The Employees State Insurance Corporation Ltd. vs Nagar Nigam, Allahabad

2024 INSC 441 NON-REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO(S). 1833 OF 2024

THE EMPLOYEES STATE INSURANCE CORPORATION LTD. …APPELLANT(S)

VERSUS

NAGAR NIGAM ALLAHABAD AND ANR. ..RESPONDENT(S)

JUDGMENT

Mehta, J.

1. The instant appeal by special leave is directed against the

impugned order dated 25th October, 2021 passed by the High

Court of Judicature at Allahabad in Writ-C No. 14971 of 2009

whereby the writ petition filed by respondent No. 1-Nagar Nigam,

Allahabad was allowed.

2. Signature Not Verified The learned Single Judge of the High Court vide impugned Digitally signed by Narendra Prasad

order held that the employees of respondent-Nagar Nigam are not Date: 2024.05.17 18:07:35 IST Reason:

covered under the Employees’ State Insurance Act,

1 1948(hereinafter being referred to as the ‘Act of 1948’) and as a

consequence thereof, the notice dated 3rd February,

2009(hereinafter being referred to as ‘recovery notice’) issued by

the Authorised Officer of the appellant-Corporation was quashed

and amount already realized was directed to be refunded to the

respondent-Nagar Nigam(subsequently designated as the

Municipal Corporation) within three months.

3. The appellant-Corporation herein has preferred the instant

appeal with a pertinent plea that the respondent-Nagar Nigam

operates a Central Workshop(hereinafter, ‘the workshop’), where

activities of repairing and maintaining different types of vehicles

are carried out. As per the appellant-Corporation, the workshop is

covered by the definition of a ‘factory’ within the meaning of the

Act of 1948. In the year 1964, respondent-Nagar Nigam was

allotted Code No. 21-4404-74 under the Act of 1948. Recovery

certificates were issued from time to time by the appellant-

Corporation to the respondent-Nagar Nigam on account of non-

payment of mandatory contributions under Section 40 of the Act

of 1948, whereunder the principal employer is obligated to pay

both employer’s and employee’s contribution in respect of every

employee working in the factory. The respondent-Nagar Nigam

2 continued to make statutory contributions under the Act of 1948

till the year 1978, whereafter it stopped paying without any reason.

4. Owing to the non-payment of the statutory contributions by

the employer, the Authorized Officer of the appellant-Corporation

issued a notice dated 20th November, 2003 to respondent-Nagar

Nigam under Section 45A of the Act of 1948 directing it to pay Rs.

4,72,186/-, assessed on ad hoc basis pertaining to the

contributions for the period commencing from June, 2002 to

September, 2003 and called upon the respondent-Nagar Nigam to

appear before it on 19th December, 2003. The respondent-Nagar

Nigam, however, neither appeared before the Authorized Officer

nor did it file any response to the notice, whereupon the Authorised

Officer of the appellant-Corporation, vide letter dated 21st

September, 2004 directed the Recovery Officer to recover the

amount of contribution along with interest to the tune of Rs.

5,88,227/- under Sections 45C to 45I of the Act of 1948 from the

respondent-Nagar Nigam. This amount subsequently came to be

deducted by the appellant-Corporation from the bank account of

respondent-Nagar Nigam i.e. UCO Bank, which has been arrayed

as respondent No. 2 in the present appeal.

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5. As the respondent-Nagar Nigam failed to make timely

payments of the statutory contributions in the manner prescribed

under the Employees’ State Insurance(General) Regulations, 1950,

framed under the Act of 1948, a show cause notice dated 5th/6th

June, 2006 was issued to the respondent-Nagar Nigam calling

upon it to explain as to why damages under Section 85B of the Act

of 1948, should not be levied upon it. The respondent-Nagar Nigam

chose not to appear before the Authorized Officer and rather

sought time to respond. On request being made on behalf of the

respondent-Nagar Nigam, the hearing was adjourned on two

occasions.

6. The Authorised Officer of the appellant-Corporation, vide

letter dated 30th January, 2009 directed the Recovery Officer to

recover damages to the tune of Rs.3,52,670/- under Section 85B

of the Act of 1948 from the respondent-Nagar Nigam. On the basis

of above-mentioned letter, the Recovery Officer issued recovery

notice dated 3rd February, 2009 to the respondent-Nagar Nigam for

payment of the amount as determined under Section 85B of the

Act of 1948.

