The court ruled that workers engaged in pre-operative fit-out works are not covered employees under the ESI Act and ordered a refund of contributions based on prior incorrect payments.

JUDGMENT :

M.A.ABDUL HAKHIM, J.

1. Appellants are the Respondents Nos.1 and 2 before the E.I.Court, Alappuzha in I.C. No.67/2011 filed under Sections 75 and 77 of the Employees’ State Insurance Act, 1948 (E.S.I. Act, for short). They are the Regional Director and the Deputy Director of E.S.I. Corporation. The Respondents are the Applicant and the Respondent No.3 before the E.I. Court. The Appellants are challenging the Order by which the refund of the ESI contribution was ordered by the E.I. Court.

2. This Court formulated the following substantial question of law in this Appeal as per the Order dated 20.11.2024:

“Whether Section 2 (9) of the E.S.I. Act covers the workers engaged for pre-operative fit-out works by the employer requiring contribution to be paid as per the aforesaid Act?”

3. The parties are referred to according to their status before the E.I. Court.

4. The Corporate office of the Respondent No.3 at Mumbai was an establishment covered under the ESI Act during the relevant period. The Applicant was not an establishment covered under the ESI Act. The Applicant owns a building by the name, Thejomaya, constructed for I.T. business, I.T. enabled services and other related services and amenities pursuant to Sanction Order dated 05.04.2007 issued by the Development Commissioner, Infopark Special Economic Zone, Kochi. The building was constructed within the Special Economic Zone at Infopark, Kakkanad. The Respondent No.3 took lease of the 7^th 8^th & 9^th floors of the said building from the Applicant for starting a new unit as per Ext.D1 Lease Deed dated 21.10.2007. As per Ext.D1 Lease Deed, the lease commencement date is 21.10.2007 or the date of actual handover of the premises by the Lessor to the Lessee to start the fit-out works. Even before the execution of the Ext.D1 Lease Deed, the Respondent No.3 awarded a contract in favour of the Applicant to do the interior fit-out works in the premises as per Exhibit A1 Contract/Work Order dated 08.10.2007. For the purpose of executing the pre- operative fit-out works, 90 days rent-free period was allowed to the Respondent No.3 by the Applicant. The interior fit-out works were completed on 11.01.2008, and the premises were entrusted to the Respondent No.3 on 11.03.2008. The Respondent No.3 started its operations of the new unit in the leased premises on 02.04.2008 by issuing Ext.A4 Letter of Intimation to the Development Commissioner (Sez-IT & ITES), Thiruvananthapuram. Since the burden to meet the ESI contribution was on the Applicant as per Ext.A1 Contract, the Respondent No.3 deducted an amount of Rs.23,68,366/- from the value of the contract payable to the Applicant and remitted the same to the E.S.I. Corporation on 29.03.2008. Ext.A1 Contract contained a clause that it is the Applicant who has to comply with all the labour laws such as E.S.I., P.F. and Contract Labour Act. The Applicant submitted Exhibit A5 Request dated 12.01.2010 to the Respondent No.1 seeking a refund of the amount remitted by the Respondent No.3 on the ground that, as per Exhibit A9 Instruction No.4/99 dated 14.06.1999 of the E.S.I. Corporation, New Delhi, the workers engaged in construction sites are exempted from the provisions of the ESI Act and that the contribution was paid by mistake and hence the Applicant is eligible to get a refund of the amounts paid by the Respondent No.3 with respect to Exhibits A1 & A2 Contracts. The Respondent No.3 also submitted Exhibit A8 Letter dated 11.03.2010 to the Respondent No.1 stating that since construction activity is exempted, the payment of contribution was made by mistake, and the Respondent No.3 had no objection to refunding the amou