B. M. Lakshmanamurthy v. The Employees' State Insurance Corporation, Bangalore

GoSWA.W, J.-The appellant and his brother, Srinivas:unurthy are partners of a firm carrying on the business of manufacturing and exporting of polished granite memorial stones in the name and style of Messrs Narayauaswami & Sons. The firm is admittedly a factory both under the Factories Act as weU as under the Employees· State 1 nsurance Act (briefly the Act). The appellant claims to directly employ about 35 persons in his factory and has been payil'lg contri-bution under the Act on their account. It is stated that adjacent to his own factory there is another factory situated on the appellant's land leased out by him to two person:;, Chidambarchari and Shan-karsubbacbari (hereinafter referred to as the <.'Ontractors). The contractors employ about 50 workers in their factory for purposl!s of cutting aud dressing the granite stones. The lorry drivers bring granite from the surrounding areas and unload them outside the fac-tory. The contractors get these to their portion of the leased land for cutting them. After cutting these are sent back to tl1e appe1lant's factory where these are designed and polished and thereafter exported.

The Employees' State Insurance Corporation (briefly the COiporation) applied to the Employees' State Imurance Court at Bangalore (briefly the Court) for recovery of an amount of Rs. 8893/- bt-ing the employees' contribution payable by the appellant for the period com· mencing from 27-7-1958 to 31-1·1964 on account of the workers employed by the two contractors described as 'immediate employers.' under the Act. The court decided against the Corporation holding that the contractors were not 'immediate employers' within the meaning of section 2 (13) of the Act and they were independent (.'0 n-tractors and hence the appellant was not the principal employer in respect of the employees working under the contractors. The Cor-poration appealed to the High Court of Mysore against the aforl!said order under section 82(2) of the Act. The High Court held that the appellant was the principal employer and the ~ontractors were the immediate employers under the Act. The High Court further held that. the workers under the contractors were employees \\ ithin 1 he mcanmg of section 2 (9) (ii) of the Act. The High C'ourt thus accepted the appeal of the Corporation. Hence thi5 appeal by ~p.:-rial leave.

~fore the court evid~nce was given by both sides and the fo llo ll'ing find1ngs of the court arc adverted to by the High Court :

"All that can be said to have been proved by the appli-cant corporation in this case is that RWs 2 and 3 (the con-tractors) work at a place belonging to the respondent and execute part of the work which is necessary to manufacture the final finished product for sale. All that can be said to have been proved in this case is that the contractors are doing some work which would be the foundation for the work that is finally done by the respondent"

After examining the evidence the High Court also found as follows :-

"There is evidence to shew that these employees (under the contractors) aie employed in connection with the work of the respondent-fac!ory".

The respondent in the High· Court's judgmeilt refers to the appellant herein. As stated earlier, the High Court answered both the ques-tions in favour of the Corporation.

The same points are raised for cons'ideration in this appeal and Mr. Nates an on behalf of the appellant submits that the contractors owned a separate factory and are independent contractors· and cannot be held to be 'immediate employers' within the meaning of section 2(13) of the Act and hence the appellant is not liable as principal em-ployer to pay the contribution on account of the persons working under the contractors.

Before we deal with 1he \jUestions of Jaw raised in this appeal, it will be appropriate to refer to the material provisions of the Act.

The Act, as it appears from the preamble, is passed "to provide for certain benefits to employees in case of sickne~s. maternity and employment injury and to make provision for certain other matters in relation thereto". Section2 contains the definitions. By section 2 (4) "contribution"· means the sum of money payable to the Cor-poration by the principal employer in respect of an employee and in· eludes any am(}unt payable by or on behalf of the employee in accord· ance with the pro'lisions of this Act." By secti(}n 2 (9) "employee" means any person employed for wages in or in connection with the wor~ of a factory or establishment to which this Act applies and-

(i) who is. directly employed by the principal emp\(}yer 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 ores-tablishment or elsewhere; or (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 ·or the work of the factory or~sta~ti~hn,tent or which is preliminary to the work carried on m or met dental to the purpose of lhe factory or estab-lishment;

* • • • By section 2(12) "factory .. means any premises including the precincts thereof whereon twenty or more persons are employed or were em-ployed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being oarried on with the aid of power or is ordinarily so carried on. But does not in. elude a mine subject to the operation of the Mines Act, 1952 or a railway • running shed". • • • By section 2(13) ••immediate employer", in relation to employees. employed by or through aim, means a person who bas undertaken the execution, on the premises of a factory or an establishment to which this Act, applies or under the supervision of the principal em-ployer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer".

By section 2(14) "insured person" mean~t a person who is or wa& an employee in respect of whom contributions are or were payable under this Act and who is, by reason thereof, entitled to any of the benefits provided by this Act".

