ESI Corpn. vs KEY DEE Cold Storage (P) Ltd.

CIVIL APPEAL NO. 4159 OF 2022 (Arising out of SLP(C) No.17162 of 2017)

THE EMPLOYEES STATE INSURANCE CORPORATION & ORS. APPELLANT(S)

VERSUS

M/S KEY DEE COLD STORAGE PVT. LTD. RESPONDENT(S)

J U D G M E N T

Hrishikesh Roy, J.

Leave granted.

2. Heard Mr. Santosh Krishnan, the learned counsel

appearing for the appellants. The respondent is

represented by Mr. Parthiv K. Goswami, the learned

counsel.

Signature Not Verified Digitally signed by

3. The challenge in this appeal is to the judgment and Nidhi Ahuja Date: 2022.05.19 17:32:01 IST Reason:

order dated 1.12.2016 in the RFA No. 82/2006 whereby the

Page 1 of 26 Guwahati High Court has allowed the appeal of the

respondent and set aside the order dated 28.4.2006

passed in favour of the appellants by the Employees

Insurance Court. Under the impugned judgment, it has

been held that Village Tarapur, where the factory of the

respondent is located, falls outside the municipal

limits of Silchar and is therefore not covered under the

notification dated 21.7.1999 (Annexure P-I) issued by

the appellants under sub-Section (3) of Section 1 of the

Employees’ State Insurance Act, 1948 (hereinafter

referred to as the “ESI Act”). The other finding of

the High Court to the effect that the business of cold

storage run by the respondent is covered within the

meaning of ‘manufacturing process’ as defined under

Section 2(14AA,) is however not challenged in this

appeal by the appellants.

4. The issue to be decided here is whether the High

Court was correct in its interpretation of the

notification dated 21.7.1999 and holding that the

notification covers only the areas within the Silchar

Municipal Board, although the notification additionally

Page 2 of 26 mentions names of other areas/villages including the

Village of Tarapur, where the respondent’s factory is

located.

5. The Village Tarapur is subdivided into many segments

and part of the village area falls within the Silchar

Municipal Corporation and other parts, within the

Silchar Revenue Circle. The respondent company set up

its cold storage factory at Ramnagar, Village Tarapur.

6. On 21.7.1999, the notification was issued under sub-

section (3) of Section 1 of the ESI Act, notifying

1.8.1999 as the date on which certain provisions of the

ESI Act shall come into operation in the following areas

in the State of Assam namely :-

“Areas under Silchar Municipal Corporation falling within Silchar

Revenue Circles including the Revenue Village – Silchar Town, Ambicapur, Uttar Krishnapur, Kanakpur, Ukilbazar, Tarapur, Rangpur, Durganagar, Gosaipur, Srikona, Under Mouza-Barakpur, Tarapur, Ph-

Barakpur, Rang Ph-Barakpur, Udharbond, Rajnagar.”

Page 3 of 26

7. Thereafter, the Regional Director of the Employees

State Insurance Corporation informed the respondent

about the notification and that the provisions of the

ESI Act are now made applicable, to all factories

situated within the notified areas and as such, the

respondent’s factory at Ramnagar, Village Tarapur would

be covered under the ESI Act, with effect from 1.8.1999.

Since the respondent failed to take necessary steps for

registration under the ESI Act and to pay the requisite

contribution for the employees in their establishment, a

show cause notice was issued to the respondent to remit

contribution for the months of April to September, 2000,

on ad hoc basis. This was followed by a notice by the

competent authority for recovery of Rs. 17,068 from the

respondent.

8. The respondent then moved the Employees Insurance

Court, Guwahati (hereinafter referred to as the “EI

Court”) to challenge the show cause notice and the

consequent steps for recovery of contribution. The say

of the respondent was that the area in which their

Page 4 of 26 factory is located is not covered by the 21.7.1999

notification. The Regional Director of the ESI

Corporation however contended that the 21.7.1999

notification, extending the provisions of the ESI Act,

also covers the area where the factory of the respondent

is located. The EI Court considered the testimony of the

witnesses and the documents relied upon by the parties

and concluded that the notification extends to Tarapur

and therefore, the factory of the respondent, located in

Tarapur, is brought under the coverage of the ESI Act.

