IMPORTANT POINT
The expression ‘supervision of the principal employer’ under Section 2(9) of Employees’ State Insurance Act, 1948 means something more than mere exercise of some remote or indirect control over the activities or the work of the workers. Supervision for the purposes of Section 2(9) is ‘consistency of vigil’ by the principal employer so that if need be, remedial measures may be taken or suitable directions given for satisfactory completion of work.

Headnote:Employees’ State Insurance Act, 1948-Sections2(9)-Issuance of show cause notice by Assistant Regional Director, Employees’ State Insurance Corporation, Bangalore to HCMPSU Ltd. calling upon them to furnish explanation and show cause as to why action should not be taken against them for non-payment of contribution under 1948 Act in respect of employees of appellant- Appellants case that since contractors engaged workers for that work such workers were neither directly nor indirectly employees of the appellant and that appellants had no control over such employees nor they supervised their work-Validity- From the agreements entered into by the appellants with the contractors,it did not transpire that appellants had arrogated to themselves any supervisory control over the workers employed by contractors- The said workers were under the direct control of contractor- Exercise of supervision and issue of some direction by the principal employer over the activities of the contractor and his employees is inevitable in contracts of this nature and that by itself was not sufficient to make principal employer liable- No evidence had been collected by E.S.I. Corporation during inspection of the appellants’ establishments or from contractors that appellants had any say over the terms and conditions of employment of these employees or that appellants had any thing to do with logistic operations of contractors- Nothing on record to show that principal employer had any knowledge about number of persons engaged by the contractors or the names or other details of such persons- No evidence that appellants were aware of the amount payable to each of these workers- In the circumstances, even if it be held that transportation of milk was incidental to the purpose of factory or establishment, for want of any supervision of appellants on the work of such employees, these employees were not covered by definition of ‘employee’ under Section 2(9) of the Act- Impugned orders set aside-Appeals allowed. (Paras 22, 23)
       Facts of the Case :
       A show cause notice was issued herein in the instant case by Assistant Regional Director, Employees’ State Insurance Corporation, Bangalore to HCMPSU Ltd. calling upon them to furnish explanation and show cause as to why action should not be taken against them for non-payment of contribution under 1948 Act in respect of employees of appellant. HCMPSU Ltd. a federal society was engaged in business of purchasing milk and pasteurization of the same. The milk procured by member societies was transported in lorries/vans to appellant’s dairy.Appellants case that since contractors engaged workers for that work such workers were neither directly nor indirectly employees of the appellant and that appellants had no control over such employees nor they supervised their work.
       Findings of the Court :
       Although, E.S.I. Court in respect of the appellants in separate orders, had recorded a finding that such workers work under the supervision of the principal employer and the said finding had not been interfered with by High Court .However said finding was held to be unacceptable. The ordinary meaning of the word ‘supervision’ is ‘authority to direct’ or ‘supervise’ i.e.,to oversee. The expression ‘supervision of the principal employer’ under Section 2(9) means something more than mere exercise of some remote or indirect control over activities or the work of the workers .A direct disciplinary control by the principal employer over the workers engaged by contractors may also be covered by the expression ‘supervision of the principal employer’. The circumstances, as in the case of HCMPSU Ltd., that authorized representatives of principal employer were entitled to travel in the vehicle of contractor free of charge or in the case of BURDCMPS Union,that principal employer had right to ask for removal of such workers who misbehaved with their staff were not the circumstances which might even remotely suggested the control or interference exercised by the appellants over the workers engaged by the contractor for transportation of milk. From the agreements entered into by appellants with the contractors,it did not transpire that appellants had arrogated to themselves any supervisory control over the workers employed by the contractors. The said workers were under the direct control of the contractor. Exercise of supervision and issue of some direction by the principal employer over the activities of the contractor and his employees was inevitable in contracts of this nature and that by itself was not sufficient to make principal employer liable. That the contractor was not an agent of the principal employer under Section 2(9)(ii) admitted of no ambiguity.No evidence had been collected by E.S.I. Corporation during the inspection of the appellants’ establishments or from contractors that the appellants had any say over the terms and conditions of employment of these employees or that appellants had any thing to do with logistic operations of contractors. Nothing on record to show that principal employer had any knowledge about number of persons engaged by the contractors or the names or the other details of such persons. There was No evidence that appellants were aware of the amount payable to each of these workers. In the circumstances, even if it be held that transportation of milk was incidental to the purpose of factory or establishment, for want of any supervision of the appellants on the work of such employees, these employees were not covered by definition of ‘employee’ under Section 2(9) of the Act. Impugned orders were set aside. Appeals were allowed.