7. Being aggrieved by the recovery notice dated 3rd February

2009, the respondent-Nagar Nigam filed the captioned Writ

4 Petition No. 14971 of 2009 before the Allahabad High Court

challenging the said recovery notice and seeking a direction to

restrain the appellant-Corporation from realising the amount.

8. The learned Single Judge of the Allahabad High Court

proceeded to allow the writ petition vide order dated 25th October,

2021 holding that the writ petitioner-Nagar Nigam(respondent

herein) was not covered under the Act of 1948 and as a

consequence, recovery notice dated 3rd February, 2009 was

quashed and the amount already realized by the appellant-

Corporation was directed to be refunded within three months.

9. The order dated 25th October, 2021 is assailed in this appeal

by special leave at the instance of the appellant-Corporation i.e.

The Employees State Insurance Corporation Ltd.

10. Learned counsel for the appellant has placed reliance on the

judgment of this Court in the case of Employers’ State Insurance

Corporation v. Kakinada Municipality and Others1 and urged

that the controversy involved in the present appeal is fully covered

by the said judgment wherein it has been clearly held that in

respect of factory belonging to the local authority, unless power of

exemption is exercised by the Government, it would be covered by

1 (2022) 2 SCC 56

5 the provisions of Section 1(4) of the Act of 1948 and thus, liable to

pay contribution.

11. It was further contended that if at all, respondent- Nagar

Nigam was desirous of getting the exemption from the operation of

the Act of 1948, then it had to apply to the appropriate Government

and procure an order of exemption and only thereafter, could it

seek exemption from making payment of the employer’s

contribution under Section 40 of the Act of 1948.

12. Learned counsel further urged that the respondent-Nagar

Nigam did not appear to defend the proceedings wherein it was

called upon to pay the contributions for the period June, 2002 to

September, 2003. It also failed to participate in proceedings for

determination of damages under section 85B of the Act of 1948.

The damages were determined by the appellant-Corporation vide

recovery certificate dated 30th January, 2009, however, only the

consequential recovery notice dated 3rd February, 2009 was

assailed in the writ petition. His fervent contention was that since,

the recovery certificate determining the damages not having been

questioned, the respondent-Nagar Nigam was not entitled to

challenge the subsequent recovery notice which is consequential

to the determination of the damages.

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13. Learned counsel further urged that though a ground was

taken in the writ petition that the Act of 1948 is not applicable to

the respondent-Nagar Nigam because the workshop of the

respondent-Nagar Nigam is not covered under the definition of

‘factory’ but the fact remains that in the proceedings for recovery

of contribution, no such plea was taken that the workshop of the

respondent-Nagar Nigam is not covered by the definition of ‘factory’

or that no manufacturing process is carried out in the workshop.

14. He urged that the recovery certificate dated 22nd July, 1976,

issued by the officials of the appellant-Corporation, demanding the

contribution for period from 11th December, 1973 to 22nd July,

1976 was satisfied by the respondent-Nagar Nigam which

voluntarily deposited the contributions with the appellant-

Corporation for this period. However, compliance was stopped by

the respondent-Nagar Nigam after the year 1978, without

intimation to the appellant-Corporation.

15. Learned counsel further urged that even otherwise, if at all

the respondent-Nagar Nigam was desirous of contesting the

recovery notice on the ground that it was not covered under the

provisions of the Act, the remedy of filing an appeal to the

Employees’ Insurance Court(hereinafter being referred to as

7 ‘Insurance Court’) under Section 75 of the Act of 1948 was

available to it. Rather than availing the said statutory remedy, the

respondent invoked the writ jurisdiction of the High Court without

any justification. He thus, implored the Court to accept the appeal

and set aside the impugned order of the High Court.