Accordingly, the respondent is required, under the ESI

Act, to make the contribution, and the authorities had

correctly assessed the quantum of contribution payable

for the employees in the establishment.

9. The relevant findings of the EI Court are extracted

below:-

“ **** **** **** ****

11. The Notification Ext. 2 issued by the Government of India on 21.7.99 includes areas under Silchar Municipal Corporation falling within Silchar revenue circles including the revenue village, Silchar Town, Ambicapur, Uttar Krishnapur, Kanakpur, Ukil bazar,

Page 5 of 26 Tarapur, Rongpur, Durganagar, Gosaipur, Srikona, under Mouza-Borakpur, Tarapur etc.

12. From evidence on record it is clear that Lamargram, Ramnagar is situated within the Tarapur Village in between Tarapur and Srikona. Several part villages are included in the Tarapur villages area and Lamargram, Ramnagar is included in the Tarapur Village, in the Notification Tarapur has been included as a whole. This being so, I hold that M/s. Kay Dee Cold Storage Pvt. Ltd. – the petitioner was included under the coverage of E.S.I. Act vide Notification Ext. 2.

**** **** **** ****”

10. An appeal was then preferred under Section 82 of

the ESI Act before the Guwahati High Court to challenge

the decision of the EI Court. In RFA 82/2006, the

learned Judge framed, inter alia, the following

substantial question of law to be answered in the

proceeding:-

“i. Whether the establishment of the appellant is covered within the area as notified vide notification dated 21st July, 1999 (Ext.2)?

11. In the impugned judgment, the High Court concluded

that the establishment of the respondent is not covered

by the 21.7.1999 notification and the RFA was

Page 6 of 26 accordingly allowed by setting aside the judgment dated

28.4.2006 of the E.I. Court. Answering the substantial

question No. (i), the Court opined that “only the area

under Silchar Municipal Board is the overall area sought

to be covered by the notification, and therefore, only

the areas falling within the Silchar Revenue Circle,

inclusive of the areas mentioned therein that falls

within the jurisdiction of Silchar Municipal Board can

be said to be covered by the notification dated

21.7.1999”

12.1 Assailing the above, Mr. Santosh Krishnan, the

learned counsel for the appellants, would contend that

the 21.7.1999 notification while setting out that it

applies to areas under the Silchar Municipal

Corporation, also goes on to specifically name certain

areas/villages including the Tarapur Village where the

respondent’s factory is located. The village Tarapur is

constituted by several parts and in the Para Lamar Gram

of Tarapur Part III, the Cold factory Storage of the

respondent is situated. The Village Tarapur partially

falls under Silchar Municipal Corporation and also under

Page 7 of 26 the Silchar Revenue Circle and since Village name is

mentioned twice in the notification, the entire village

area of Tarapur would be covered by the notification

dated 21.7.1999. According to Mr. Santosh Krishnan, the

learned counsel, on correct understanding of the areas

covered by the 21.7.1999 notification, the area where

the cold storage factory is located, could not have been

excluded by the High Court by placing reliance on the

Certificate dated 5.7.2004 (Ext. 16), which had

certified that the respondent’s factory at Ramnagar,

Tarapur is situated outside the limits of Silchar

Municipal Board.

12.2 As the respondent has not challenged the

notification dated 21.7.1999 issued under Section 1(3)

of the ESI Act, the High Court, according to the

appellants, fell into an error in giving a restrictive

interpretation of the notification dated 21.7.1999.

12.3 The exclusion of the areas of Ramnagar, Tarapur

from the purview of the 21.7.1999 notification would,

according to the appellant’s counsel, have far reaching

Page 8 of 26 consequences, inasmuch as others in the area would then

claim that they are outside the purview of the coverage

under the ESI Act, and this consequently will be

detrimental to the interests of the employees working in

the establishments covered by the ESI Act.

12.4 The appellants also argue that in the proceedings

before the E.I. Court, the respondent should have

impleaded the factory’s workmen as also the Union of

India, to facilitate participation of these necessary

stakeholders and since this was not done, the finding in

favour of the respondent is a nullity and it should be

understood accordingly.

