IMPORTANT POINT
Director receiving remuneration for discharge of the duties entrusted to him is an employee in terms of Section 2(9).

JUDGMENT :

Dinesh Maheshwari, J.

Leave granted.

2. The short question calling for determination in this appeal by special leave against the judgment dated 17.02.2014 passed by the High Court of Madhya Pradesh, Bench at Indore in Miscellaneous Appeal No. 1213 of 2006 is as to whether the Directors of respondent-Company, who are receiving remuneration, come within the purview of “employee” under sub-section (9) of Section 2 of the Employees' State Insurance Act, 1948 ('the ESI Act')?

3. Put in brief, the relevant background aspects of the matter are that the respondent-Company had been covered under the ESI Act and had been depositing the amount of contribution with reference to the wages paid to some of its employees. However, in an inspection carried out by the Appellant-Employees' State Insurance Corporation ('the Corporation'), it was observed that the respondent-Company had not made the contribution in respect of the remuneration paid to the Directors. There had been exchange of communications in regard to the liability of the respondent-Company and ultimately, by the order dated 06.04.2005, the Deputy Director of the appellant-Corporation called upon the respondent to make payment of contribution in relation to the remuneration paid to the Directors. Such a demand was questioned by the respondent-Company by way of an application under Section 75 of the ESI Act (Case No. 171 of 2005) that was considered and decided by the Employees State Insurance Court at Indore ('the ESI Court') by its order dated 24.12.2005.

4. The ESI Court noted that both the parties had not adduced any evidence and sought disposal of the case only on the basis of arguments. The parties referred to a few citations but in essence, both the parties relied upon the decision of this Court in the case of Employees' State Insurance Corporation Vs. Apex Engineering Pvt. Ltd., as reported in 1997 (77) F.L.R. 878 ; Equivalent citation (1998) 1 SCC 86. The ESI Court observed that in the said case, the Managing Director was found performing some particular work but there was no illustration that the provisions of the ESI Act were applicable on the amount received by the Directors; and rather took the view that the illustrations produced by the respondent-Company were to the effect that Directors do not fall under the category of the employees. The ESI Court, therefore, declared the aforesaid order dated 06.04.2005 void and unfair, while observing as under:-

“5....I viewed the above judicial illustration produced in case. The illustration on which both parties put their faith according to their view, has been adjudicated by Hon’ble Supreme Court. It seems by its perusal that managing director performs some particular works. The provisions of ESI Act are applicable on the payment that is made to him for those particular and additional works. There is no dispute in relation to the amount receiving by managing director in this case but there is dispute in relation to the amount receiving by directors. There has no judicial principle been established in any of judicial illustration produced in the case that the provisions of ESI Act are applicable on the amount receiving by the directors on the other hand judicial illustration produced by the plaintiff reveals that neither amount receiving by the directors fall under the category of pay nor directors fall under the category of employee. Hence in the right (sic) of above judicial illustration the order dated 06.04.05 passed by defendant is proved void and unfair.”

5. In the appeal preferred by the appellant-Corporation under Section 82 of the ESI Act against the aforesaid order dated 24.12.2005, the High Court of Madhya Pradesh at Indore Bench, while relying on the decision of the Bombay High Court in the case of Sakal Papers Private Limited Vs. Employees' State Insurance Corporation reported in MHLJ 1995 Vol. 2 Page 69 and another decision of the Bombay High Court in the case of Employees' State Insurance Corporation Vs. Ape