16. Per contra, learned counsel appearing for the respondent-

erstwhile Nagar Nigam and presently the Municipal Corporation,

Allahabad, urged that there is no material on record to show that

any manufacturing activity was being undertaken in the Workshop

of the respondent-Nagar Nigam. The employees of the respondent-

Nagar Nigam who were already being provided all possible

amenities and facilities including the medical assistance etc., were

being occasionally assigned the task of in-house repairs of the

equipment and machinery of the respondent-Nagar Nigam and

thus, by no stretch of imagination, can it be concluded that the

workshop was a ‘factory’ within the meaning of the Act of 1948

where any manufacturing process was being undertaken.

17. He thus urged that the learned Single Judge of the High

Court was justified in exercising the writ jurisdiction and quashing

the impugned recovery notice dated 3rd February, 2009 which was

ex-facie unsustainable in the eyes of law. He contended that the

8 impugned order does not suffer from any infirmity warranting

interference of this Court and the appeal should be dismissed.

18. We have given our thoughtful consideration to the

submissions advanced at bar and have gone through the material

available on record.

19. The core issues presented for consideration of this Court in

this appeal are: -

(i) Whether the workshop of respondent-Nagar Nigam

was indulged in manufacturing process while carrying

out repairs and maintenance of the tractors, trailers,

loaders belonging to the respondent-Nagar Nigam by

employing more than 20 workmen?

(ii) Whether the workshop of respondent-Nagar Nigam

was covered under the definition of ‘factory’ within the

meaning of Act of 1948?

20. The issue whether the workshop of the Municipality/local

body where the job of repairs of the machinery, etc. are carried out

is a ‘factory’ within the meaning of the Act of 1948 was examined

in extenso by this Court in the case of Kakinada

Municipality(supra). Akin to the facts of the case at hand, in the

said case also, the Municipality/local body, was covered under the

9 Act of 1948 since the year 1965 and statutory contributions were

paid till 1996. However, the Municipality stopped making the

statutory contributions whereafter various orders and notices

raising demands, as found due from the local body under the Act

of 1948 were issued. A speaking order under Section 45A was

passed which was challenged by the local body by filing an

application to the Insurance Court under Section 75(1)(g) of the

Act of 1948 which rejected the same. The order passed by the

Insurance Court was challenged by filing a statutory appeal to the

High Court as provided under Section 82 of the Act of 1948. The

High Court allowed the appeal which led to the filing of the special

leave petition in this Court. After extensive consideration of the

material available on record and detailed analysis of the statutory

provisions, this Court came to a conclusion that the first

respondent therein(Municipality/local body) was running a

‘factory’ as defined under the Act of 1948. It was also held that the

Act of 1948 applies to all factories including factories belonging to

the Government other than the seasonal factories. The relevant

extracts from the said judgment are reproduced hereinbelow: -

“14. Considering Section 1(4) of the Act, it is clear as daylight, that the Act is to apply to all factories including factories belonging to the Government other than seasonal factories.

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15. A factory is defined under Section 2(12) as follows:

“2. (12) “factory” means any premises including the precincts thereof whereon ten or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952), or a railway running shed;”

16. Section 2(14-AA) defines “manufacturing process”:

“2. (14-AA) “manufacturing process” shall have the meaning assigned to it in the Factories Act, 1948 (63 of 1948);”

17. In the facts of this case, there is no dispute that the first respondent was running a factory within the meaning of the Act, insofar as it is undertaking manufacturing activities within the meaning of the expression “manufacturing process” as defined in Section 2(14-AA).

The proviso to Section 1(4), undoubtedly, operates as an exception to the main provision. In other words, from the generality of factories that stand covered under the Act, the legislature has carved out an inroad by providing that the Act would not apply to the factory which belonged to the Government. It also makes it clear that the provisions of the Act will not apply to a factory under the control of the Government. This is however subject to the further condition in the proviso that the employees of such a factory, which is either owned or controlled by the Government, should be otherwise in receipt of benefits substantially similar or superior to the benefits provided under the Act. It is upon satisfaction of these conditions that even a factory which is owned or controlled by the Government would stand exempted from the purview of the Act.

