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Supreme Court of India
E.S.I Corporation vs Kakinanda Municipality And Ors. … on 28 September, 2021Author: K.M. Joseph
Bench: K.M. Joseph, Pamidighantam Sri Narasimha
‘REPORTABLE’
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1870 OF 2011
EMPLOYEES’ STATE INSURANCE CORPORATION Appellant(s)
VERSUS
KAKINADA MUNICIPALITY & ORS. Respondent(s)
J U D G M E N T
K. M. JOSEPH, J.
(1) Respondent No. 1 is a municipality. There is a
factory which ran under the name and style of M/s. Victoria
Water Works and controlled by the first respondent. The
said factory was covered under the Employees’ State
Insurance Act, 1948 (hereinafter referred to as ‘Act’ for
brevity) from 12.01.1965. Contributions under the Act were
paid by the respondent No. 1, according to the appellant
till 31.12.1996. The appellant issued show cause notices
Signature Not Verified
Digitally signed by
Nidhi Ahuja proposing assessment for the period from which the first
Date: 2021.10.05
13:28:00 IST
Reason:
respondent was in default in the matter of payment of
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CIVIL APPEAL NO. 1870 OF 2011
contributions. Various orders demanding sums as found due
from the first respondent were issued. A speaking order
under Section 45A of the Act was passed on 04.10.2001. It
is on 05.02.2002 that the first respondent filed application
purporting to be under Section 75(1)(g) of the Act before
the Employees Insurance Court. The reliefs which have been
sought in the said application are noticed as follows:
“(1) to declare that the Petitioner Municipality
being a local self Government, functioning under the
statute and providing better amenities to its
employees is covered by the provisions to sub-section
4 of Section 1 of ESI Act, 1948.
(2) To declare that the provisions of ESI Act are
not applicable to the employees working in Water
Works Department of the Petitoiner Municipality as
the Petitioner Municipality is providing better and
superior benefits and facilities than by the 1st
Respondent Corporation.
(3) Alternately direct the Respondents to grant
exemption under Section 90 of ESI Act, 1948 and also
set aside the attachment order dated 15.01.2002.
(4) And pass such other relief/reliefs to which
the petitioner may entitled to in law and equality.
(5) To pass such other or further orders as it
deems fit and proper.”
(2) The Insurance Court, in fact, granted a stay, on
payment by respondent No. 1 of Rs.3 lakhs. Evidence was
taken and the Insurance Court rejected the application which
must be treated as essentially an application under Section
75 of the Act. Against the same, the first respondent filed
a statutory appeal as provided under Section 82 of the Act.
It is by the impugned judgment, the High Court allowed the
appeal filed by the first respondent and proceeded to set
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aside the impugned order passed by the Insurance Court.
(3) We have heard Shri Santosh Krishnan, learned counsel
for the appellant, and Shri C. Nageswara Rao, learned senior
counsel appearing on behalf of the first respondent.
(4) Shri Santosh Krishnan, learned counsel for the
appellant, would point out that the High Court has
overlooked the relevant statutory provisions contained in
the Act. It is his case that the first respondent was
running the factory which attracted the provisions of the
Act as contained in Section 1(4):
“It shall apply, in the first instance, to all
factories (including factories belonging to the
Government) other than seasonal factories.”
He would further contend that there is a proviso to
the said provision which reads as follows:
“Provided that nothing contained in this sub-
section shall apply to a factory or establishment
belonging to or under the control of the Government
whose employees are otherwise in receipt of benefits
substantially similar or superior to the benefits
provided under this Act.”
He would submit that with reference to its terms that
the factory which is run by the first respondent cannot be
described as a factory which is owned by the Government or a
factory which is controlled by the Government. In this
regard, he sought to receive reinforcement from the
provisions of Section 90 of the Act. Section 90 reads as
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CIVIL APPEAL NO. 1870 OF 2011
follows:
“90. Exemption of factories or establishments
belonging to Government or any local authority. — The
appropriate Government may, after consultation with
the Corporation, by notification in the Official
Gazette and subject to such conditions as may be
specified in the notification, exempt any factory or
establishment belonging to any local authority from
the operation of this Act, if the employees in any
such factory or establishment are otherwise in
receipt of benefits substantially similar or superior
to the benefits provided under this Act.”
