Employees State Insurance Corporation through its Regional Director, Nagpur vs Apex Engineering Pvt. Ltd.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1987 Supreme(Bom) 150

IN THE HIGH COURT OF BOMBAY
(NAGPUR BENCH)
Dhabe H.W. Sambre W.M., JJ.
Employees State Insurance Corporation
through its Regional Director, Nagpur .... Appellant.
Versus
Apex Engineering Pvt. Ltd..... Respondent.
Letter Patent Appeal No. 14 of 1985, decided on 20-4-1987.
Advocates appeared :
A.V. Holey, for appellant.
V.R. Thakur, for respondent.

Headnote:EMPLOYEES STATE INSURANCE ACT, 1948.
       Section 2 (9)-Managing Director-Whether employer or employee-Held, be is employer under the Act and not an employee.
       Perusal of clause 94 of the Article of Association would show that the first Managing Director was to be elected by the Board of Director on such remuneration and terms as it though fit and he was to hold the office until the immediate next General Meeting of the Board Clause 85 of the Article of Association of the respondent-Company deals with the appointment of the Managing Director and clause 96 deals with his powers and duties. It is clear from clause 96 that any powers of the Directors can be entrusted to the Managing Director by the Directors. Clause 93 of the Articles of Association provides that un less otherwise decided by the Board, the Managing Director in the absence of the appointment of a secretary of the Company shall duly comply with the provisions of the statute and particularly the provisions as to registration and keeping records of mortgages and charges, maintenance of register of Members and sending to the Registrar of Companies an annual list of members and summary notice as to increase of capital, special resolution and other returns and particulars required to be submitted. However, as regards clause 93, there is no evidence to show whether there was secretary appointed in the respondent-Company or not.
       The said provision, therefore, cannot be taken into consideration in this case to determine the duties performed by the Managing Director of the respondent Company. Although the definition of the expression Managing Director given in clause (1) (f) of the Articles of Association shows that any person can be appointed as a Managing Director in the respondent Company, the appointment is from amongst the Directors of the Company. The resolution of appointment of the Managing Director referred to above shows that the Managing Director can exercise the powers of the Directors as per the said resolution. The other powers referred to therein are the powers of the Board of Directors under Section 292 of the Companies Act, which are already referred to.
       All the above powers and duties, therefore, show that the Managing Director belongs to the class of the "principal employer" as defined in Section 2 (17) of the ESI Act and not to the class of "employees" as defined in Section 2 (9) of the said Act. A person who is an employer within the meaning of the said Act cannot at the same time be treated as an employee within the meaning of the said Act.

JUDGMENT - DHABE H.W., J.:—This is a letters patent appeal preferred by the Employees' State Insurance Corporation against the judgment of the learned Single Judge of this Court holding that the Managing Director of the respondent company is not an 'employee' within the meaning of the definition of the said expression given in section 2(9) of the Employees' State Insurance Act, 1948 (for short the ESI Act).

Briefly the facts are that by order dated 23-5-1974 and 1-7-1974, the appellant Corporation made the provisions of the ESI Act applicable to the respondent company on the ground that it had engaged 20 employees in its company and, as such, by virtue of sub-section (4) of section 1 of the ESI Act, the provisions of the said Act were applicable to the said company. The respondent company made an application under sections 75 and 76 of the ESI Act before the Employees' Insurance Court, Nagpur, for decision on the dispute whether the respondent company is a 'factory' within the meaning of section 2(12) of the ESI Act and whether its Managing Director is an 'employee' within the meaning of section 2(9) of the said Act. The appellant Corporation filed its written statement in the case opposing the claim of the respondent company. The parties led evidence before the Employees' Insurance Court.

2. The learned Judge of the Employees' Insurance Court on the basis of the evidence on record held that there were only 19 employees in the factory of the respondent company besides its Managing Director and, therefore the only question which necessitated consideration was whether its Managing Director was an 'employee' within the meaning of section 2(9) of the ESI Act. As regards the said question, the learned Judge of the Employees' Insurance Court held that looking to the nature of the powers and duties conferred upon the Managing Director of the respondent company, he was not an employee within the meaning of section 2(9) of the ESI Act. The appellant Corporation preferred an appeal in this Court against, the aforesaid judgment of the learned Judge of the Employee' Insurance Court. The learned Single Judge of this Employees' Insurance Court. The learned Single Judge of this Court, who heard the appeal affirmed the view taken by the learned Judge of the Employees' Insurance Court. The appellant Corporation has, therefore, preferred the instant letters patent appeal in this Court.

3. The learned Counsel appearing for the appellant Corporation has urged before us that the Managing Director in the instant case has a dual capacity one as a Director and another as a Managing Director. The submission is that although in his capacity as a Director of the respondent company he may not be an employee within the meaning of section 2(9) of the ESI Act, in his capacity as a Managing Director, he would be an employee within the meaning of the said definition. In support of the above submissions, heavy reliance is placed upon a Division Bench judgment of the Karnataka High Court in the case of (Regional Director, Employees' State Insurance Corporation v. M/s. Margarine and Refined Oils Co. (P.) Ltd., Banglore)1, 1934 Lab.I.C. 344. Reliance is also placed on behalf of the appellant Corporation upon a judgment of the Supreme Court in the case of (Shri Ram Prasad v. Commissioner of Income-tax, New Delhi)2, A.I.R. 1973 S.C. 637 arising out of the proceedings under the Income-tax Act.

4. In a appreciating the contention raised before us, it would be worthwhile to notice some of the relevant provisions of the ESI Act. Section 1(4) provides that the said Act shall, in the first instance apply to all the factories other than seasonal factories. The definition of the expression "factory" in section 2(12) above that factory means any premises including the precincts thereof wherein twenty or more persons are employed or were employed for wages on any day of the preceding twelve months..........."

5. The definition of the expression 'employee' is contained in sectio

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