Bangalore Club Vs Regional Director, ESIC

Krishnan, J.@mdashThe appellant was the applicant before the Employees State Insurance Court, Bangalore in E.S.I. No. 12/1983 and being aggrieved by the order passed by the said Court holding that it was liable to be covered under the Employees State Insurance Act (for short ''the E.S.I. Act'' or ''the Act'') with effect from January 27, 1980, has preferred this appeal.

2. The appellant filed an application before the E.S.I Court u/s 75 of the E.S.I. Act and pleaded as hereunder. It is a Club set up and run by its members for the purpose of recreation and it does not make any profit and it is run on the contribution from the members from time to time and for the benefit of its members. It is having a canteen and caters foodstuffs in the course of its activities and it is neither a factory nor an establishment liable to be covered under the E.S.I. Act. The E.S.I. Inspector inspected the Club and sent a letter dated January 25, 1981 together with a draft order claiming a sum of Rs. 60,233.25p. as contribution for the period mentioned in the said order. The applicant Club is neither a factory nor an establishment liable to be covered under the provisions of the E.S.I. Act and therefore it is not liable to pay any amount by way of contribution and therefore it has sought for a declaration that it is not liable to be covered under the E.S.I. Act and also to set aside the order demanding contribution.

3. The E.S.I. Court raised the following issues:

1. Whether the applicant Club proves that it cannot be covered under the E.S.I. Act for the reasons stated in paragraphs 2 and 5 of the application?

2. Whether the impugned orders are opposed to the principles of natural justice and not in accordance with law?

3. Whether the applicant is entitled to the relief claimed?

After trial, the E.S.I. Court answered issue No. 1, in the negative and held that the order required modification and therefore the actuals should be calculated after affording opportunity to the applicant to place the required-material. It is being aggrieved by this order of the E.S.I. Court that the applicant before it has preferred this Appeal.

4. Learned Advocate for the appellant contended that though in the kitchen attached to the Catering Section of the applicant- Club more than 20 persons are employed and preparation of food stuffs is made with the aid of various electrical appliances, it does not fall within the purview of factory as defined by Section 2(12) of the E.S.I. Act and therefore the order of the E.S.I. Court is vitiated. It was further urged that even if the Catering Section of the Club should be held to be a factory within the meaning of the E.S.I. Act, only that section of the Club and the employees of the said section could be covered and the other sections of the Club which have nothing to do with the Catering Section cannot come within the purview of the said definition and the persons working in those sections cannot be covered under the provisions of the E.S.I. Act. These contentions have been vehemently disputed by the learned Advocate for the respondent.

5. So the short points that arise for consideration in this Appeal are:

1. Whether the Catering Section of the applicant Club comes, within the meaning of factory as defined in E.S.I. Act?

2. Whether only the Catering Section and the employees of the said section are liable to be covered and whether all the employees of the other sections are not liable to be covered under the provisions of the E.S.I. Act?

6. POINT No. 1

The word ''factory'' has been defined in Section 2(12) of the Act as hereunder:

"Factory means any premises including the precincts thereof wherein twenty or more persons (are employed or were employed for wages) on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on but does not include a mine subject to operation of the Mines Act 1992."

This definition is prior to the Amendment Act 29/1989 and subsequent to this Amendment Act with effect from October 20, 1989, the definition of factory is as hereunder:

"factory" means any premises including the precincts thereof-

(a) whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on, or

(b) wherein twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which manufacturing process is being carried on without the aid of power or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952) or a railway running shed."

In this Appeal, we are concerned with the definition of ''factory'' as it existed prior to October 20, 1989 and we are more concerned with Sub-clause (a) of Section 12.

7. Prior to Act No.29 of 1989, it had been incorporated in the definition of ''factory'' as given in Section 2(12) of the Act, that the expression ''manufacturing process and power'' shall have the meaning respectively assigned to them in the Factories Act, 1948. After Act 29 of 1989 a separate definition for ''manufacturing process'' has been incorporated as Section 2(14-AA) practically to the same effect. Manufacturing process has been defined in Section 2(k)(i) of the Factories Act 1948 as hereunder:

"Manufacturing process" means any process for-

(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal".