He would submit that prior to the omission in the said
section, the section contemplated also a factory run by the
Government. He would submit that the words which were
omitted by the Act 29 of 1989 were the words “the Government
or”. The cumulative result of these provisions is,
according to him, that the factory in question which is run
by the first respondent, a local authority, is a factory
which is governed by Section 1(4). If it is a factory, it
would be governed by the provisions of the Act. In other
words, contributions are payable in terms of the Act in
regard to the employees of the factory. He would further
point out that the High Court has erred in considering the
matter as if the Insurance Court had jurisdiction to
consider the question of exemption. The power of exemption
is conferred only upon the Government in regard to a factory
which belongs to/ is controlled by the local authority. He
would submit that the power of exemption is located in the
provisions beginning with section 87 and falling under
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CIVIL APPEAL NO. 1870 OF 2011
Chapter VIII of the Act. The power of exemption under
Section 90 as also in the other provisions is hedged in with
the limitation or condition that the appellant-Corporation
must be heard. In other words, E.S.I. Court did not have
any jurisdiction to decide the matter in the manner in which
the first respondent contended and what is more, in the
manner in which the High Court has finally decided the
matter. In this regard, he drew our attention to the
judgment of this Court reported in Zuari Cement Limited v.
Regional Director, Employees’ State Insurance Corporation,
Hyderabad and Others (2015) 7 SCC 690. In fact, he would
submit that the judgment of the High Court in the said case,
which has been confirmed by this Court, was present in the
mind of the High Court. However, the High Court has erred
in seeking to draw support from the order passed by this
Court in the decision reported in Municipal Committee,
Abohar v. Regional Commissioner, E.S.I. Corpn. and Another
(1996) 7 SCC 488. He would contend that the High Court
erred in drawing support from the said decision which is
only an order. There is no discussion of the legal issues
involved in the said case. The order of this Court is
bereft of precedential value, with the support of which
alone, it could not have been treated as law under Article
141 of the Constitution of India.
(5) Per contra, Shri C. Nageswara Rao, learned senior
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CIVIL APPEAL NO. 1870 OF 2011
counsel for the first respondent, would support the order of
the High Court. He would attempt to bring it under the
proviso to Section 1(4). He would further submit that this
is a case where the employees of the factory run by the
first respondent were in receipt of benefits which were
better than the benefits under the Act.
(6) We may notice the scheme of the Act briefly. The Act
was enacted in the year 1948 with the object of giving
certain benefits to employees in case of sickness, maternity
and employment injury.
(7) Section 75 (1) deals with the powers of the Insurance
Court and the questions it is authorised to decide:
“75. Matters to be decided by Employees’ Insurance
Court. — (1) If any question or dispute arises as to
—
(a)whether any person is an employee within the
meaning of this Act or whether he is liable to pay
the employee’s contribution, or
(b) the rate of wages or average daily wages of an
employee for the purposes of this Act, or
(c)the rate of contribution payable by a principal
employer in respect of any employee, or
(d)the person who is or was the principal employer
in respect of any employee, or
(e)the right of any person to any benefit and as to
the amount and duration thereof, or
(ee)any direction issued by the Corporation under
section 55-A on a review of any payment of
dependants’ benefit, or
(g)any other matter which is in dispute between a
principal employer and the Corporation, or between a
principal employer and an immediate employer, or
between a person and the Corporation or between an
employee and a principal or immediate employer, in
respect of any contribution or benefit or other dues
payable or recoverable under this Act, or any other
matter required to be or which may be decided by the
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CIVIL APPEAL NO. 1870 OF 2011
Employees’ Insurance Court under this Act,
such question or dispute subject to the provisions
of sub-section (2A) shall be decided by the
Employees’ Insurance Court in accordance with the
provisions of this Act.
(2) Subject to the provisions of sub-section (2A),
the following claims shall be decided by the
Employees’ Insurance Court, namely : —
(a)claim for the recovery of contribution from the
principal employer;
(b)claim by a principal employer to recover
contributions from any immediate employer;
(d)claim against a principal employer under section
68;
(e)claim under section 70 for the recovery of the
value or amount of the benefits received by a person
when he is not lawfully entitled thereto; and
(f) any claim for the recovery of any benefit
admissible under this Act.”