By section 2(17) "principal employer .. means- (I} in a factory, the owner or occupier of the factory and in·

eludes the manaiing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person bas been named as the manager of the factory undor the factories Ac.t. 1948, the penon so • named" . • • • Chapter IV deals with eontributions.

The opening section 38 provides that-

• 'subject to the provisions of this Act, all employee' in factories, or establishments to which this Act applies shall be insured in the manner provided • by this Act." • •

• :By Section 39(1) "the contribution payable under this Act in res-pect of an employee shall comprise contribution payable by the em-ployer (hereinafter referred to as the employer's contribution) and contribution payable bY. the employee (hereinafter referred to as the employee'& contribution) and 6hall be paid to the Corporation''

By section 40 (l) "the principa} employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employee's contribution".

ll--M852S,uPCI/74

By· section ·42(2) "Con.tribution (both .the -employer-'s-contribution and the employee's contribution) ~baH be payable by .the principal employer for each week in respect of the whole or part· of · whic.h wages are p:tyable to the employee and not otherwise".

_Section 43 and section 97 empower the Corporation . to make regulations. Under section 44 every principal and immediate em~ ployer has,to submit returns ~o the Corporation.and maintain legis-n ters and records.

Section 68 provides for Corporation'srights where a.principal.em~ ployer fails or neglects to pay any contribution. By .section .;72 an employer is barred from reducin~ wages by reason only of his. liability tp pay contribution;

Chapter VA provides for. certain transitory provisions. The opening section 73A provides for em~loyer's special contribution. ·

Chapter VI deals with a.djudication of disputes and claims~ UndJr section 74 (l) Employee's Insurance Court is. constituted. Inter-alia under section 75 (!)'"If any question. or dispute arises as to- ·

(a) w~ether aQy person is 3:n ~rriployee within the m~aning_ of

th1s Act or whether he IS hable to j)llY the employe~s.· con- • tribution, or • • * (d) the person who is or was the principal employer in respect

of any employee;

* • • "'

such question or dispute ...... shall be deCided by the.E~ployees• Insurance Court in ~tccord~tnce with the provisions of this Act."

Under section 75(1) (g), inter-alia; any dispute between a principal employer and an immediat~ employer shall also be dedded by the court. Under section 75 (2) (b) any claim by principal employe~: to recover contributions from any· immediate employer shall also b!! decided by the Employees' . Insurance Court. By section 75 (3) jurisdiction of a civil court i~ . barred regardfng, amongst others, any question or dispute as specified· in· the section.

Section 82 provides for appeals and under aub,section..(2) .. thereof an appeal shall lie to the H)gh Court from an erder of the Employees' Insurance Court if it involves a substantial question of law.·

Chapter VII provides for different penalties.

Under Chapter VIII (Miscellaneous). 11ection 9-4 provides, inter· alia, that contributions due to the Corporation shall ·have priority over all other debts.

The Act is thus a beneficial piece of soci1tl ~curity legislation in the interest of labour in factories at the first instance and with power to extend to other establishments. Provisions of the Act will have to be construed with that end in view to promote the schemes and avoid

the mischief. F!om some o~ the material provisions set o~t the underly!ng.aim of the Act IS to insure the employees against ab?ve, risks to their hfe, l1ealth and .welt h being and the cllarge . vanohus pnnc1pa · · 1 emp I oyer eyen t h oug.t 1 e his usual JS work upon done t e ~ay g~t through ~n mtermed.Jary, who JS dcscnbed m the Act as 'immediate ~mplo~er . Any d1 ~pute ?e between tl1e principal employer and the Immtd1ate e~p~fyerAJ~ to settled bc_t~cel!- themselves, de !Jors, the ~m~ ?yees an 1e c . C1~arges the pnnc1pa! employer with the t l1abihty to pay. the con~nb~t10n not only of its own but also that of the 1: employe:s subject to h1s ngh! to deduct the employees' contribution

from their wages under sect10n 40 (2) of the Act. There is a quicker mode of recovery as ar:ears of land revenue under section 45B and 73D. Chapte~ V_A provides for transitory provisions and by ~ect!on 73A every pnnc1pal employer shall have to pay a special contribution i~ Iie!-1 of the employer's con~ributio_n payable under Chapter IV. Adju-dication of all kinds of specified drsputes are also intended to be ex-l peditiously disposed, of by the court constituted under section 74. Such disputes include a dispute between a principal employer and an L ~mmediat~ employer as noticed .earli~r. Civil courts' jurisdiction

JS barred m respect of matters specified m the Act. There is onlv one sp:cia! type of appeal to the High Court and that also in a restricted form. -The Act insists on compliance with its provisions on pain of penalties and the contributions due to the corporation have priority over other debts.

