REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5640  OF 2004

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

J U D G M E N T

H.L. Dattu, J.

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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  

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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  

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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  

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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  

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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  

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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  

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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  

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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.

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(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.

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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  

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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  

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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  

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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  

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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,

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September 2, 2009

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