Subsection (2) of Section 75 thus no doubt deals with
certain claims to be decided by the Court.
(8) We may notice further, apart from Section 1(4) and
Section 90 which we have already noticed, Sections 87, 88
and 89.
“87. Exemption of a factory or establishment or class
of factories or establishments. — The appropriate
Government may by notification in the Official
Gazette and subject to such conditions as may be
specified in the notification, exempt any factory or
establishment or class of factories or establishments
in any specified area from the operation of this Act
for a period not exceeding one year and may from time
to time by like notification renew any such exemption
for periods not exceeding one year at a time:
Provided that such exemptions may be granted only
if the employees’ in such factories or establishments
are otherwise in receipt of benefits substantially
similar or superior to the benefits provided under
this Act:
Provided further that an application for renewal
shall be made three months before the date of expiry
of the exemption period and a decision on the same
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CIVIL APPEAL NO. 1870 OF 2011
shall be taken by the appropriate Government within
two months of receipt of such application.
88. Exemption of persons or class of persons.— The
appropriate Government may, by notification in the
Official Gazette and subject to such conditions as it
may deem fit to impose, exempt any person or class of
persons employed in any factory or establishment or
class of factories or establishments to which this
Act applies from the operation of the Act.
89. Corporation to make representation.— No
exemption shall be granted or renewed under section
87 or Section 88, unless a reasonable opportunity has
been given to the Corporation to make any
representation it may wish to make in regard to the
proposal and such representation has been considered
by the appropriate Government.”
(9) Considering Section 1(4) of the Act, it is clear as
daylight, that the Act is to apply to all factories
including factories belonging to the Government other than
seasonal factories.
A factory is defined under Section 2(12) as follows:
“(12) “factory ” means any premises including the
precincts thereof whereon ten or more persons are
employed or were employed on any day of the preceding
twelve months, and in any part of which a
manufacturing process is being carried on 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;”
Section 14AA defines ‘manufacturing process’:
“(14AA) “manufacturing process” shall have the
meaning assigned to it in the Factories Act, 1948 (63
of 1948)”
(10) In the facts of this case, there is no dispute that
the first respondent was running a factory within the
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meaning of the Act, insofar as it is undertaking
manufacturing activities within the meaning of the
expression ‘manufacturing process’ as defined in Section
14AA. The proviso to Section 1(4), undoubtedly, operates as
an exception to the main provision. In other words, from
the generality of factories that stand covered under the
Act, the legislature has carved out an inroad by providing
that the Act would not apply to the factory which belonged
to the Government. It also makes it clear that the
provisions of the Act will not apply to a factory under the
control of the Government. This is however subject to the
further condition in the proviso that the employees of such
a factory, which is either owned or controlled by the
Government, should be otherwise in receipt of benefits
substantially similar or superior to the benefits provided
under the Act. It is upon satisfaction of these conditions
that even a factory which is owned or controlled by the
Government would stand exempted from the purview of the Act.
(11) As far as the facts of this case is concerned, the
first respondent does not have the case that the factory in
question is a factory which is owned by the Government. As
far as the question relating to control of the Government is
concerned, learned senior counsel for the first respondent
has, in fact, upon being queried as to whether he has a case
that it is under the control of the Government, he does not
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CIVIL APPEAL NO. 1870 OF 2011
address us on the issue on the lines that the Government
controls the factory. He very fairly does submit that the
factory is under the control of the first respondent. The
first respondent is a local body. It might be true that it
is a creature of statute, being created under the relevant
Act. It also has a constitutional position after the
amendment of the Constitution. But the words used in the
Act are that the factory must be under the control of the
Government. Any further doubt, in this regard, which we may
entertain, is banished by the provisions of Section 90.
