ESIC to Proof the Coverage of Establishment under ESI Act

Case Name - 2021 LLR 1160

MADRAS HIGH COURT
Hon'ble Mr. M. Govindaraj, J.
C.M.A. No. 650 of 2016 and C.M.P. No. 5354 of 2016,
Dt/– 3-6-2019

M/s. Kandagiri Spinning Mills Ltd.

vs.

The Regional Director, ESI Corporation

JUDGMENT

1. The above appeal is directed against the order passed by the E.S.I.O.P.No.5 of 2003, dated 26.7.2015 by the ESI Corporation.
2. The brief facts leading to filing of the present Civil Miscellaneous Appeal is as follows;
• (i) The appellant is a spinning mill covered under the provisions of ESI Act and it is paying contribution for all the eligible employees promptly.
• (ii) The petitioner received notice in form C-18 dated 8.7.2002 on adhoc basis, directing the petitioner to pay a contribution of Rs.8,84,407/- comprising of repairs to building, machinery generator, vehicle maintenance, loading and unloading charges, stipend paid to staff and apprentice and exgratia payment made to trainees for the period from 1995 to 1996.
• (iii) In response to the show cause notice, the appellant by its letter dated 28.6.2003, submitted some split up figures along with the annexures to explain the same. They have also requested to adjust the dues from the excess amount remitted by them, and to drop the proceedings in respect of payment of stipend made to their apprentices/trainees.
• (iv) On 29.5.2003, the respondent passed an order under section 45-A of the ESI Act. The said order did not disclose as to how the contribution was determined at Rs.8,84,407/- even though it is stated that the order was passed based on the records available before him. Since the order passed under section 45 A of the Act did not disclose any material to arrive the contribution at Rs.8,84,407/-, the appellant preferred a petition in ESIOP.No.5 of 2003 under Sections 75 and 76 of Employee State Insurance Act 1948 before the ESI Court.
• (v) The appellant has examined 7 witnesses AW1 to AW7 and marked Exhibits A1 to A55. On the side of the respondent, RW1 to RW12 were examined as witnesses and Ex.R.1 to Ex.R.12 were marked.
• (vi) The ESI Court, considering the evidence, held that the Mill should have bifurcated the expenses incurred in respect of repairs to building, machinery, generator, vehicle maintenance, stipend paid to staff and apprentice , exgratia and wages, but in the absence of any bifurcation of expenditure and wages, the above expenditures would fall under the ambit of 'wage' and it is liable to pay the contribution as http://www.judis.nic.in per the judgment reported in 2012 LLR 1024 (Goa Bottling Co.Pvt. Ltd., Vs. Dy. Regional Director, ESIC, Goa and others) and thereby dismissed the petition.
• (vii) Aggrieved over the same, the appellant Management is before this Court.
3. According to the appellant, the certified standing order permits engagement of apprentices. The said apprentices will fall within the purview of ESI Act and no contribution need to be paid by the appellant.
• 3.1 Secondly, the expenses incurred towards machinery maintenance, buildings, construction, purchase of machineries cannot be treated as wages and no contribution need to be paid.
• 3.2 Thirdly the ESI Court failed to render a factual finding on the merits of the case, but confirmed the order passed under Section 45A of the ESI Act.
4. Insofar as the question of apprentice is concerned, Ex.P.1 dated 30.07.1983 is the standing orders of the appellant company. The employment standing orders empowers the company to engage the apprentices. Once the employment standing orders provide for engagement of the apprentices, they cannot be treated as workers/employees. Unless it is ascertained by the respondent that the workers are skilled and that the management is exploiting them in the guise of apprenticeship. Till it is proved, the contribution is exempted.
5. Infact, the witness RW1 who deposed on behalf of the respondent ESI Corporation would admit that the contribution is exempted in respect of apprentices. In his evidence, he has deposed that during the inspection of the appellant Mill, he heard from the Union Leaders that the management is engaging apprentices for 5, 6 years, but did not mention the name of the Union Leader not identified the apprentices through records and personal verification.
6. He would further depose that 40% of the employees were shown as trainees and apprentices, but he could not distinguish the duties and responsibilities between the regular workmen and the trainees or apprentices, the wages and stipend paid to them for want of bifurcation of expenditure by Management.
7. It is well settled the inspector shall discharge the initial onus to prove the persons employed in the factory are regular workers, their names and wages paid to them as well as the number of apprentices engaged and the stipend paid to them. There was a specific report stating that the apprentices were engaged beyond the permitted period and that they were paid their wages under the nomenclature of stipend in order to exempt them from the coverage of payment of contribution. A perusal of the documents marked as Ex.R.1 to Ex.R.12 would show only the correspondences and notices exchanged between the appellant and the respondent. There are no materials to show with respect to the engagement of apprentices and avoidance of contribution.
8. On the other hand, Ex.P.29 reads the terms and conditions of engaging apprentices and the stipend paid during the training period for them. The stipend varies from cadre to cadre on the basis of efficiency and experience in respect of various trades. The respondent corporation without producing relevant materials, has made a vague reply and let in unsubstantiated evidence in this regard.
9. The ESI Court relying on the judgment of the case reported in http://www.judis.nic.in 2011 LLR 604 (Sree Mangayarkarasi Mills (P) Ltd., Madurai District Vs. The Assistant Provident Fund Commissioner, Madurai and another) has held that it is improper to engage 300 apprentices and 300 regular workmen who were equal in number and non payment of contribution by the employer in respect of apprentices is incorrect. Further the payment of stipend varies from time to time and the quantum of stipend varies from person to person. The contention of the ESI corporation that the management is liable to pay contribution to the apprentices is held to be proper.
10. Since the Management had failed to produce relevant records before the ESI Authority, but produced the same before the ESI Court raises a reasonable doubt that they were fabricated. But, it is relevant to note that as discussed above, the appellant management has produced Ex.A.1 Employment standing Orders and Ex.A.29- book containing the terms and conditions of engagement of apprentices which cannot be fabricated as they are statutory requirements. Only because it is not produced before the ESI Authority, it cannot be construed what is produced before the ESI Court is a fabricated document. Perhaps, for want of legally trained brain, they could not act in strict adherence of the procedure as claimed by them.
11. When the very same management is assisted by a legally trained person like a lawyer, they could produce those documents before Court on his advice. Only because they were produced before the ESI Court, the presumption of the learned Judge that they were fabricated is not sustainable and erroneous. The evidence of respondent witness RW1 clearly shows that the Inspector has failed to record the names of the persons regularly employed and the names of the apprentices and the wages/stipend paid to them respectively. In such a situation, it should be construed that the initial onus on the shoulders of the respondent ESI Corporation was not discharged.
12. The evidence of RW1 is purely a hearsay without any specific details. During the cross examination, RW1 would state that he heard from the Labour Union Leader that the apprentices are engaged for 5, 6 years and that he was not aware of the name of the Union Leader. In the absence of materials with regard to the number of regular workmen, number of apprentices, name of the Union Leader, a vague statement made by the respondents witness cannot be relied on. Therefore, the finding of the ESI Court is absolutely without any valid http://www.judis.nic.in evidence and without appreciation of the evidence produced on the side of the appellant Management in proper perspective. Therefore, the finding in this regard is liable to be set aside.
13. Learned counsel for the appellant has relied on the judgment of this Court reported in 2015 LLR 1253 (Regional Provident Fund Commissioner, Employees Provident Fund Organisation, Madurai Vs. Employees' Provident Funds Appellate Tribunal, New Delhi and another), wherein, it is held as follows
    

