The judgment established the principle that the employees engaged by contractors can be considered employees of the principal employer within the meaning of Section 2(9)(ii) of the ESI Act if they work on the premises of the establishment or under the supervision of the principal employer.

( 1 ) THIS is an appeal under Section 82 of the employees Insurance Act, 1948 against the judgment of the employees State Insurance Court, Pune dated 26. 09. 2002 in Application (ESI) No. 2 of 1991 rejecting the application under Section 77 of the Employees State Insurance Act, 1948 (hereinafter referred to as "the ESI Act" for short) and upholding the order dated 26. 11. 1990 by the Deputy regional Director, Employees State Insurance Corporation (hereinafter referred to as "the ESIC" for short) Pune under section 45-A of the ESI Act.

( 2 ) THERE is little dispute about facts. The appellant is a public limited company incorporated under the Companies act, 1956 having its registered office at Akurdi, Pune and one of its factories at Akurdi. The appellant is engaged in the manufacturing of commercial vehicles. It has engaged about 2400 workmen , majority of whom are covered under the ESI scheme.

( 3 ) BY order dated 26. 11. 1990 under Section 45-A of the ESI Act, the appellant was called upon to pay its contribution amounting to Rs. 3,67,175. 80 ps for the period from October 1981 to August,1988 and interest thereon amounting to Rs. 1,24,168. 55 ps upto 31. 10. 1990 total rs. 4,91,344. 35 ps failing which the same would be recovered as arrears of land revenue. The said contribution was demanded for the period from October,1981 to August,1988 on the amount of wages paid to the employees engaged by the contractors for construction of new buildings and repairs and maintenance of the existing buildings.

( 4 ) THE appellant challenged the said order by moving an application under Section 77 of the ESI Act before the employees Insurance Court. The main grounds on which the said order was challenged are as under:- (i) That the persons engaged by the contractors were not the employees of the appellant within the meaning of section 2 (9) of the ESI Act; (ii) That the contribution has been charged by presuming wages as 25 % of the actual expenditure whereas a very small portion of the amount not exceeding 8% of the total costs relates to wages. The ESI authorities failed to check up with the contractors the actual amount of wages paid by them to the persons engaged by them; (iii) That another such order relating to the earlier period has been challenged by the appellant before the High court and that Appeal No. 260/1990 is pending before the high Court. Thus the impugned order was passed with undue haste and in colourable exercise of the rights given to esic; and (iv) That the demand made by ESIC is barred by limitation under the proviso to Section 77 (1) (b) of ESI Act whereunder there is a bar to the claim after five years of the period to which the claim relates. (The learned counsel for the appellant , however, did not press this point before me.)

( 5 ) THUS according to the appellant, the demand made by ESIC is illegal, unjustified and untenable. The appellant, therefore, prayed for a declaration that the appellant is not liable to pay any contribution or interest as demanded by esic by its order dated 26. 11. 1990. Alternatively the appellant prays that in case it is held that the appellant is liable to pay contribution, then the costs of wages should be taken as 8 % of the total amount paid to the contractors and contribution thereon be calculated and be recovered from the contractors and be paid to the appellant.

( 6 ) THE respondent/esic opposed the application by its detailed written statement running into 25 pages with full of repetitions. It justified its order dated 26. 11. 1990. According to the respondent the payment of contribution is the statutory liability of the appellant. As the appellant failed to discharge its liability, the appellant is liable to pay interest. It further submitted that it was the duty of the appellant to maintain proper records and to give bifurcation of the amount spent on material and the amount paid as wages. However, the appellant failed to maintain proper records and wants to shift its responsib

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