Bombay Anand Bhavan Restaurant vs Dy. Director , Esi Corpn. And Anr

Bombay Anand Bhavan Restaurant .............. Appellant

Versus

The Deputy Director, ESI Corporation and Anr. ..............Respondents

WITH

CIVIL APPEAL NO. 5639 OF 2004

M/s. Cow & Cane and Anr. .............. Appellants

Versus

The Regional Director, ESI Corporation ..............Respondent

JUDGMENT

H.L. Dattu, J.

1

1) These appeals are directed against the judgment and order passed by the

High Court of Karnataka at Bangalore, in Misc. First Appeal No.4152 of

2001 and Misc. First Appeal No.1954 of 2002 dated 17.07.2003.

2) Briefly stated the facts are as follows:-

The appellant in Misc. First Appeal is a proprietorship concern and is

engaged in the activity of making and selling coffee, tea and other

beverages, and also sweets and savories. It is registered under Shops

and Commercial Establishments Act. Sometime in the year 1997 and

1998, the appellant had purchased a bottle cooler and also a coffee

roaster. According to the appellant, even after such purchase, it had

not employed more than 10 or more employees.

3) The appellant also states, that power is being used for operating coffee

roaster and bottle cooler. It is its further case, that, since it has not

employed 10 or more employees, the provisions of the Employees' State

Insurance Act, 1948 (hereinafter referred to as `ESI Act') are not

attracted to the appellants' establishment.

4) The insurance inspector of the ESI corporation had visited the business

premises of the appellant on 11.12.1998 and 07.01.1999, and inspected

the records from April 1994 and had recorded that the appellant had

employed more than 10 employees as on 01.04.1994, as per the records

2 and was using power for the coffee roasting machine and the bottle

cooler and as such the appellant's restaurant stood covered under the ESI

Act with effect from 01.04.1994, and therefore, the appellant should have

started complying with the mandatory provisions of ESI Act.

5) The Deputy Director of ESI corporation, by incorporating the report of

the insurance inspector by his letter dated 18.02.1999, had directed the

appellant to pay contributions from April, 1994, and submit Form-01 at

the earliest. In response to the aforesaid letter, the appellant by its reply

letter dated 08.03.1999, had brought to the notice of the Deputy Director

of the Corporation, that, after purchase of bottle cooler and coffee roaster,

had not employed more than 10 employees and, therefore, they are not

covered under the provisions of the ESI Act and, therefore, they are not

obliged to pay any contribution under the ESI Act.

6) The Deputy Director of the Corporation by his subsequent letter dated

09.04.1999, had informed the appellant, that, on verification of the

records produced before the insurance inspector, it was observed that the

appellant is using LPG gas for preparation of coffee, tea and other

beverages and, therefore, covered under the ESI Act and therefore,

appellant has to comply with the statutory provisions of ESI Act, failing

which contributions would be recovered by resorting to coercive

3 measures as provided under the ESI Act. The proposal so made was

objected to by the appellant, inter-alia, contending that the use of LPG

gas cannot be equated with the use of power and as per the provisions of

the ESI Act, it is only when electric power is used in manufacturing

process with 10 or more employees, then alone ESI Act could be made

applicable and, therefore, requested the authorities to drop the

proceedings, as proposed in their letter dated 09.04.1999.

7) Since the explanation offered by the appellant was not satisfactory, the

authorities under the ESI Act, issued a demand notice, inter-alia directing

the appellant to pay contribution for the entire period, i.e. from April,

1994 till the date of inspection. Since the appellant did not comply with

the demand so made, the Deputy Director of ESI Corporation, passed an

order under Section 45-A of the ESI Act, ordering the payment of

contribution under the ESI Act for the aforesaid period.

8) The appellant, being aggrieved by the aforesaid order, had filed an appeal

before the ESI Court and Additional Industrial Tribunal, Bangalore, as

provided under Section 75 of the ESI Act. The ESI Court dismissed the

application/appeal, on the ground that use of LPG gas also amounts to

use of electrical energy for the purpose of manufacturing activity and that

the manufacturing activity is being carried on with the aid of power and

4 since 10 or more employees were employed, the appellant is covered

under the provisions of the ESI Act.

9) The appellant had carried the matter further by filing Misc. Appeal before

the High Court and the same was dismissed following the earlier ruling

of the Court in ESI Corpn. Vs. Bhagat Ram and Sons and Anr., reported

in 2001 (2) Labour Laws Journal 973.

10)The appellant being aggrieved by the judgment and order passed by the

High Court in Misc. First Appeal No.4152 of 2001, is before us in this

appeal.