(12) Section 90 contemplates exemption of factories or
establishments belonging to the local authority. Initially,
the said provision contemplated power to exempt any factory
or establishment belonging to the Government or any local
authority. After the omission of the words ‘the Government
or’ by Act 29 of 1989 with effect from 20.10.1989, the said
provision contemplates power with the appropriate Government
after consultation with the Corporation (E.S.I. Corporation)
to exempt any factory or establishment belonging to any
local authority from the provisions of the Act. It must be
noticed that proviso to section 1(4) was inserted by the
very same amendment with effect from 20.10.1989. The
results of this legislative exercise cannot be overlooked.
The position, therefore, is that in respect of a factory,
which is belonging to a local authority, unless power of
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CIVIL APPEAL NO. 1870 OF 2011
exemption is exercised by the Government, it would be
covered by provisions of section 1(4) of the Act. In other
words, it would be a factory like any other factory. It
would have to be compliant with the provisions of the Act.
This is for the reason that a factory or an establishment
belonging to or under the control of the Government alone
are within the purview of the proviso, which in turn is
subject to the imperative condition or rather the
indispensable requirement that the employees are in receipt
of the substantially similar or superior benefits than
provided under the Act.
(13) Having reached the said conclusions, the time is ripe
for us to notice the law as laid down by this Court in Zuari
Cement Limited (supra). In the said case also, which
emanated from the same High Court, the appellant therein
sought an exemption from the Act but by approaching the
Court under Section 75. The argument ran that the Court had
jurisdiction by virtue of Section 75(1)(g). The discussion
is to be found in paragraphs 12, 13 and 14:
12. As discussed earlier, in terms of Section 87 of
the Act, only the appropriate government has the
power to grant exemption to a factory or
establishment or class of factories or establishments
from the operation of the Act. In fact, the
appellant-factory itself has obtained exemption from
the appropriate Government-State Government under
Section 87 of the Act for the period from 1986 to
1993. Likewise, the rejection of exemption was also
under Section 87 of the Act. While so seeking the
relief of declaration from the ESI Court that the
appellant is entitled to exemption from the operation
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CIVIL APPEAL NO. 1870 OF 2011
of the Act is misconceived. Contrary to the scheme of
the statute, the High Court, in our view, cannot
confer jurisdiction upon the ESI Court to determine
the issue of exemption. The ESI Corporation, of
course, did not raise any objection and subjected
itself to the jurisdiction of the ESI Court. The
objection as to want of jurisdiction can be raised at
any stage when the Court lacks jurisdiction, the fact
that the parties earlier acquiesced in the
proceedings is of no consequence.
13. The Employees’ Insurance Court is a tribunal
specially constituted for the purpose of deciding any
controversy that may arise on the matters enumerated
in Section 75 of the Act. A reading of Section 75 of
the Act would show that the ESI Court has full
jurisdiction to decide all the matters arising
between the employer and the Corporation under the
Act. Section 75 of the Act sets out the matters to be
decided by the ESI Court. As per Section 75(1)(g) of
the Act, the ESI Court is empowered to decide any
matter which is in dispute between the employer and
the Corporation in respect of any contribution or
benefit or other dues payable or recoverable under
the Act or any other matter required to be or which
may be decided by the ESI Court under the Act and
such question or dispute subject to the provisions of
sub-section (2-A) shall be decided by the ESI Court
in accordance with the provisions of the Act. When
considered in the light of clauses (a) to (d) in
Section 75 (1) of the Act, the expression “any other
matter” occurring in Section 75(1) (g) only means any
other dispute between an employer and corporation or
a person and Corporation pertaining to the
contribution or benefit or other dues payable under
the Act or any other matter required to be decided by
the ESI Court under the provisions of the Act. Grant
or refusal of exemption by the appropriate government
cannot be said to be a dispute between the employer
and the Corporation. For grant or refusal of
exemption, a specific provision is prescribed under
the Act, it cannot be brought within the ambit of
“any other matter” required to be decided by the
Employees’ Insurance Court under this Act.
14. As per the scheme of the Act, the appropriate
government alone could grant or refuse exemption.
When the statute prescribed the procedure for grant
or refusal of exemption from the operation of the
Act, it is to be done in that manner and not in any
other manner. In State of Jharkhand v. Ambay Cements,
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CIVIL APPEAL NO. 1870 OF 2011
(2005) 1 SCC 368, it was held that
“26………….It is the cardinal rule of interpretation
that where a statute provides that a particular
thing should be done, it should be done in the
manner prescribed and not in any other way.”