We need not concern ourselves with the other Sub-sections of Section 2(k) of the Factories Act for the purpose of this Appeal. What is carried on in the kitchen amounts to making a food stuff cannot be disputed. It is not necessary to enter into any lengthy discussion in this regard as a Division Bench of this Court in East West Hotels Ltd. Vs. Regional Director E.S.I.C., has held that definition of manufacturing process in the E.S.I. Act is wide enough to cover preparation of food stuffs in hotels and restaurants and that the Act is applicable to hotels and restaurants satisfying other conditions. This aspect of the case has not been disputed by the learned Advocate for the appellant. But, what was tried to be contended was that the said decision was undisputedly in respect of hotel and the appellant is only a Club which has been running a catering or restaurant section only for the benefit of its members and though the said section would fit in to the definition of the factory as given in the E.S.I. Act. in the literal sense, having regard to the fact that the running of the said restaurant section by the appellant Club is not for the purpose of making any profit, it should be held that it does not come within the purview of the definition of factory as given in the Act. This argument is without any force as in the East-West Hotel case and also the decision relied upon in the said case as the fact of the profit-making motive has not influenced this Court in arriving at the said decision. Further, it may also be noticed that from the point of view of the employee for purpose of the Act; it matters very little whether the factory or establishment is run with any profit making motive or not. It must be remembered that the object of the Act is to provide certain benefits to the employees in case of sickness, maternity and employment injury and also to make provision for certain other matters in relation thereto and therefore, so long as the manufacturing process is carried on with the aid of power by employing twenty or more employees for wages it would come within the meaning ''factory'' as defined in Section 2(12) of the Act. This interpretation would sub-serve the object of the Act and the question whether the factory is run for making any profit or for any other purpose is wholly irrelevant when we are trying to find out whether a particular premises or precincts thereof would come within the meaning of definition of factory as given in the said Section. Therefore, the contention urged that the decision in the East-West Hotel case, (supra) has no application to the facts of the present case has to be repelled.

8. The Punjab and Haryana High Court as also the Bombay High Court have taken the same view with reference to the Clubs. In Cricket Club of India Ltd. and Others Vs. Esic and Another, the Bombay High Court held that the Cricket Club of India, Bombay would come within the meaning of the word ''factory'' as defined in the Act and the distinction between a Hotel and a Club based on the profit making motive was not relevant for the said purpose. The Punjab Haryana High Court in Employees'' State Insurance Corporation Vs. Jalandhar Gymkhana Club, held with reference to Jalandhar Gymkhana Club that the sole test to decide whether any premises is a factory under the Act depended on the finding whether any manufacturing process was being carried on with the aid of power or is ordinarily so carried on (in the premises) including the precincts thereof where twenty or more persons are employed or were employed for wages on any day of the preceding twelve months. It was observed at page (p.481) as hereunder:

"The distinction which is sought to be drawn between the establishment having the object of profit making and where there is no object of profit making in an establishment for making the present Act applicable is irrelevant and foreign to the objectives for the enactment of the Act."

In the decision in Andhra University v. Regional Provident Fund Commissioner of Andhra Pradesh and Ors. (1985 II CLR 334) relied upon by the learned Advocate for the appellant, in relation to Employees Provident Fund and Miscellaneous Provisions Act, 1952, the Supreme Court has pointed out that the said Act was a beneficent piece of social welfare legislation aimed at promoting and securing the well-being of the employees and the Court will not adopt a narrow interpretation which will have the effect of defeating the very object and purpose of the Act and the Departments of Publications and Presses attached to Andhra University and Osmania University were held to be factories within the meaning of the said Act.

9. Yet in a later decision relating to the very Employees State Insurance Act, 1948, with which we are presently concerned, the Supreme Court in M/s. Cochin Shipping co. Vs. E.S.I. Corporation, has observed as hereunder: (pp.797-798)

"The Employees State Insurance Act is an Act to provide certain benefits to employees in case of sickness, maternity and employment injury and make provision for certain other matters in relation thereto. The Act is an outcome of a policy to provide remedy for the widespread evils arising from the consequences of national poverty. Indeed, it is a piece of social security.

Thus the benefits conferred by the Act cover a large area of employees than what the Factories Act and the akin legislation intended. The conclusion is inescapable that it is a welfare legislation. The endeavour of the Court should be to place a liberal construction so as to promote its objects to which a reference has been made."

Therefore, even though the Catering Section of the Club may not be called a ''factory'' within the meaning of that term as it is ordinarily understood, having regard to the definition of manufacturing process as defined in the Factories Act which has been adopted for purposes of the Act and also having regard to the mandate of the Supreme Court that liberal construction has to be given so as to promote the objects of the Act, the mere fact that the Catering Section is not run with any profit-making motive by the Club could have little impact on the question under consideration and if otherwise the Catering Section would come within the meaning of factory, as defined in the Act, it cannot be taken out of its purview only because of the non-profit making motive of the Club in running the Catering Section. Therefore, the conclusion that the Catering Section of the appellant comes within the meaning of factory as defined in the Act is inescapable. Hence Point No. 1 is answered in the affirmative.