11)The facts in Misc. First Appeal No.1954 of 2002 are more or less similar

to the facts in the other appeal which we have already noticed. The only

additional fact is that, the appellants in this appeal manufacture sweets

and savories by using cooking gas and the number of employees

employed by them was not more than 17 (seventeen) at any point of time.

They were also unsuccessful before all the forums.

12)The learned senior counsel for the appellants submitted, that, liquefied

petroleum gas (`LPG for short') by itself is not energy and the

transmission of gas to the gas burners is not the transmission of any

energy. Elaborating on this issue, the learned senior counsel contended

that, it is only when the gas is ignited through the burner, the gas is

5 converted into heat energy and, as such, there is no transmission of any

form of energy. Alternatively, it is contended that, even assuming that

LPG gas is a form of energy, it is not mechanically transmitted, because

the term `mechanically' pertains to or involves machines and a gas

cylinder is merely a container and the tube is not a machine and,

therefore, the transmission of gas through the tube is not a "mechanical

transmission" either. It is further submitted that the meaning of the

expression `power' as defined under Section 2(g) of the Factory Act,

means electrical energy or any other form of energy, which is

mechanically transmitted. The learned senior counsel by referring to

dictionary meaning of the expression `mechanical' would submit, that,

`mechanical' pertains to or involves machines operated or produced by a

machine made and the meaning of the expression `machine' is an

apparatus made or organized, interacting parts, which takes in a more

suitable form for a desired function or a thing or system resembling such

an apparatus in acting with regularity as a result of interaction of its

component parts and, therefore, it is obvious that the gas cylinder and the

tube connected thereto is not a machine and it is merely container of gas

and the tube is not a machine. The learned senior counsel in aid of his

submission invites our attention to the observations made by Privy

6 Council in the case of Corporation of Calcutta Vs. Chairman of

Cossipore and Chitpore Municipality, [AIR 1922 PC 27], wherein the

Court explained the meaning of `Machinery' to mean some mechanical

contrivances which by themselves or in combination with one or more

other mechanical contrivances, by the combined movement and

interdependent operation of their respective parts generate power, or

evoke, modify, apply or direct natural forces with the object in each case

of effecting so definite and specific a result. It is also brought to our

notice that the interpretation of the word `Machinery' by the Privy

Council has been approved by this Court in the case of CIT Vs. Mir

Mohammed Ali, [AIR 1964 SC 1693]. Lastly, it is submitted that, the

interpretation of beneficial legislation should not be stretched too far to

rope in an industry which would not fall within the ambit of the Act. Reference is made to the observations of this Court in the case of The

Workmen of M/s. Firestone Tyre and Rubber Co. of India (Pvt.) Ltd. Vs.

The Management and Ors., [(1973) 1 SCC 813] and G. Giriyappa and

Ors. Vs. Anantharai L. Parekh and Anr., [(1994) 3 SCC 489]. The sum

and substance of the submission of the learned senior counsel is that LPG

gas cannot be considered as power as defined in Section 2(g) of the

Factories Act, 1948.

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13)The learned counsel appearing for respondents submitted that the use of

LPG gas for the purpose of cooking has to be treated as use of Power and

therefore, the appellants are required to comply with the provisions of the

ESI Act.

14)The issues that require to be decided in these appeals are:-

(I) Whether the establishment of the appellants' is covered under

the provisions of the Employees State Insurance Act, 1948.

(II) Whether the use of LPG gas is use of power as defined under

the Act.

15)The Employees State Insurance Act is a beneficial legislation. The main

purpose of the enactment as the Preamble suggests, is to provide for

certain benefits to employees of a factory in case of sickness, maternity

and employment injury and to make provision for certain other matters

in relation thereto.

16)The Employees State Insurance Act is a social security legislation and the

cannons of interpreting a social legislation is different from the cannons

of interpretation of taxation law. The courts must not countenance any

subterfuge which would defeat the provisions of social legislation and the

courts must even, if necessary, strain the language of the Act in order to

achieve the purpose which the legislature had in placing this legislation

8 on the statute book. The Act, therefore, must receive a liberal

construction so as to promote its objects. This Court, in the case of ESI

Corporation, Hyderabad Vs. Jayalakshmi Cotton and Oil Products (P)

Ltd., (1980) Lab IC 1078 has observed that the ESI Act is a social

security legislation and was enacted to ameliorate the various risks and

contingencies which the employees face while working in an

establishment or factory. It is thus intended to promote the general

welfare of the workers and, as such, is to be liberally interpreted.

