Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(Guj) 11509

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
J. C. Doshi, J
Regional Director – Appellant
Versus
Vaibhav Laxmi Industries – Respondent
FIRST APPEAL NO. 4 of 2007

Advocates:
For the Appellants/Petitioners: Hemant S Shah
For the Respondents: K. V. Gadhia

An establishment primarily engaged in seasonal manufacturing processes remains a 'seasonal factory' under the Act even if it conducts incidental activities, provided those activities are not independent, perennial operations that shift the primary purpose of the premises.

Headnote:(A) Employees' State Insurance Act, 1948 - Sections 2(12), 2(19A), 75, and 82(2) - Seasonal factory - Determination of - Cotton ginning and pressing operations - Primary activity versus manufacturing process - Establishment engaged in seasonal manufacturing process does not lose its character as a seasonal factory merely due to incidental activities if those activities are adjuncts to the primary seasonal process. (Paras 6, 7, 19, and 20)

(B) Appeal - Scope and ambit - High Court in appeal against order of tribunal may not interfere if the findings of the lower court are based on settled legal principles and involve no patent or manifest error - Burden of proof lies on the corporation to demonstrate that activity carried on beyond seasonal periods constitutes a manufacturing process covered under the Act. (Paras 4, 8, and 10)

Facts of the case:
The respondent-establishment, engaged in the business of cotton ginning and pressing, challenged a demand notice issued by the appellant-corporation for insurance contributions. The establishment contended that its operations are seasonal, dependent on the cotton crop cycle, and thus fall under the definition of a seasonal factory, exempting it from liability during non-seasonal periods. The lower court ruled in favor of the establishment, holding that the business was seasonal and the corporation failed to prove that non-seasonal manufacturing activities were conducted. The corporation appealed this decision.

Findings of Court:
The court noted that the essential condition for a seasonal factory is that it must be exclusively or primarily engaged in specific manufacturing processes like cotton ginning and pressing. Relying on established precedents, the court observed that even if an establishment performs other activities, if they are merely incidental or adjunct to the primary seasonal activity, the factory retains its seasonal status. Since the appellant failed to prove any independent year-round manufacturing activity, the finding of the lower court remained undisturbed.

Issues: The primary issues were whether an establishment engaged in cotton ginning and pressing constitutes a seasonal factory under the Act and whether the corporation’s demand for contributions covering non-seasonal periods was legally sustainable given the nature of the operations.

Ratio Decidendi: A factory exclusively or predominantly engaged in seasonal processes such as cotton ginning and pressing remains a 'seasonal factory' under the Act. Activities that are merely incidental, adjunct, or connected to the primary seasonal manufacturing process do not strip the establishment of its seasonal status, provided they are not independent, perennial manufacturing operations.

Result: Appeal dismissed.

Table of Content
1. historical context and procedural background of the dispute. (Para 1 , 2 , 3)
2. parties' contentions regarding the classification of cotton ginning as a seasonal business. (Para 4 , 5)
3. legal analysis of factory/seasonal factory definitions under esi act and applicable precedents. (Para 6 , 7 , 8)
4. application of law to facts confirming the respondent as a seasonal factory. (Para 9 , 10)
5. final judicial order dismissing the appeal. (Para 11 , 12)

JUDGMENT

1. The judgment and Order dated 31st March, 2006, passed by the Employees’ State Insurance Court, (for short ‘ESI Court’), Ahmedabad in ESI Application No.48 of 2003 holding that M/s. Vaibhav Laxmi Industries, is not responsible to pay the contributions under the Employees’ State Insurance Act, is the subject matter of challenge in this appeal under Section 82(2) of the Employees’ State Insurance Act, 1948 (for short ‘ESI Act’), preferred by the Regional Director of the Employees’ State Insurance Corporation (for short ‘ESI Corporation’).

2. Brief facts of the case are that, M/s. Vaibhav Laxmi Industries is a registered partnership firm engaged in the business of cotton ginning and pressing. The said industries was covered under the provisions of the ESI Act and was allotted ESI Code No. 37-21688/2006. The said industries commenced its cotton ginning and pressing operations in March 1996 and, after completion of the season, suspended its business in June 1996. It restarted its factory operations in October 1996 and subsequently commenced a small mill business in January 1997. Therefore, as per the provisions of the ESI Act, the Act would be applicable from January 1997 and not prior thereto, since before January 1997 the said factory was engaged in seasonal business.

2.1 The ESI Corporation, by issuing a notice in Form C-18, directed M/s.Vaibhav Laxmi Industries to pay contributions amounting to Rs.1,69,884/- commencing from October 1996. The same was challenged. In total, the ESI Corporation demanded Rs.3,00,047/- including interest and other charges, and in addition demanded Rs. 4,842/- as damages. Being aggrieved, M/s.Vaibhav Laxmi Industries preferred an application under Section 75 of the ESI Act before the ESI Court, seeking a declaration that the action of the ESI Corporation in imposing liability to pay contributions from October 1996 was illegal, unjust, and contrary to the principles of natural justice. The application was contested and ultimately allowed in favour of M/s.Vaibhav Laxmi Industries by the impugned judgment and order.

2.2 Being aggrieved, the ESI Corporation has preferred the present First Appeal.

3. Heard learned advocate Mr.Hemant Shah for appellant - ESI Corporation and learned advocate Mr. K.V.Gadhia for respondent – M/s.Vaibhav Laxmi Industries.

4. In order to show the case, the substantial question involved in the appeal under Section 82(2) of the ESI Act, Mr. Shah, learned advocate for appellant, submitted that the ESI Court has committed a patent and manifest error in holding that the business of cotton ginning and pressing is a seasonal business. He contended that Section 2(12) of the ESI Act has been improperly interpreted, and thereby the ESI Court has committed a serious error. He further submitted that the business is conducted throughout the year, beginning from the procurement of cotton bales to the process of ginning and ultimately preparing the final product. Therefore, such a factory cannot be termed as a seasonal business. In view of the above, he submitted that the finding of the learned Trial Court is patently illegal and deserves to be set aside by allowing this appeal.

5. In contrast, learned advocate Mr. Gadhia for the respondent, has relied upon the judgment of the Division Bench of the High Court of Andhra Pradesh in the case of Employees State Insurance Corporation, Hyderabad through its Regional Director Vs. Jayalakshmin Cotton, Oil Products (P) Lted, Perecheral, Guntur District , through

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2026 Supreme(Online)(Guj) 11509

IN THE HIGH COURT OF GUJARAT AT AHMEDABADJ. C. Doshi, JRegional Director – AppellantVersusVaibhav Laxmi Industries – RespondentFIRST APPEAL NO. 4 of 2007

An establishment primarily engaged in seasonal manufacturing processes remains a 'seasonal factory' under the Act even if it conducts incidental activities, provided those activities are not independent, perennial operations that shift the primary purpose of the premises.

Cases Referred (1)

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
J. C. Doshi, J
Regional Director – Appellant
Versus
Vaibhav Laxmi Industries – Respondent
FIRST APPEAL NO. 4 of 2007