JUDGEMENT

R.M. Lodha, J. —

Leave granted.

2.These two appeals, by special leave, are concerned with the liability of the appellants to pay ESI contribution in respect of the workers employed by the contractors in performance of the contract awarded to them for transportation of milk.

3.The two appeals arise out of different proceedings. Brief narration of facts in relation to each of the appellants may be set out first. Hassan Cooperative Milk Producer’s Society Union Limited (for short, ‘HCMPSU Ltd.’).

4.HCMPSU Ltd. is a federal society. Its main business is purchasing milk and pasteurization of the same. The milk procured by member societies is transported in lorries/vans to the appellant’s dairy. For that purpose, contract is awarded on the basis of rate per kilometer to the lowest bidder. The contractor collects the milk from the various societies in cans on specified routes and transports to the appellant’s dairy. The empty cans are retransported and returned to the respective member societies. On September 23, 1994, a show cause notice was issued by the Assistant Regional Director, Employees’ State Insurance Corporation, Bangalore to the HCMPSU Ltd. calling upon them to furnish explanation and show cause as to why action should not be taken against them for non-payment of contribution under the Employees’ State Insurance Act, 1948 (for short, ‘1948 Act’) in respect of the employees of the appellant. It is not in dispute that this notice related to the employees engaged by the contractors for the transportation of milk. The appellant responded to the show cause notice by filing their reply on October 10, 1994, inter-alia, stating therein (a) that the main business of the appellant is to process milk, receive and sell the same to the public in the concerned districts through their agents. The appellant does not appoint the officers and subordinates to collect the milk from the societies located in different places and (b) that appellant calls for tenders and awards the contract for transportation of milk for specified period at a particular rate per kilometer. The contractors engage workers for that work but such workers are neither directly nor indirectly employees of the appellant and; the appellants have no control over such employees nor they supervise their work. The wages or salary of such workers have also not been paid by the appellant. Another notice was also issued by the concerned authority to which reply was submitted by the appellant stating therein that the workers so engaged by the contractors do not work in the premises of the appellant’s establishment and for this reason also 1948 Act is not applicable. It appears that inspection of the appellant’s establishment was conducted by the concerned authority under the 1948 Act and thereafter an order under Section 45A of 1948 Act came to be passed on March 21/24, 1995 calling upon the appellant to pay contributions totaling Rs. 65,834/- for the period April 1, 1989 to March 31, 1990 in respect of the workers employed for transportation and procurement of milk together with interest payable at the rate of 12 per cent per annum upto August 31, 1994 and 15 per cent from September 1, 1994 till the date of actual payment, within a period of 15 days from the date of receipt of the order. The appellant challenged the aforesaid order under Section 75 read with Sections 76 and 77 of 1948 Act before the Employees’ State Insurance Court at Mysore (ESI Court). The ESI Court did not find any merit in the application and dismissed the same vide order dated January 29, 2004 holding that the work of employees engaged by the contractors is incidental to the main work carried out by the appellant and that supervision over the work of such employees by the appellant is also established. The appellant challenged the aforesaid order before High Court of Karnataka by filing statutory appeal under Section 82(2) of 1948 Act which has been dismissed by the impugned order.

The Bangalore Urban

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2010 Supreme(SC) 366

Cases Referred (7)