17)The ESI Act is made applicable to all factories, including factories

belonging to the Government other than seasonal factories. Proviso

appended to Section 1(4) of the Act carves out an exception. Sub-

Section (4) of Section (1) of the Act shall not apply to a factory or

establishment belonging to or under control of the Government whose

employees are otherwise in receipt of benefits substantially similar or

superior benefits provided in ESI Act.

18)Section 2 of the Act defines the meaning of certain expressions for the

purpose of the Act. Section 2(12) of the Act defines the meaning of the

expression `Factory', to mean any premises including precincts thereof,

wherein ten or more persons are employed or were employed for wages

on any day of the preceding twelve months and in any point of which a

9 manufacturing process is carried on with the aid of power or is ordinarily

carried on or twenty or more persons employed for wages or were

employed for wages on any day of the preceding twelve months in the

premises including their precincts where manufacturing process is carried

on without the aid of power.

19)Section 2(15c) of the Act is inserted in the Statute Book by Act No.29 of

1989, with effect from 20.10.1989. The sub-section defines the meaning

of the expression `Power' to mean as the meaning assigned to it in the

Factories Act, 1948.

20)Section 2(g) of the Factories Act, 1948, defines the meaning of the

expression `power' to mean electrical energy or any other form of energy

which is mechanically transmitted and is not generated by human or

animal agency.

21)Essentially for qualifying the establishment of the appellants as factory,

the following conditions needs to be satisfied:-

(i) Manufacturing process was being carried out in the establishment.

(ii) There was power being used to aid the manufacturing process

being carried out.

10

(iii) 10 or more workers were working in the establishment any day in

the preceding twelve months, if power was being used to aid the

manufacturing process, or

(iv) 20 or more workers were working in the establishment any day in

the preceding twelve months, if power was not being used to aid the

manufacturing process.

22)Therefore, first it needs to be proved as to whether there is manufacturing

process carried on in the establishment of the appellants. Manufacturing

process is defined under Section 2(k) of the Factories Act as:-

"Manufacturing process means any process for-

(i) making, altering, repairing, ornamenting, finishing, packing, oiling,

washing, cleaning, breaking up, demolishing, or otherwise treating or

adapting any article or substance with a view to its use sale, transport,

delivery or disposal, or

(ii) pumping oil, water, sewage or any other substance; or

(iii) generating, transforming or transmitting power; or

(iv) composing types for printing, printing by letter press, lithography,

photogravure or other similar process or book binding; or

(v) constructing, reconstructing, repairing, refitting, finishing or

breaking up ships or vessels;

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(vi) preserving or storing any article in cold storage."

23)Both the appellants prepare sweets, savories and other beverages in their

establishments. It is a settled position of law that cooking and preparing

food items qualifies as manufacturing process. In the case of ESI v.

Spencer and Co. [(1978) L.I.C 1759], the Madras High Court held, while

dealing with the case of a hotel run by Sponsor and Company, that

preparation of coffee, peeling of potatoes, making bread-toast, etc., in a

hotel, involve 'manufacturing process'. Similarly the Bombay High Court

in Poona Industrial Hotel Limited v. I. C. Sarin, [(1980) L.I.C. 106] held

that the kitchen attached to Hotel Blue Diamond run by the Petitioners

therein, should be considered as a 'factory' for the purpose of ESI Act.

Hence, it is beyond doubt that there is manufacturing process involved in

the establishment of the appellants.

24)We need not go into the details of the number of workers in the

establishment of the appellants in the 12 months preceding the relevant

period as the same has been proved beyond doubt. So, the essential

question which comes up for consideration is whether there has been use

of power in the aid of the manufacturing process. It is the contention of

the respondent corporation that use of LPG gas amounts to use of power.

12

25)The definition of `Power' is in two parts. Firstly, it is electrical energy,

and includes any other form of energy which is mechanically transmitted.

The second part of the definition provides for exclusion from the

definition of power, i.e., it does not include power generated by human or

animal energy. The definition is wide enough to include all forms of

energy which is mechanically transmitted. We will revert back to this

definition little later after understanding what is LPG Gas and the

mechanism employed while transmitting the energy from LPG

containers.

26) The New Encyclopaedia Britannica, 15th Edition contains an article on

liquefied petroleum gas which is also called LP Gas, or LPG. The article

is extracted:

"Liquefied petroleum gas, also called LP Gas or LPG, any of several liquid mixture of the volatile hydrocarbons propene, propane, butene, and butane. It was used as early as 1860 for a portable fuel source, and its production and consumption for both domestic and industrial use have expanded ever since. A typical commercial mixture may also contain ethane and ethylene as well as a volatile mercaptan, an odorant added as a safety precaution."