L Keeping in view the scheme and the principal object of the Act,

we 'will now examine the questions of law raised in this appeal. The definition of the 'immediate employer' under section 2 (13), omitting what is not necessary for our purpose, is as follows:-

" 'immediate employer', in relation to employees em-ployed by or through him, means a person who has under~ taken the execution, on the premises of a factory ..•..... to which this Act applies ...... of the whole or any part of . any work which is ordinarily part of the wo~k of the. fa~tory or establishment of the princ.;ipal employer or JS prel!mmary to I the work carried on in, or incidental to the purpose of, any I

such factory •.•....•... . . .. ••..••. "

That the app:Uant, who is the principal employer, has ~ factory l 1-where granite memorial stones are manufactured for expo~t Js beyo~d

question. The ftnished articles are the dressed and polished gramte stones. The raw material is the stone from the quarry-brou~ht I therefrom, cut to sizes, dressed, po!i:>hed and then exported: ~he other factory of the contractors on the leased land of the pnncJp:tl employer, adjoining the latter's f.'lctory, is reg.istcred under tl:e Fac-ton~:s Act in the year J 963. Although admtttcdly a factor), the~c I is no evidence on the record that the contractors pay nny con~n~ bulion under the Act or have been even ch.argetl sepnrately as pnn-I{ cipal employers so far as their so called dm:ct ~mploy':es are c~n~

ceroed. The principal employer, the appellant, 1s. m~long a cla1m which, if correct, will make the contractors also pnnc1pal employers liable under the Act. But it is easy for the appellant to make such l I . ...... .. ........ ...

, :'" ~ -.~ I .,. , .•. ·. "" .. •" ..,.~ . • • , • .' " I ' • .. . .. .

~ t . .. · .. ..

!. . -· . . -

148 SUPREME OOURT REPORTS . { 1974) 3 S.C.Il.

a claim to avoid his personal liability which, in aU fairness to labour, should have been settled by impleading the contractors as parties in order to make the entire position clear. It is not necessary for u11 to examine whether this is a mere device of the principal employer to a void his liability under the Act.

We agree with the High Court that on the findings of fact the work undertaken by the contractors in the adjoining vicinity, even thouah their factory may have been subsequently registered under the factories Act, is preliminary or incidental to the work in thC' principal emplo· yer-factory turning out the finished product for export. The work in the two places has an intimate correlation and is a piece of an integrated whole and the said work by the contractors through their labour is ordinarily part of the work of the principal-factory undertaken by the contractors. Their factory is situated in the pre-mises of the appellant's factory which according to the definition clause includes the precincts thereof. It, therefore, follows that the two contractors are 'immediate employers• within the meaning of section 2 (13) and the workers employed for cutting and dressing the granite stones. by the immediate employers are employees within sectioq 2 (9) (ii) of the Act, being employed through the immediate em-ployers on the premises of the factory including the precincts thereof. The fact that in 1963 the contractors' factory Was separately refis-tered under the Factories Act or that, after meeting the prior reqwre-ments of the principal employer, work of some other parties was also permissible, does not, in our opinion, militate against the predomi-nant purposes of the work of the contractors being part and parcel of the main work of the principal employer-factory for which the con-tractors mainly work.

A &Ood deal of argument is advanced with regard to the expression "oa the premises of a factory" in the definition clause of "immediate employer" under section 2 (13). The word "premises" according to the dictionary means house or building with its ground or other apurtenances. The premises include under section 2 (13) the pre· cints thereof. The word "precincts" means the environs. This Court in A.rdeshir H. Bhiwandiwala v. The State ofBombay(l) dealt with the term "premises" in the definition of factory under section 2(m) of the Factories Act and after noticing its meanin& in various Law Lexicons and dictionaries observed:-

"The word "premises" bas•now come to refer to either land or buildings or to both, depending on the context ..•... " It is therefore clear that tl',e word "premises" is a generic term meaning open land or land with buildings or buildings alone." The contention in that ease that the word ''premises" must be r~stricted to mean buildings and not taken to cover open lands as well was repelled.

In the instant case, on an examination of the site plan (Ext. P-1) and the evidence, it is evident there is a definite environmental as II well as functional unity between the two portions, namely, the main factory (Portion A) and the contractors' factory with the precincts (Portion B) even though separated by a wall in which there was a door which sometimes was closed. The work undertaken by the contractors and carried on in their portion of the area is surely com-ponental to make it a part of the complex whole. The principal requirement of the definition, namely, that the work or the construc-tion is undertaken on the premises of the factory and about which both sides join issue, is satisfied in the present case on·the evidence on re-cords and we hold accordingly. We are also satisfied that the workers under the contractors are employees employed by the principal-employer through the 'immediate employers' on the premises of the factory in work which is ordinarily the normal work of the factory or is, at any rate, preliminary to the work or which is certainly inci-dental to the purpose of the main factory of the appellant.

