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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE GOVARDHAN
Meenakshi Metal Industries rep, by its Partner V. Jambunathan
Versus
The Employees State Insurance Corporation having Regional Office at Madras
C.M.A. No. 385 of 1988
Decided On :Decided on : 10-04-1997
EMPLOYEES STATE INSURANCE ACT - FACTORY - DEFINITION - EMPLOYEES - NUMBER - POWER - USE - CONTRIBUTION - LIABILITY - DETERMINATION - SECTION 45-A - SHOW CAUSE NOTICE - HEARING - NATURAL JUSTICE - PRINCIPLE - APPLICATION.
Fact of the Case:
The petitioner, a partnership firm engaged in sheet metal hard-wares manufacturing, challenged the demand for contribution under the Employees' State Insurance Act (ESI Act) for the period from 1-9-1963 to 25-3-1967 and for the period from 1-4-1967 to 17-6-1970. The petitioner contended that it was not a factory as defined under the ESI Act, that there were less than 20 employees during the relevant period, and that no show cause notice was issued before passing the impugned order.
Finding of the Court:
The court held that the petitioner's establishment was a factory as defined under the ESI Act, that there were more than 20 employees during the relevant period, and that a show cause notice was issued before passing the impugned order. The court further held that the petitioner was liable to pay the contribution demanded by the respondent.
Issues: 1. Whether the petitioner's establishment was a factory as defined under the ESI Act? 2. Whether there were more than 20 employees during the relevant period? 3. Whether a show cause notice was issued before passing the impugned order? 4. Whether the petitioner was liable to pay the contribution demanded by the respondent?
Ratio Decidendi: 1. The definition of "factory" under the ESI Act includes any premises wherein 20 or more persons are employed or work as employees for wages on any day of the preceding twelve months and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on. 2. The petitioner's establishment employed more than 20 persons during the relevant period, as evidenced by the inspection report of the inspector. 3. A show cause notice was issued to the petitioner before passing the impugned order, as evidenced by the notices issued by the respondent under Exs. A-4, A-5, and A-6. 4. The petitioner was liable to pay the contribution demanded by the respondent, as it was a factory as defined under the ESI Act and there were more than 20 employees during the relevant period.
Final Decision: The appeal was dismissed.
1. This appeal is against the order passed by the E.S.I. Judge, Tiruchirapalli in E.S.I.O.P. No. 3/1975 filed under Section 75 of the Employees State Insurance Act (hereinafter called as ‘the Act’)
2. The petitioner in his petition contends briefly as follows: The petitioner is a partnership firm engaged in Sheet Metal hard-wares manufacturing from 1-4-1971. Prior to the partnership business, it was a Proprietary Concern of one Jambunathan as a Proprietor. There are eight persons employed in the petition-mentioned Firm in the premises. The respondent filed an application in E.S.I O.P. No. 2/1967 for passing a decree against the petitioner for a sum of Rs. 2270/- as due from the petitioner towards employers contribution for the period from 1-9-1963 to 25-3-1967. The Court found that there are more than 20 persons employed in the factory and a direction was given to the Proprietorship Concern to pay a sum of Rs. 2270/- as employers contribution. During the pendency of the said proceedings from 1967, from 1-4-1967 the workers in the-Proprietary Concern went away and the factory was closed from November, 1970. From 21-3-1967, there were only less than 20 employees and the maximum number of employees was 17. When the Partnership concern was formed, the total number of employees employed was only 8 persons, The Authorities have held that the petitioner Concern is not a factory within the meaning of the Factories Act. Since the petitioner Concern ceased to be a factory within the meaning of the Employees State Insurance Act as well as the Factories Act, there is no liability on the part of the petitioner to make employers contribution or employees contribution. In September 1975, the respondent has issued a notice stating that the sum of Rs. 21,642-70 with future interest is due from the petitioner concern, Even while correspondence was pending between the petitioner and the respondent, final orders were passed in September, 1975. The petitioner Concern is not liable to make any contribution for the period mentioned in the notice. The notice has made a claim even for the period covered in the E.S.I.O.P. No. 2/1967. There were no arrears of any employers contribution. The respondent had issued a certificate to the Collector to recover the amount under Revenue Recovery Act. When the petitioner is questioning the arrears of employers and employees contribution, the respondent should have issued a show cause notice.. But, without issuing any such notice, on adhoc basis, it has come to the conclusion that the petitioner is bound to pay the said amount. Hence the petition for declaration that the petitioner is not liable to pay any contribution under the Act as claimed in the petition.
3. The respondent in their counter contends as follows: The petitioner industry is a partnership Firm. E.S.I. O.P. No. 2/1967 was filed for recovery of Rs.. 2,270/- towards the employers contribution for the period from 1-9-1963 to 25-3-1967. After the decree, the amount has been paid by the petitioner. It is incorrect to state that there are only eight persons employed in the petitioner Firm from 1-4-1971. The petitioner has failed to produce the records for the purpose of inspection and for assessing the amount due from them towards contribution. The respondent had to assess the contribution payable by the petitioner in an ad hoc basis in consideration of the records available with them. It is false to state that there were less than 20 employees from 21-3-1967 and when the Proprietorship became a Partnership Concern, there are only eight employees. From the inspection report for the period 1-4-1967 to 17-6-1970, it is clear that during certain periods the number of employees were engaged for more 20, for certain periods, the employer did not give records to show the actual number of persons employed. The claim of the petitioner that it does not come under the definition of the “factory” as per the definition in the employees State Insurance Act
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