13.1 Per contra Mr. Parthiv K. Goswami, the learned

counsel for the respondent would point out that the

factory of the respondent does not fall within the

limits of the Silchar Municipal Corporation and the

Silchar Revenue Circle but is located in Ramnagar

Tarapur Gram Panchayat, and therefore it is outside the

coverage of the ESI Act, in terms of the notification

dated 21.7.1999.

Page 9 of 26 13.2 According to Mr. Goswami, the learned counsel,

since the authority of the Silchar Municipal Board had

issued the certificate on 5.7.2004 (Ext. 16) certifying

that the respondent’s cold storage factory at Ramnagar

Tarapur is outside the municipal limits, the coverage of

the said factory under the ESI Act, is not warranted.

13.3 Adverting to the penal implications under the ESI

Act, Mr. Goswami submits that the expanded

interpretation of the notification is not warranted and

the High Court, according to the learned counsel,has

correctly interpreted the notification dated 21.7.1999

in favour of the respondent.

14. At this stage, it would be appropriate to identify

the location of the respondent’s establishment. Silchar

is one of the sub-divisions of Cachar District in Assam

and it is comprised of five revenue circles (Tehsils)

namely Silchar, Lakhipur, Sonai, Udharbond and

Katigorah. There are 245 revenue villages within the

jurisdiction of the Silchar Sadar Revenue Circle. The

Page 10 of 26 records show that Part I to Part VIII segments of

Tarapur and the Tarapur Part VIII “B” town segment are

located within Barakpur Pargana. The respondent’s cold

storage factory is situated in Tarapur III, Lamar Gram,

Ramnagar and this segment is outside the limits of the

Silchar Municipal Corporation. Only Tarapur Part VII

and Tarapur Part VIII segments are partially within the

Silchar Municipal Corporation area. It can therefore be

appreciated that one part of village Tarapur falls

within the limits of Silchar Municipal Corporation and

another segment of same village falls within the Silchar

Revenue Circle.

15. The 21.7.1999 notification issued by the Central

Government specifies the areas to which the ESI Act is

made applicable and significantly, apart from stating

that it applies to areas under the Silchar Municipal

Corporation, it goes on to specifically name additional

areas/villages, including the village of Tarapur. It is

therefore not difficult to comprehend that the

notification would extend to areas well beyond the

Page 11 of 26 limits of the Silchar Municipal Corporation. If the

area of coverage of the ESI Act was intended to be

restrictive, there was no need to mention other areas by

name in the said notification. The logical

interpretation would then be that the entire village

area of Tarapur is notified for coverage as the name of

Tarapur village is mentioned twice in the notification.

The significance of this must be given due weightage.

16. The notification issued under Section 1(3) of the

ESI Act is a statutory notification and the same should

be treated as a part of the statute, both for the

purposes of construction and also for the obligations

arising therefrom, as if, they are contained in the Act.

The principles of interpretation of subordinate

legislation are applicable for interpretation of such

statutory notification. If the words used are

unambiguous, the cardinal principle of interpretation is

that effect has to be given to every word in the subject

notification.[See. South Central Railway Employees

Cooperative Credit Society Employees’ Union,

Page 12 of 26 Secunderabad vs. Registrar of Cooperative Societies and

Ors1 and National Highways Authority of India vs.

Pandarinathan Govindarajulu and Anr.2]

17. Guided by the above, let us now examine whether the

statutory notification was intended to cover only those

areas falling within the jurisdiction of the Silchar

Municipal Board as was decided in the impugned judgment.

Such an interpretation would mean that all the other

areas specifically mentioned in the notification, which

are otherwise beyond the limits of the Silchar Municipal

Corporation, would be excluded from the purview of the

statutory notification. If this is accepted, there will

be departure from the cardinal principle of

interpretation of giving full effect to every word of

the notification. This would then be contrary to what

is repeatedly laid down by this Court, including in the

case of South Central Railway Employees Cooperative

Credit Society Employees’ Union (supra) and National

Highways Authority of India (supra).

