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2006 Supreme(AP) 1588
Andhra Pradesh High Court
Judges : L.NARASIMHA REDDY
PAVAN CHIT FUNDS (P) LTD., MAHABOOBNAGAR - Appellant
Versus
EMPLOYEES STATE INSURANCE CORPORATION, HYDERABAD - Respondent
Decided On : 12/29/2006
CMA 1129 Of 2006
Headnote:
Employees State insurance Act, 1948 – Section 82 – Shares of profit - Paid remuneration - Notice at stage of admission - Appeal is filed under Section 82 of the Employees State insurance Act, 1948 appellant is a chit fund company officials of the Employees State Insurance corporation, Respondents herein, caused inspection of the office of the appellant and on subsequent dates. Show- cause notices were issued, directing the appellant to explain as to why it shall not be brought under the purview of the Act. Ultimately, vide proceedings appellant was brought under the purview of the Act. appellant filed E.. Case before the Employees insurance Court and Chairman, Industrial tribunal-I, Hyderabad appellant pleaded that it had 16 employees on its rolls and since the number did not exceed 20, it is not liable to be brought under the purview of the Act was also pleaded that the respondents have erroneously treated the 8 Directors of the Company, as employees, on the sole ground that they are receiving their shares of profit plea of the appellant was resisted by the respondents. According to them, the Directors were being paid remuneration, almost as employees and since they too were working for the benefit of the company, they are liable to be treated as employees. On this premise, it was contended that the total number of employees of the appellant is 24 and in that view of the matter, no exception can be taken to the proceedings, bringing the appellant under the purview of the Act –Held, Appellant pleaded that except that the Directors were being paid their share from the profit and loss account, no fixed monthly remuneration was paid to them and in that of the matter, they ought not to have been treated as employees contention could have been repelled, if only, there existed any material to show fixed monthly remuneration was being paid to the Directors; and (b) remuneration is less than unless the findings on these two crucial facts are recorded, the appellant could not have been brought under the purview of the act learned Standing Counsel for the respondents submits that despite notices to the appellant, the latter did not furnish the relevant information as to the nature of payment made to the Directors and in that view of the matter, the respondents were left with no alternative except to draw inferences Tribunal did not record any finding that any fixed remuneration was being paid to the Directors. On the other hand, the fact that they were sharing the profits from the profit and loss account was taken note of Court is of the view that on the basis of such uncertain observations, the liability under the Act cannot be fastened upon the appellant matter needs to be examined afresh by the respondents from the proper angle. The appellant must also co-operate and non-co-operation must entail in the steps indicated in the Act – Appeal is allowed.
( 2 ) THE appellant pleaded that it had 16 employees on its rolls and since the number did not exceed 20, it is not liable to be brought under the purview of the Act. It was also pleaded that the respondents have erroneously treated the 8 Directors of the Company, as employees, on the sole ground that they are receiving their shares of profit.
( 3 ) THE plea of the appellant was resisted by the respondents. According to them, the Directors were being paid remuneration, almost as employees and since they too were working for the benefit of the company, they are liable to be treated as employees. On this premise, it was contended that the total number of employees of the appellant is 24 and in that view of the matter, no exception can be taken to the proceedings, bringing the appellant under the purview of the Act.
( 4 ) THE Tribunal dismissed E.. Case no. 56 of 2003, through its judgment, dated 28-11-2006, hence this, appeal.
( 5 ) SRI A. K. Jaya Prakash Rao, the learned Counsel for the appellant submits that there is nothing on record to disclose that the Directors were being paid any fixed monthly remuneration and that the fact that they were sharing the profits cannot be a ground to treat them as employees. He further submits that no definite finding was recorded by the respondents as regards the alleged remuneration drawn by the Directors or to treat them as employees.
( 6 ) SMT. Pushpinder Kaur, the learned counsel for the respondents, who took notice at the stage of admission, submits that the appellant did not dispute that the directors of the appellant company were also being paid amounts, and despite service of notices, the appellant did not furnish the relevant records. She contends that the respondents were left with no alternative, except to draw an inference that the Directors were also being paid fixed monthly remuneration. Placing reliance upon the judgment of the Supreme Court in employees State Insurance Corporation v. Apex Engineering Private Limited, 1998 illj 274, learned Counsel submits that the order under appeal does not warrant interference.
( 7 ) THE appellant is sought to be brought under the purview of the Act, for the first time. The Act prescribes a detailed procedure, to be followed, before an undertaking is brought under its purview. The number of employees working in the undertaking, assumes significance in this context. Since no manufacturing activity is carried out by the appellant, it could have been brought under the purview of the act, if only, the number of employees exceeded 20.
( 8 ) IT is a matter of record that the register of the employees contained the names of 16. The dispute was as to whether its 8 Directors must be treated as employees. If they were to be so treated, the number of employees would become 24 and the appellant is liable to pay the contribution.
( 9 ) THE question as to whether a director of a company can be treated as an employee, if he was being paid a fixed amount of salary, is no longer res Integra. In the judgment Employees State Insurance corporation v. Apex Engineering Private limited (supra), the Supreme Court held that in case the Managing Director or other director of a company or a firm is paid monthly remuneration to carry out extra duties, he is liable to
