R. C. C. (Sales) Private Limited vs E. S. I. Corporation

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2015 Supreme(AP) 327

IN THE HIGH COURT OF JUDICATURE AT HYDERABAD FOR THE STATE OF TELANGANA AND THE STATE OF ANDHRA PRADESH
D.B. Bhosale, K.C. Banu, S.V. Bhatt, A. Shankar Narayana and Anis, JJ.
R.C.C. (Sales) Private Limited and Ors. - Appellants
Vs.
E.S.I. Corporation and Ors. - Respondent
C.M.A. No. 3092 of 1998
Decided On : 03.07.2015

Advocates Appeared:
For the Appellant : Vedula Srinivas
For the Respondents: B.G. Ravindra Reddy

Headnote:
Employment and Service matter – Employees State Insurance Act, 1948 – Section 2(9) – Employer and Employee – Paying contribution in respect of covered employees regularly – Appellant in the first CMA and respondent in second CMA- Companies are sister-concerns – Companies are engaged in manufacturing of safety razor blades and other shaving systems – Companies, at relevant time, had 500 and 700 workers respectively – Companies are, admittedly, covered establishments under the provisions of ESI Act and they were paying contribution in respect of the covered employees regularly – Companies with a view to provide employment and educate the unemployed youth, decided to impart practical training to such other persons who approached them for training after entering into agreements with them whether the stipend paid to the trainees could be termed as wages apart from the fact whether the trainees could be treated as an employees – whether the parties are entitled to contract out of the beneficial provisions of the ESI Act – Held, No doubt that provisions of Section 2(9) of ESI Act were enacted for protecting employees from employers and there is a public policy underlying it, which, in our opinion, precludes an employee from waiving his benefits. In any case, any agreement, which tends to be injurious to an employee or against his interest or public good, is liable to be invalidated on ground of public policy – Legal maxim A pactis privatorum publico juri non derogatur means that private agreements cannot alter the general law where a contract, express or implied, as observed in Mannalal Khetan (supra), is expressly or by implication forbidden by statute, no court can lend its assistance to give effect to such agreement – Parties cannot contract out of the statute and take recourse to such a procedure which would for all intent and purport make the provisions of Section 2(9) and 2(22) of ESI Act nugatory by entering into contractual arrangement or otherwise. Section 2(9) of ESI Act was undoubtedly enacted only for the benefit of employees or for protecting the employees/workmen – Thus, question referred must be answered in the negative – Combined effect of statutory scheme up to Section 39 creates an obligation of contribution to Corporation by the employer and employee – Therefore, employer and the employee cannot in law, contract out the statutory obligation of contribution to the Corporation and agree not to pay contribution to Corporation – Relationship of employer and employee in a factory/establishment under Act, gives raise to the obligation of contribution to Corporation – Mutual or bilateral acts of employer and employee can’t affect the right of Corporation to receive contribution – Scheme of the Act as already waded through is intended to secure compulsory participation and/or contribution of sums due under Act, and strikes at all attempts by contract to either limit or extinguish these rights directly or indirectly – Contracting out of statutory obligation by employer and employee when the obligation by operation of law is towards the Corporation is void and illegal. It may be that the Act does not explicitly forbid such course, but if interpretation to contract out of act is accepted, interpretation will defeat and destroy compulsive character introduced by the legislation – Order accordingly. (Paras 26,27 and 28)

JUDGMENT

D.B. Bhosale, J.

1. The order of reference dated 30th of April, 2011, which has occasioned the constitution of this Larger Bench, was passed by the Full Bench in the instant Civil Miscellaneous Appeals, in view of a divergence of the opinions/views expressed in two judgments, the first being the judgment of another Full Bench in E.S.I Corporation, Hyderabad vs. Andhra Pradesh Paper Mills AIR 1978 AP 18 (FB) and the second of Division Bench in Deccan Chronicle vs. E.S.I.C, Hyderabad. 1980-II L.L.J. 474 The question referred by the learned Chief Justice is whether the parties are entitled to contract out of the beneficial provisions of Employees State Insurance Act, 1948 (for short the ESI Act).

2. The factual matrix, that occasioned the reference, is as under:-

"2.1 The first Civil Miscellaneous Appeal (No.3092 of 1998) was filed by M/s. Microraj Electronics Private Limited against the Employees State Insurance Corporation (for short the Corporation) while the second Civil Miscellaneous Appeal (No.2242 of 1999) was filed by the Corporation, which is the 1st respondent in the first CMA, against M/s. R.C.C.(Sales) Private Limited. The appellant in the first CMA and the respondent in the second CMA (for short the Companies) are sister-concerns. The Companies are engaged in manufacturing of safety razor blades and other shaving systems. The Companies, at the relevant time, had 500 and 700 workers respectively. The Companies are, admittedly, covered establishments under the provisions of the ESI Act and they were paying contribution in respect of the covered employees regularly.

2.2 The Companies with a view to provide employment and educate the unemployed youth, decided to impart practical training to such other persons who approached them for training after entering into agreements with them. The period of training was fixed for a term of three (3) years and during the course of training, the trainees were paid stipend @Rs. 600/-, 700/- and Rs. 800/- per month respectively. In the agreements entered into with them, it was specifically made clear that they shall not be entitled to employment as of right after completion of training and that there has been no relationship of employer and employee between them inter se.

2.3 The Inspector of the Corporation visited both the Companies on 19th, 20th and 21st July, 1995, so as to ensure compliance of the provisions of the Factories Act. In the course of inspection, it was revealed that the Companies had not been paying contribution, for the years 1991-96, in respect of the trainees. The amounts which the Companies were liable to contribute at the relevant time were Rs. 17,40,910-70 ps. and Rs. 3,85,875-53 ps. respectively. In view thereof, the Inspector prepared a detailed inspection report on the basis of which the Companies were served with the notices under the provisions of the ESI Act calling upon them to pay a sum of Rs. 96,525/- and Rs. 1,35,699/- respectively to the trainees. The Companies assailed the said notices before the Employees Insurance Court in E.I. Case Nos. 37/1995 and 45/1997. Both the cases were disposed of by orders dated 08-12-1997 and 27-10-1998 respectively holding that in the case of former Company, it need not pay the contribution on the stipend being paid by it to the apprentices and in the case of latter company, the case was dismissed confirming the notice issued by the Inspector. These two orders were called in question before this Court in the instant CMAs."

3. The learned single Judge while dealing with the instant appeals noticed the difference of opinion between the Full Bench in A.P. Paper Mills (supra) and the Division Bench in Deccan Chronicle (supra) and directed the Registry to place these appeals before the learned Chief Justice for an authoritative pronouncement on the question reproduced in the first paragraph of this judgment. The Full Bench presided over by B. Prakash Rao J, as he then was, while dealing with the instant appeals noticed the

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2015 Supreme(AP) 327

Cases Referred (19)