1(1998) 2 SCC 580 2(2021) 6 SCC 693

Page 13 of 26

18. The Central Government notification makes reference

to several areas beyond the limits of the Silchar

Municipal Board. This is discernible from the fact that

reference to Tarapur is made twice, firstly in reference

to the Silchar Municipal Corporation and secondly with

reference to Mouza-Barakpur. The reference to the

Udharbond Revenue Circle (outside the limits of Silchar

Municipal Corporation) and likewise to Rajnagar, which

is another revenue unit, distinct from Barakpur (which

comprises the Silchar Town), would suggest that the

Central Government intended to extend the operation of

the ESI Act to areas well beyond the limits of the

Silchar Municipal Corporation. The concerned

establishment is located in Tarapur Part III falling

within Barakpur, which is otherwise outside the Silchar

Municipal Area. Significantly, Mouza-Barakpur by name is

mentioned in the notification. Therefore, the High

Court’s constrictive interpretation of the 21.7.1999

notification, for application of the ESI Act to the

Page 14 of 26 smaller areas within the limits of Silchar Municipal

Corporation, cannot be countenanced by us.

19. That apart, the notification which obviously could

have been better drafted, is punctuated by several

commas. This would suggest that the areas mentioned

after the punctuation marks should be read disjunctively

and should not be read in reference to the Silchar

Municipal Corporation which is the first area mentioned

in the notification. Here we may benefit by referring to

Dr. M.K Salpekar Vs. Sunil Kumar Shamsunder Chaudhari

and Ors.3 In this case, Justice L.M Sharma writing for

the Division Bench, while adverting to the use of

punctuation, opined that “punctuation “comma” in the

sub-clause after “alternate accommodation” and before

the rest of the sentence indicates that the last part of

the sub-clause, namely, ”and does not reasonably need

the house” governs only the second part of the sub-

clause.” When we look at the punctuation marks in the

notification dated 21.7.1999, and what follows

thereafter, our finding is that the notification

3 (1988)4 SCC 21

Page 15 of 26 intended to cover several areas beyond the areas within

the Silchar Municipal Corporation. The notification

issued under Section 1(3) of the ESI Act, after

initially adverting to areas under Silchar Municipal

Corporation falling within Silchar Revenue Circles,

significantly uses the word “including” which would

suggest the intention of the writer of the notification,

to enlarge the coverage area, well beyond the limits of

the Silchar Municipal Corporation. The other areas

specifically mentioned after the word “including”, would

suggest that the area of coverage under the ESI Act,

must not be restricted to the territorial limits of the

Silchar Municipal Corporation.

20. Confronted with a situation where interpretation had

to be made on usage of the word “includes” in Ramanlal

Bhailal Patel and Ors. vs. State of Gujarat4, Justice

R.V. Raveendran, speaking for the Division Bench, had

the following to say:-

“23. The word “person” is defined in the Act, but it is an inclusive definition, that is, “a person includes

4 (2008) 5 SCC 449

Page 16 of 26 a joint family”. Where the definition is an inclusive definition, the use of the word “includes” indicates an intention to enlarge the meaning of the word used in the statute. Consequently, the word must be construed as comprehending not only such things which they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. Thus, where a definition uses the word “includes”, as contrasted from “means”, the word defined not only bears its ordinary, popular and natural meaning, but in addition also bears the extended statutory meaning (see S.K. Gupta v. K.P. Jain [(1979) 3 SCC 54 :

AIR 1979 SC 734] following Dilworth v. Commr. of Stamps [1899 AC 99 : (1895-99) All ER Rep Ext 1576 : 79 LT 473] and Jobbins v. Middlesex Country

Council [(1949) 1 KB 142 : (1948) 2 All ER 610 (CA)] ).”

21. At this stage, it would also be apposite to refer to

the opinion written for the Constitution Bench by

Justice G.B. Pattanaik in Union of India and Anr. vs.

