The main legal point established in the judgment is that construction work for the expansion of a factory or establishment is deemed to be ancillary or incidental to the main business, and workers engaged in such construction are deemed to be employees under the Employees State Insurance Act.

P.N. Ravindran, J.

The order passed by the Employees Insurance Court, Alappuzha on 29.2.2008 in I.C.No.160 of 2001 is under challenge in this appeal filed by the Regional Director, Employees State Insurance Corporation, Thrissur. The brief facts of the case are as follows:

2. M/s. Jaymat Hotel Resorts Ltd., a company incorporated under the Companies Act, 1956, entered into an agreement with M/s. International Housing Complex to construct buildings and other structures in a parcel of land belonging to it. As per the terms of the agreement, the work was to be executed in two phases. In the first phase, a club building with 22 cottage rooms and in the second phase, another building with 100 rooms were to be constructed. The agreement between M/s. Jaymat Hotel Resorts Ltd. and M/s. International Housing Complex was entered into on 14.9.1991. The first phase of the construction was completed by September 1994 and the business of the company commenced thereafter. The employees working in the establishment, 20 in number, were covered.

3. When the second phase of the construction started, DW-2, an insurance inspector in the service of the Employees State Insurance Corporation inspected the business establishment of the company on 16.5.1996 and submitted Ext.D-9 report. He found that the construction of the five star hotel is in progress. He also reported that the company is liable to pay contribution on the wages paid to the workers involved in the construction of the said hotel. Later, to be exact on 25.11.1997, DW-2 yet another insurance inspector inspected the very same premises and submitted Ext.D-8 report. He observed in his report that though 25 persons are employed for wages, only 20 persons have been covered under the Employees State Insurance Act, 1948 (hereinafter referred to as "the Act" for short) and 5 more persons are yet to be covered. He also reported that the company is liable to pay contribution in respect of the wages paid to the workers engaged in the construction of the hotel. After complying with the procedure prescribed in the Act, the Regional Director, Employees State Insurance Corporation, Thrissur passed an order of assessment on 20.9.2001 under section 45A of the Act, assessing the sum of Rs.7,49,452/- as contribution payable by the company in respect of the wages paid to workers engaged in the construction of the hotel. The company thereupon moved the insurance court by filing an application under section 75 read with section 77 of the Act, praying for a declaration that the assessment and demand as per order passed on 20.9.2001 is unsustainable. The company contended that the persons employed by M/s. International Housing Complex to construct the hotel building cannot be treated as its employees. Yet another contention raised was that the second stage of construction was not for the expansion of the first stage of business activities and therefore, the demand is illegal. The Employees State Insurance Corporation contended that its action is perfectly in order, having regard to the definition of the term 'employee' occurring in section 2(9) of the Act.

4. Before the Employees Insurance Court, the Managing Director of the company was examined as PW-1 and the company produced and marked Exts.P-1 to P-6. On the side of the Employees State Insurance Corporation, two insurance inspectors, who had inspected the business establishment of the company while the hotel building was being constructed, were examined as DWs.1 and 2. The Employees State Insurance Corporation also produced and marked Exts. D-1 to D-9. After considering the rival contentions, the Employees Insurance Court held that the club and cottage rooms, which had already come into existence, constitute a separate establishment coverable under the Act, that it was covered and thereby, the law was complied with. The court below also held that the persons employed in the construction of the hotel building cannot be treated as persons employed in c