    '4. The learned counsel appearing for the petitioner contends that the numbers of apprentices were more than the regular employees and therefore the impugned order cannot be sustained. This contention cannot be accepted, because the mode of appointment of apprentices is different from the regular appointment and on the basis of documents placed on record by the department and the employer, the Appellate Authority has recorded a fining of fact that the workers said to be regular were only apprentices and not regular employees and thus not covered under the Employees Provident Fund Act. This Court in exercise of Writ jurisdiction does not sit in appeal to reappraise the evidence unless the findings are perverse or are not capable of being arrived at, merely because other view is also possible cannot be a ground to interfere. The only ground of challenge is that apprentices were more than regular employee which cannot be accepted, as a positive finding of http://www.judis.nic.in fact cannot be interfered with on presumption.

14. He has also relied on a judgment of the Andhrapradesh High court reported in 2005 (1) LLN 726 (AP) reported in Boc India, Ltd. (Formerly known as Indian Oxygen, Ltd) Vs. Assistant Regional Director, Employees' State Insurance Corporation and another), wherein, it is held as follows;
    

    '12. In the present case, the respondents did not find any persons engaged in the activity of transport of cylinders within the premises of the factory. They only assumed that the activity of transport involves in persons entering the premises. In this regard, it needs to be borne in mind that the term “working on the premises of the establishment”, cannot take in its fold the situations of the casual or occasional presence of the persons in the factory. It is true that for the purpose of loading the cylinders and unloading the empty cylinders, the driver of the vehicle and the hamalies have to enter the premises. 