Hansoli Devi and Ors.5 , where it has been rightly held

that “it is not a sound principle of construction to

brush aside words in a statute as being inapposite

surplusage, if they can have appropriate application in

5(2002) 7 SCC 273

Page 17 of 26 circumstances conceivably within the contemplation of

the statute.” It must be remembered that “the

legislature is deemed not to waste its words or to say

anything in vain6 ” and a construction which attributes

redundancy to a statute cannot be accepted except under

compelling circumstances.

22. Proceeding with the above understanding, let us now

examine the impugned judgment. The High Court has

restricted the application of the statutory notification

to the limits of the Silchar Municipal Corporation,

which would imply that all the other areas mentioned

beyond “including” would be taken out of the purview of

the ESI Act. This could not have been the intention of

the Union Government.

23. This Court in Delhi Gymkhana Club Limited vs.

Employees’ State Insurance Corporation7, through the

opinion of Justice R. Banumathi, noted that the object

of the ESI Act is to provide benefits to the employees

and also to make provisions for certain other matters in

6Quebec Railway, Light, Heat & Power Co. V. Vandry, AIR 1920 PC 181 7 (2015) 1 SCC 142

Page 18 of 26 relation thereto. As the ESI Act is a beneficial piece

of social welfare legislation aimed at securing the

well-being of the employees, a restrictive

interpretation which will have the effect of defeating

the objects of the beneficial legislation, should be

eschewed by the Court.

24. In the present matter, the respondent while

challenging the show cause notice in the EI Court,

failed to implead the factory’s employees either

individually or in representative capacity. Even the

Union of India which issued the notification under

Section 1(3) of the ESI Act expanding coverage of the

beneficial legislation to the area where the factory of

the respondent is located, was not arrayed as a party in

the proceeding. In such circumstances, the decision of

this Court in Employees’ State Insurance Corporation vs.

Bhakra Beas Management Board and Anr.8 and Fertilizers

and Chemicals Travancore Ltd. vs. Regional Director,

8 (2009) 10 SCC 671

Page 19 of 26 Employees’ State Insurance Corporation and Ors.9 would

come into play.

25. In Employees’ State Insurance Corporation (supra)

the necessity of impleading the employees of the

concerned establishment in a proceeding under the ESI

Act was emphasized by this court in the following

opinion:-

“4. This Court has recently held in Fertilizer & Chemicals Travancore Ltd. v. ESI Corpn. [(2009) 9 SCC 485 : (2009) 2 SCC (L&S) 693 : (2009) 11 Scale 766] as under: (SCC pp. 487-88, paras 5-10)

“5. It may be noted that in its petition before the Employees' Insurance Court, the appellant

herein only impleaded the Employees' State Insurance Corporation and the District Collectors of Alleppey, Palaghat and Cannanore as the respondents but did not implead even a single workman as a respondent.

Labour statutes are meant for the benefit of the workmen. Hence, ordinarily in all cases under labour statutes the workmen, or at least some of them in a representative capacity, or the trade union 9 (2009) 9 SCC 485

Page 20 of 26 representing the workmen concerned must be made a party. Hence, in our opinion the appellant (petitioner before the Employees' Insurance Court) should have impleaded at least some of the persons concerned, as respondents.

**** **** **** **** **** **** **** ****

8. In our opinion, wherever any petition is filed by an employer under Section 75 of the Act, the employer has not only to implead ESIC but has also to implead at least some of the workers concerned (in a representative capacity if there are a large number of workers) or the trade union representing the said workers. If that is not done, and a decision is given in favour of the employer, the same will be in violation of the rules of natural justice. After all, the real parties concerned in labour matters are the employer and the workers. ESI Corporation will not be in any way affected if the demand notice sent by it under Sections 45-A/45-B is quashed.”