(14) We have no reason to take a different view. The power
of exemption is indeed only with the appropriate Government.
If a factory or establishment is covered under the Act then
subject to the power of the Government to take it out of the
purview of the Act by an act of exemption, which, in turn,
can be done only after consulting the E.S.I. Corporation and
by following the other requirements as provided therein, the
said power cannot be availed of by the Insurance Court while
deciding an application under Section 75 of the Act.
(15) We have already noticed the reliefs which have been
sought in this case. We have also found that section 1(4)
applies. The proviso to section 1(4) does not apply. The
result is none of the reliefs which have been sought for by
the first respondent could have been given. The reliefs
were rightly refused by the Insurance Court. The Insurance
court did not frame the issue and find that the first
respondent was providing superior benefits. The High Court,
in the impugned judgment, has made the following findings:
“39. On a careful analysis of the facts of the
present case and also the findings recorded by the
court below the following essential aspects are not
in serious controversy.
(1) The appellant-petitioner-Municipality is a
local body governed by the provisions of the A.P.
Municipalities Act;
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CIVIL APPEAL NO. 1870 OF 2011
(2) In the light of the relief prayed for it is
clear that no application or representation had been
made by the Municipality praying for exemption;
(3) The details relating to the better facilities
provided to the employees also had not been deposed
elaborately;
(4) The Municipality made certain payments
relating to contribution for certain periods.”
(16) However, the High Court has proceeded to rely upon
judgment of this Court in Municipal Commitee, Abohar v.
Regional Commissioner, E.S.I. Corpn. and Another (1996) 7
SCC 488. The High Court has premised its stand partly on
the judgment of this Court in Municipal Commitee, Abohar
(supra).
(17) It is rightly pointed out by Shri Santosh Krishnan,
learned counsel for the appellant, that it is an order. In
the said case, no doubt, the appellant was a municipality
running Waterworks; the employees were sought to be covered
under the Act and after notice was issued, an order under
section 45-A of the Act was passed against which an appeal
was carried to the Insurance Court which confirmed that the
employees were covered under the Act. Thereafter, we notice
the following:
“3. The question is whether the employees of the
Municipal Corporation are also covered under the
Act? The employees of the Corporation are governed
by the statutory rules made under the Act and in
some cases in other States the benefits of the
Government scales of pay etc. have been extended.
However, the fact remains that they are provided
with the health scheme and are also eligible to
medical facilities and reimbursement of the amounts
spent by the employees concerned. Under these
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CIVIL APPEAL NO. 1870 OF 2011
circumstances, the coverage of employees under the
Act is per se illegal.”
We may notice that the said order does not reveal any
discussion of the legal issues. There is no consideration
of the statutory provisions in question.
We see merit in the argument of the learned counsel
for the appellant that the High Court should not have
treated this as a precedent which it should follow,
particularly, having regard to the factual matrix in this
case and the statutory provisions in place.
(18) The upshot of the above discussion is that the
impugned judgment of the High Court is unsustainable and is
liable to be set aside.
(19) There is another aspect of the matter. Having noticed
that the first respondent is obliged by the provisions of
the Act to made contributions in regard to the employees of
the factory and the attempt made before the Insurance Court
to seek and get an exemption was without foundation in law,
the fact remains that the power is lodged under Section 90
of the Act to grant exemption. In other words, the fact
that the impugned judgment is being set aside would not
stand in the way of the appellant seeking the benefit of
exemption under Section 90 of the Act.
(20) Resultantly, the appeal is allowed and the impugned
judgment is set aside. We, however, make it clear that this
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is without prejudice to the right of the first respondent to
seek the benefit of exemption as contemplated under Section
90 of the Act.
Needless to say, in any such proceeding as is provided
by Section 90, the Government would necessarily have to
consider the version of the Corporation by way of
consultation. No orders as to costs.
……………………………………………………………., J.
[ K.M. JOSEPH ]
……………………………………………………………., J.
[ PAMIDIGHANTAM SRI NARASIMHA ]
New Delhi;
September 28, 2021.
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