6. Of course, that question of law raised by the appellants should be supported by basic facts for answering that question of law. The question that has to be considered in this case is as to whether, simply because gold is handed over to the goldsmiths, goldsmiths manufacture ornaments from the gold and return the same to the respondents with a right in the respondents to reject the same, if it is not in accordance with their specifications, it can be held that there is supervision on the part of the respondents over the goldsmiths so as to spell out a principal employer-contractor-contractor's employee relationship in this case. In the decision of the Supreme Court in **Calcutta Electricity Supply Corporation (India) Ltd. v. Subash Chandra Bose** , 1992 Lab IC 332, which is quoted by - : 5 :- the E.I Court, it has been held that the fact that the employer had a right to reject the end product of the contractors does not ipso facto lead to the inference of supervision by the principal employer over the contractors. In view of the law laid down by the Supreme Court, we do not think that the appellants can contend that the right of the respondents to reject the end product, if it is not in accordance with their specifications would spell out a case of supervision by the respondents on the goldsmiths. 7. Of course, the learned counsel for the appellants would raise a contention that even otherwise, the goldsmiths would be managing agents, who manage the employees, who actually manufacture the gold ornaments. For proving the same, the appellants have to prove two facts. The first is that the goldsmiths themselves are employing other employees, which has not been proved in this case. Secondly, even if there are other employees employed by the goldsmiths, goldsmiths do not become managing agents. For becoming a managing agent, the employees managed by him should be the employees of the employer. Here the appellants themselves have no case that the employees allegedly employed by the goldsmiths are employees - : 6 :- of the respondents. That being so, the concept of managing agent cannot be pressed into service for deciding the question. Insofar as there is no control by the respondents over the goldsmiths in the matter of manufacturing of the gold ornaments, we do not also think that the concept of principal employer contractor with contractors' employees doing work on behalf of the principal employer through the contractor can be brought into this case. Without proving the same, the appellants cannot succeed either. In fact, the witnesses of the appellants themselves have categorically admitted that the goldsmiths are not working in the premises of the respondents and that they have not come across any of the employees, who are not covered under the E.S.I. Act employed in the premises of the applicant establishment. That being so, we do not think that the appellants can take the stand that the respondents are liable to pay contributions in respect of the amounts paid by the respondents to the goldsmiths, who manufacture gold ornaments for the respondents. Therefore, we do not find any infirmity in the judgment of the E.I. Court. Accordingly, the appeal is dismissed. Sd/- **==> picture [200 x 13] intentionally omitted <==** Sd/- - : 7 :- sdk+ BABU MATHEW P.JOSEPH, JUDGE ///True copy/// P.A. to Judge