26. Likewise this court in Fertilizers and Chemicals

Travancore Ltd. (supra), made the following pertinent

observation on impleadment of the employees:- Page 21 of 26

“10. In the present case the workmen concerned were not made parties before the Employees' Insurance Court, nor was notice issued to them by the said court. Also, the order of the Employees' Insurance Court dated 4-2-1993, relevant portion of which we have quoted, is not a very happy one as no proper determination has been made therein as to whether the workmen concerned are the employees of the appellant and whether they are entitled to the benefit of the Act.

xxx xxx xxx xxx xxx

12. In our opinion, the Employees' Insurance Court should have itself made a proper investigation of the facts after getting evidence from the parties, including the workmen concerned, and after impleading them as party in the petition, it should have determined the question as to whether the persons concerned were the employees of the appellant or not.

xxx xxx xxx xxx xxx

14. Needless to say, the Employees' Insurance Court will grant an opportunity to all the parties, including the alleged workmen, to lead documentary evidence or oral evidence and thereafter proceed in accordance with law. We make it clear that nothing stated hereinabove shall be construed as an expression of opinion on the merits of the controversy involved.

Page 22 of 26 All questions of law and fact are left open for the parties to be raised before the Insurance Court.”

27. The above judgments suggest that for non-joinder of

necessary parties, the proceeding at the instance of the

respondent would not be legally maintainable. Such a

plea was specifically raised by the appellants before

the High Court but this was rejected with the

observation that the issue ought to have been raised

before the trial court. In this context, it is necessary

to keep in mind that the Supreme Court judgment i.e.

Employees’ State Insurance Corporation (supra) was

rendered on 17.9.2009 whereas the judgment in favour of

the appellants was rendered by the EI Court much earlier

on 21.6.2006. Therefore, for the appellants, it would

have been impossible to rely on the ratio in the

subsequent judgment of the Supreme Court to argue on the

non-maintainability of the respondent’s proceeding, for

non-impleadment of the concerned employees. Page 23 of 26

28. In any case, non-joinder of a necessary party goes

to the root of the matter and could also be fatal to a

legal proceeding. For this we can usefully read the

opinion of this court in Khetrabasi Biswal vs. Ajaya

Kumar Baral and Ors.10 where it was held as follows:-

“6. The procedural law as well as the substantive law both mandates that in the absence of a necessary party, the order passed is a nullity and does not have a binding effect.”

29. Let us now deal with the specific submission of the

learned counsel for the respondent. The argument is that

since penal consequences are provided under the ESI Act,

strict interpretation of the notification on the

applicability of the Act to the respondent’s

establishment, must be made. On this aspect, it needs

to be said that the name of village Tarapur is mentioned

twice in the 21.7.1999 notification and therefore a

strained interpretation is not at all necessary to bring

the establishment of the respondent, within the ambit of

coverage of the ESI Act. The respondent’s failure to

conform to the requirement of the ESI Act may perhaps 10 (2004) 1 SCC 317

Page 24 of 26 invite penal action envisaged by the legislation. But

this by itself does not persuade us to interpret the

statutory notification in a particular manner, to suit

the purpose of the respondent.

30. As we find, the High Court erred in holding that

since the Village Tarapur, where the factory of the

Respondent is situated, falls outside the municipal

limits of Silchar, the establishment of the respondent

is not covered by the notification (21.07.1999). Such

faulty interpretation adopted by the High Court cannot

be countenanced. The word “including” in the

Notification, is used as a word of enlargement, so as to

make the territorial application of the ESI Act

extensive. The notification is certainly not confined to

“only the area under the Silchar Municipal Board”, but

includes various areas mentioned therein, in addition to

the areas under the Silchar Municipal Board. That being

the case, the respondent’s establishment, is found to be

covered under the purview of the ESI Act.

Page 25 of 26

31. The terms of the notification cannot be any clearer

and the language used admits no exceptions of the kind

argued by the respondents. There is definite and

unambiguous reference to the areas beyond the

territorial limits of the Silchar Municipal Board.

Furthermore, the village Tarapur (where the factory of

the respondent is situated), is mentioned a second time.

The words used are not surplusage and emphatically

proclaim the drafter’s intention to include wider areas

within the purview of the notification and thereby the

ESI Act. The plain language of the notification settles

the issue against the respondent.

32. In the result the impugned decision is set aside.

The Appeal accordingly stands allowed without any order

on costs.

………………………………………………………J. [K.M. JOSEPH]

………………………………………………………J. [HRISHIKESH ROY] NEW DELHI MAY 19, 2022

Page 26 of 26