27)LPG or LPG gas is the abbreviation of liquefied petroleum gas. This

group of products includes saturated hydrocarbons, propane and butane,

which can be stored and transported separately or as a mixture. This is

13 called liquefied petroleum gas, because these gases liquefy under

moderate pressure. LPG is used as a fuel for domestic (cooking),

industrial, horticulture, agricultural, heating and drying processes. LPG

can be used as an automotive fuel or as a propellant for aerosols, in

addition to other specialists applications. LPG can also be used to provide

lighting through the use of pressure lanterns.

28) The gas cylinder is filled with a liquefied fuel gas, such as liquefied

butane or the like, having a relatively low activity. A portion of the

liquefied fuel gas is enclosed in the body of the gas cylinder which is

vaporized, causing the internal pressure of the gas cylinder to be higher

than the outside pressure. Therefore, there is conversion from one form

of energy to another. A valve mechanism having a stem is mounted on

the body of gas cylinder. The gas cylinder is joined to the gas cooking

stove so that the stem is pushed inwards and the valve mechanism is

opened. Thus, the fuel gas is discharged owing to the internal pressure.

The gas cooking stove incorporates a body, which is provided with a

valve mechanism for supplying fuel gas to the burner and an operating

member for opening/closing the valve mechanism. The valve mechanism

in gas cooking equipment is to reduce high pressure gas supply to a lower

14 working pressure. This is done to ensure steady supply of the gas at

constant pressure. (Assistance is taken from the internet).

29)The submission of the learned counsel for the appellant, is that in view of

the definition of power in the Factories Act, any other form of energy

requires to be `Mechanically transmitted', which essentially involves use

of machinery. It is also suggested that `mechanical' pertains to the use of

machines and, as such, the transmission of LPG from the cylinder

through a tube connected thereto does not qualify as a machine.

30) Mechanical transmission is as opposed to manual transmission where

human agency is involved in the process of transmission. Transmission is

defined in the Collins Discovery Encyclopedia, 2005 (1st ed.) as "the

extent to which a body or medium transmits light, sound or some other

form of the energy". The word `Machinery' is defined under Section 2(j)

of the Factories Act. `Machinery' includes Prime movers, transmission

machinery and all other appliances whereby power is generated,

transformed, transmitted or applied. The expression `prime mover'

means any engine, motor or other appliances which generates or

otherwise provides power and the definition of transmission machinery

15 under Section 2(i) of the Factories Act means any shaft, wheel drum,

pulley, system of pulleys, coupling clutch, driving belt or other appliance

or device by which the motion of a prime mover is transmitted to or

received by any machinery or appliance.

31) LPG is stored in a cylinder fitted with a tube. Upon careful perusal of the

definitions, which we have noticed earlier, it is clear that an LPG cylinder

would qualify as an appliance which provides power. This power is

transmitted by a tube which upon careful reading of the definition

qualifies as transmission machinery as it is an appliance or device by

which the motion of a primary mover is transmitted. In fact an analogy

between the transmission of electricity and transmission of LPG can be

drawn. The movement or transfer of electrical energy takes place over an

interconnected group of lines and associated equipment between points

of supply and points at which it is transformed for delivery to consumers

or is delivered to other electric systems. Transmission is considered to

end when the energy is transformed for distribution to the consumer. In

many countries transmission of LPG also takes place in a similar manner

from a large fixed tank. In case of LPG stored in a cylinder the

mechanism of transmission is essentially the same as the gas travels from

16 the cylinder where it is stored to the gas cooking stove. While

transmission of electricity involves a switch, transmission of LPG

involves a valve mechanism or a regulator to ensure smooth flow. Hence,

LPG is a source of energy which is mechanically transmitted by way of

the tube attached to the machinery.

32)In our view, the use of LPG satisfies the definition of power as it is

mechanically transmitted and is not something generated by human or

animal agency.

33) Since the establishment of the appellants involves a manufacturing

process with the aid of LPG gas, which can now be termed as power, the

establishment of the appellants can be termed as factories, and therefore,

the ESI Act will apply to these establishments. In view of the above

discussion, we see no grounds to interfere with the impugned judgment

of the High Court. Accordingly, the appeals are dismissed. No order as

to costs.

.......................................J. [ MARKANDEY KATJU ]

.......................................J. [ H.L. DATTU ]

New Delhi,

17 September 2, 2009

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