18. As far as the facts of this case is concerned, the first respondent does not have the case that the factory in question is a factory which is owned by the Government. As far as the question relating to control of the Government is concerned, the learned Senior Counsel for the first respondent has, in fact, upon being queried as to whether he has a case that it is under the control of the Government, he does not address us on the issue on the lines that the Government controls the factory. He very fairly does submit that the factory is under the control of the first respondent. The first respondent is a local body. It might be true that it is a creature of statute, being created

11 under the relevant Act. It also has a constitutional position after the amendment of the Constitution. But the words used in the Act are that the factory must be under the control of the Government. Any further doubt, in this regard, which we may entertain, is banished by the provisions of Section 90.

19. Section 90 contemplates exemption of factories or establishments belonging to the local authority. Initially, the said provision contemplated power to exempt any factory or establishment belonging to the Government or any local authority. After the omission of the words “the Government or” by Act 29 of 1989 with effect from 20-10-1989, the said provision contemplates power with the appropriate Government after consultation with the Corporation (“ESI Corporation”) to exempt any factory or establishment belonging to any local authority from the provisions of the Act. It must be noticed that proviso to Section 1(4) was inserted by the very same amendment with effect from 20-10-1989. The results of this legislative exercise cannot be overlooked. The position, therefore, is that in respect of a factory, which is belonging to a local authority, unless power of exemption is exercised by the Government, it would be covered by provisions of Section 1(4) of the Act. In other words, it would be a factory like any other factory. It would have to be compliant with the provisions of the Act. This is for the reason that a factory or an establishment belonging to or under the control of the Government alone are within the purview of the proviso, which in turn is subject to the imperative condition or rather the indispensable requirement that the employees are in receipt of the substantially similar or superior benefits than provided under the Act.” (emphasis supplied)

21. We feel that the facts of the case at hand are almost identical.

Neither in the pleadings of the writ petition nor in the counter

affidavit filed on behalf of the respondent-Nagar Nigam in this

Court, is there any indication that the respondent ever sought for

or was granted exemption by the appropriate Government by

exercising powers under Section 90 of the Act of 1948.

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22. In the case of J.P. Lights India v. Regional Director E.S.I.

Corporation, Bangalore2, it has been laid down that the job of

repairing the machinery is covered under the definition of

“manufacturing process”.

23. The appellant-Corporation had issued notices to respondent-

Nagar Nigam to show cause as to why the recovery of statutory

contribution under Section 40 of the Act of 1948 should not be

effected from it. However, admittedly, no response was given by

the respondent-Nagar Nigam to such notices. There is also no

dispute that for the earlier periods, between 1964 to 1978, the

respondent-Nagar Nigam made regular contributions under the

Act of 1948 thereby conceding to the position that its workshop

was covered under the definition of ‘factory’ where manufacturing

process was being carried on. If, at all, this situation had changed

in the period subsequent to 1978 and before issuance of the notice

under Section 45A of the Act of 1948, the respondent-Nagar Nigam

would be required to demonstrate the same by providing

appropriate evidence to the Authorized Officer in response to the

said notice and establish that it was not covered under the

definition of ‘factory’ and that no ‘manufacturing process’ was

2 2023 SCC OnLine SC 1271

13 being undertaken in its premises. Examining such an issue would

require the collection of evidence and the appreciation thereof.

Hence, only the Insurance Court constituted under Section 74 of

the Act of 1948 would be in a position to examine such disputed

questions of facts.

24. We thus feel that it was a fit case wherein, rather than

interfering in the matter in exercise of the writ jurisdiction, the

respondent-Nagar Nigam should have been relegated by the

learned Single Judge to approach the Insurance Court by filing an

application under Section 75(1)(g) of the Act of 1948.

25. In the wake of the discussion made hereinabove, we are of

the opinion that the learned Single Judge of the High Court clearly

erred in entertaining the writ petition and interfering with the

recovery notice dated 3rd February, 2009 while exercising the

extraordinary writ jurisdiction conferred under Article 226 of the

Constitution of India.

26. As a consequence, the appeal is allowed, and the impugned

order is hereby quashed and set aside. No costs.

27. We, however, make it clear that above observations shall not

prejudice the rights of the respondent No.1-Nagar Nigam to seek

14 benefit of exemption as contemplated under Section 90 of the Act

of 1948.

28. Pending application(s), if any, shall stand disposed of.

…………………………..J. (J.B. PARDIWALA)

…………………………..J. (SANDEEP MEHTA) NEW DELHI;

May 17, 2024

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