Mr. Natesan laid great stress upon the requirement of a unity of control of the principal employer over the manufacturing process of the work: undertaken by the contractors, but it will be obvious from the facts found ana the evidence noted below that the work is done on the premises of the factory. We need not examine this aspect in detail in view of the uncontradicted evidence of PW-1 as follows:-

"Thc work: done in the Factory consisted of manufacture of granite stone9 for export. I found raw stones lying all over the surrounding area. I found that raw stones were moved to the premises marked Bin Ex. P. 1. I found that about 50 penons working at the spot. I learnt from the partners those 50 persons had been employed by two or three con-tractors. Cutting and dressing of the stones were done by those fifty men. There were (1) sand blasting machine belonging to the partners and (2) Electric blower. Power was used in these machines. After the stones are cut and dressed, they are re-moved to premises A for designing and polishing. Final touches are then given to them in the premises B. They are again brought back to premises A for packing and despatching. The premises A and B belong to the partners. Only a wall sepa-rated the two premises. There was a connecting -door which appeared to have been closed".

Again RW-2 also deposed that "it is since last three years that, I undertook: the work of the second party" i.e. the appellant. R W~l (partner of the appellant) stated as follows in cross-examination:

"Ex. P. 4 is the copy of the letter dated 19-3-63 written by P.W. 1 to me for copy of the agreement and plan. Ex. P. 5 is my interim reply ..............•. By Factory premises in Ex. P. 5, I meant both the portions A and B in Ex. p. I". Mr. Natesan has referred to a decision of the Bombay High Court in Employees' State Insurance Corporation, Bombay v. Raman (Cizittur Harihar Iyer)(') but the High Court dealt in that case with the definition of "employee" prior to the amendment of the Act in 1966 and is of no -~------

(1) [1957] I L .L.J. 267.

aid to counsel. This case was also distinguished by this Court in Nagpur Electric Light & Power Co. Ltd. v. Regional Directcr Employees State Corporation, Etc.(l) Counsel also relied upon a decision of the Delhi High Court in Employees' State Insurance Corporation v. Peter Sewing Machine Co. etc.(2), dealing with the definition of 'factory' under section 2 (12) of the Act. The High Court, inter alia, was posing a question in that case as to whether the whole or any part of the work of the contractors there consisted of any work which was ordinarily a part of the work of the factory or establish-ment of the principal employer and answered it in the negative on ·the finding of facts in that case "that the contractors, manufacture their goods independently and not as a part ofthe goods manufactured by the Peter Sewing Machine Company". On the facts of this case that question does not arise and we express no opinion thereon. The decision is therefore, of no aid to the appellant in this case.

The learned counsel further draws our attention to M/s Hindustan Construction Co. Ltd. v .. Employees' State Insurance Corporation(l) in which case the High Court remanded the matter to find out "whether the work done at t~e site can be regarded. . as a manufac-turing ,process .......... " We, ~owever; do not fail to notice that the judgment did not take ·note of the corri.plete definition of "em-ployee''·under section 2 (9), the first P.art of which is joined by a con-junctive 'and' with· two claus,es. ·Further the High Court is not correct in thinking that the. definition of the ·word "factory" under the Fac-tories Act "is. same" as that of "factory'' under the Employees' State Insurance Act wtich is of ·wider amplitude with an expanding hori-zon of objectives in the latter Act. It is riot necessary, however, to consider in this case if these factors may have affected the decision in the above case.. At any rate, the appellant does not derive any aid from this decision. .

The next decision in Nagpur Electric Light & Power Co., Ltd. (supra), relied upon by .the appellant for the construction of the de-finition of "employee" ~nder section 2 (9) {i) of the Act is not of assis'· tance to him since we are dealing with a case under section 2(9) (ii).

We, of course, notice that the High Court in this case held as follows at page 20 of the judgment :-

"From the foregoing, it is clear that the contractors have been executing the work .which is ordinarily part of the work of the factory and that within the premises of the respondent-factory".

The definition clauses of "immediate employer" [section 2 (13)J and "employee" [section 2 (9) (11)], contain the expression "on the premises of a factory" and not within it. Even so as detailed above after examining the evidence ourselves, we are ~!early of opinion

(1) [19~71 (3) S.C.R. "92. (2) AIR 1970 Delhi 182,

(3) [1966J LL.R., 18 Assam & Nagaland 87.

that the work of the contractors was undertaken by them on the pre-mises of the factory which may not be the same thing as in or within the factory. We are further of the view that the entire site of the factory is a composite one containing portions A as well as B and there is no doubt· that the contrar.tors are the. 'immediate em-pll?yers' within th~ meaning of section 2 (13) of the Act and the workers employed-by them are "employees" under the Act.

In the result, the appeal fails and is dismissed with costs.