    So is the case with various persons who are required to unload the raw material, or even to transport the workers to the premises of the factory. If mere entry for such purposes alone is to be treated as the yardstick, every person who enters the factory for whatever purpose, deserves to be covered under the definition. It can never be said to be the purport of the expression. The words “ person who has undertaken execution on the premises of the factory” employed in the definition, indicate the presence of the persons for execution of the principal activity of the industrial establishment, and not a casual entry.” Therefore, in view of the above mentioned judgments, the finding of the trial court in this regard is erroneous and the same is liable to be set aside.

15. 15. Secondly, the expenses incurred towards machinery maintenance and payment towards building construction and payment towards purchase of machineries and spare parts is concerned, the appellant has filed exhibits P.1 to P.44 and P.52 in respect of loading and unloading, freight charges and weighment charges.
16. 16. A perusal of these documents clearly show that the payment for cotton loading and unloading through voucher numbers of specific dates and the amount paid towards the same. There are specific documents bifurcating the loading and unloading charges, freight charges and weighment charges. It cannot be held that the claim of contribution on the total amount is sustainable. The finding of the ESI Court that the bifurcation is not given to distinguish it from wages is factually illegal on the face of the records.
17. 17. Likewise, the documents marked vide Ex.P.45 to 55 would clearly show the details about the expenses and wages incurred in respect of building repair, purchase of spare parts and machinery repairs, purchase of materials and repair of vehicles. Therefore the finding of the ESI that there is no bifurcation of the labour charges and expenditure is also erroneous.
18. 18. In the judgment of this Court reported in Manu/TN/1930/2003 in the case of Regional Director, Employees' State Insurance Corporation Vs. Sundaram Clayton Ltd and others) , it is held as follows;
19. In Exhibit A3, marked in ESIOP.No.77 of 1987, the total value of the work is shown in which 10.21 per cent is shown towards labour charges and in the same petition under Exhibit A4, the total value of the work is shown in which 11.17 per cent is shown towards labour charges, but no evidentiary value can be attached to the same, in that they have been prepared by P.W.2, the Civil Engineer of the respondent-company. The fact remains that break up figures had not been furnished and shown in the account book of the respondent-company in respect of labour charges and the cost of construction of the buildings of the respondent-company for the relevant period. In such case, the claim of the Employees' State Insurance Corporation that such labour charges should constitute 25 percent in the total cost of construction is well founded. Therefore, the order of the Employees' Insurance Court that such labour charges would constitute only 17 per cent is not proper. In that view, the respondent-company is to make contribution at 25 per cent which is not unreasonable.
20. In the result, the common order of the Employees' Insurance Court is set aside only with respect to the labour charges fixed at 17 per cent and consequently these appeals are allowed to that extent and the respondent-company is liable to make contribution at 25 per cent in respect of labour charges of the total cost of the buildings of the respondent- company for the relevant period and in other respect the order of the Tribunal is confirmed. No costs.'
21. This Court, in its judgment dated 6.7.2007 in CMA.No.842 of 2000, has held as follows;' “ In view of the said submissions and having regard to the ESI code number furnished in respect of the security staff in the affidavit filed in support of the stay petition, I am of the view that the said claim can be verified by the ESI Corporation by giving sufficient opportunity and the ESI Court can pass fresh order.

7. In the result, the order in ESIOP.No.34 of 1991 dated 11.4.1997 is set aside only with regard to the direction to pay contribution towards security charges and the matter is remitted to the eSI Court to determine the said liability alone i.e., liability to pay contribution towards security charges. The direction in the order with regard to contribution towards the building maintenance and Driers' salary are confirmed. The appeal is allowed partly only in respect of the direction to pay Labour charges for Air Conditioning and servicing and Boiler maintenance.' 

20. It is seen from the records that the documents relied on by the parties have not been properly appreciated and contribution has not been correctly assessed. In view of the above judgments and for the foregoing discussions, the order of the Employees Insurance Court in ESIOP.No.5 of 2003, dated 28.7.2015 is not sustainable and accordingly set aside and the matter is remitted back to the respondent. The respondent corporation is directed to assess the contribution based on the documents marked before Employees' Insurance Court and issue appropriate demand based on the same.

21. In the result, the appeal is allowed with the above directions. No costs. Conseuquently, the connected C.M.P.No.5354 of 2016 is closed.