10. POINT No. 2

The learned Advocate for the appellant contended that it is only the employees of the Catering Section of the appellant-Club that are liable to be covered under the Act and the other employees of the other sections are not liable to be covered under the provisions of the Act. It was pointed out that in the appellant-Club catering food stuffs to the members is not the only or main activity and in fact there are several sections in the Club where varieties of other activities are carried on, such as the running of library, various indoor games and out-door games including maintenance of a swimming pool and the employees working in those sections of the Club have nothing to do with the Catering Section, which is deemed to be a factory for the purposes of the Act, and therefore, there is no scope to cover all the employees of the Club irrespective of the aspect whether they are working in the Catering Section or not, under the provisions of the Act. In this connection we may notice the definition of employee given in Section 2(9)(i) and (ii) of the Act that employee means any person employed for wages in or in connection with the work of factory or establishment which is as hereunder:

"9(i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work, of the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or

(ii) who is employed by or through any 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 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;"

In Hyderabad Asbestos Cement Products Ltd. Vs. Employees Insurance Court and Another, it has been pointed out that the ''employee'' within the meaning of the Act would include not only persons employed in the factory but also persons connected with the work of the factory and he may be working within the factory or outside the factory or may be employed for administrative purpose or for purchase of raw materials or for sale of the finished goods, such employees are included under the definition of employee within the meaning of the Act. This decision has been followed by a learned Single Judge of this Court in All India I.T.D.C. Employees'' Union v. Hotel Ashok and Anr. (1984( 1) KLJ 99). Following this decision of the Supreme Court, it has been held that all persons employed for the purpose of supply and distribution of food prepared in the kitchen and for doing other incidental duties in the hotel have to be regarded as employees of the factory. In the Nagpur Electric Lights and Power Co. Ltd. Vs. Regional Director Employees State Insurance Corporation, etc., it has been held that the benefit of the Act extends inter alia to the employees u/s 2(9)(i) of the Act whether working inside the factory or establishment or elsewhere and it was held that all the employees, clerical or otherwise who had been employed in connection with work of the factory come within the meaning of ''employee'' as defined by Section 2(9) of the Act. Therefore, the stress, is whether the person is employed in the factory or in connection with the work of the factory or incidental to the work of the factory, that is, the kitchen of the catering section of the Club. If that test is employed then not only the persons who actually work in the kitchen section, but also the other persons who supply the food prepared in the kitchen to the members etc., or other persons employed solely for the purpose of running the catering section would come within the meaning of ''employee'' as defined in the Act. But the other persons working in the other sections of the Club such as the indoor game section or outdoor game section or the swimming pool etc., do not come within the scope of employees as defined in the Act because it cannot be said that they carry out any work in connection with the work of the Catering Section or they do any work incidental to the work of the Catering Section. The activities of the Club in respect of the other sections cannot be said to be incidental to the work in relation to the Catering Section. It may be that running the catering section is incidental to the other activities of the Club. Merely because, the other activities of the Club which are not incidental to its activity of running the catering section are carried on in the same compound where the catering section is also located, it cannot be said that the persons employed in those sections of the Club are employed in the catering section of the factory. Otherwise it may lead to absurd results. If the press attached to a University is held to be a factory for purposes of the Act, it cannot be held that the teaching staff would become employees of factory. Therefore, the argument advanced on behalf of the appellant that only the persons working in the kitchen section and the other persons connected thereto all of whom could be called as ''employees of the catering section of the appellant Club'' would come within the meaning of ''employee'' as defined in the Act and they are liable to be covered under the provisions of the Act and the other employees who are working in the other sections of the Club who have nothing to do with the catering section do not come within the purview of that word as defined in the Act and they are not liable to be covered under the provisions of the Act, has to be upheld.

11. It was not urged on behalf of the appellant that despite our view on the first point, the E.S.I. Court has committed any error in remitting the matter to the Corporation for determining the actuals or that the said order is liable to be struck down for any other reason. Therefore, the order of the E.S.I. Court remitting the matter back to the E.S.I. Corporation has to be upheld, but it has to be held that the actuals have to be worked out only in respect of the catering section of the appellant-Club and not with reference to the other persons employed in the other sections of the appellant-Club.

12. In the result, the order of the E.S.I. Court remitting the case to the E.S.I, Corporation is upheld but, with a direction to the Corporation to work out the actuals only in respect of the employees of the catering section. The Appeal stands disposed of accordingly.