REPORTABLE     

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3816 OF 2010 (Arising out of SLP(C) No. 746 of 2006)

The Managing Director, Hassan Co-operative  Milk Producer’s Society Union Limited         …Appellant

Versus   The Assistant Regional Director Employees State Insurance Corporation             …Respondent

WITH

CIVIL APPEAL NO. 3817 OF 2010 (Arising out of SLP(C) No. 3455 of 2008)

JUDGEMENT

R.M. Lodha, J.

Leave granted.

2. These two appeals, by special leave, are concerned  

with  the  liability  of  the  appellants  to  pay  ESI  contribution  in  

respect  of  the  workers  employed  by  the  contractors  in  

performance of the contract awarded to them for transportation  

of milk.

3. The two appeals arise out of different proceedings.  

Brief narration of facts in relation to each of the appellants may  

be set out first.

Hassan Cooperative Milk Producer’s Society Union Limited  (for short, ‘HCMPSU Ltd.’).   

4. HCMPSU Ltd. is a federal society. Its main business is  

purchasing  milk  and  pasteurization  of  the  same.   The  milk  

procured by member societies is transported in lorries/vans to  

the appellant’s dairy. For that purpose, contract is awarded on  

the  basis  of  rate  per  kilometer  to  the  lowest  bidder.  The  

contractor collects the milk from the various societies in cans on  

specified  routes  and  transports  to  the  appellant’s  dairy.  The  

empty cans are retransported and returned to the respective  

member  societies.  On  September  23,  1994,  a  show  cause  

notice  was  issued  by  the  Assistant  Regional  Director,  

Employees’  State  Insurance  Corporation,  Bangalore  to  the  

HCMPSU Ltd.  calling  upon  them to  furnish  explanation  and  

show cause as to why action should not be taken against them  

for  non-payment  of  contribution  under  the  Employees’  State  

Insurance  Act,  1948 (for  short,  ‘1948  Act’)  in  respect  of  the  

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employees of the appellant. It is not in dispute that this notice  

related to the employees engaged by the contractors for  the  

transportation of milk.   The appellant responded to the show  

cause notice by filing their reply on October 10, 1994, inter-alia,  

stating therein (a) that the main business of the appellant is to  

process milk,  receive and sell  the same to the  public  in  the  

concerned districts through their agents. The appellant does not  

appoint the officers and subordinates to collect the milk from  

the societies located in different places and (b) that appellant  

calls for tenders and awards the contract for transportation of  

milk for specified period at a particular rate per kilometer. The  

contractors engage workers for that work but such workers are  

neither directly nor indirectly employees of the appellant and;  

the appellants have no control over such employees nor they  

supervise their work. The wages or salary of such workers have  

also not been paid by the appellant.   Another notice was also  

issued by the concerned authority to which reply was submitted  

by the appellant stating therein that the workers so engaged by  

the contractors do not work in the premises of the appellant’s  

establishment  and  for  this  reason  also  1948  Act  is  not  

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applicable.   It  appears  that  inspection  of  the  appellant’s  

establishment was conducted by the concerned authority under  

the 1948 Act and thereafter an order under Section 45A of 1948  

Act came to be passed on March 21/24, 1995 calling upon the  

appellant  to  pay  contributions  totaling  Rs.  65,834/-  for  the  

period April 1, 1989 to March 31, 1990 in respect of the workers  

employed for transportation and procurement of milk together  

with interest payable at the rate  of 12 per cent per annum upto  

August 31, 1994 and 15 per cent from September 1, 1994 till  

the date of actual payment, within a period of 15 days from the  

date  of  receipt  of  the  order.  The  appellant  challenged  the  

aforesaid order under Section 75 read with Sections 76 and 77  

of  1948 Act  before the Employees’  State Insurance Court  at  

Mysore (ESI Court).  The ESI Court did not find any merit in the  

application  and  dismissed  the  same  vide  order  dated  

January 29, 2004 holding that the work of employees engaged  

by the contractors is incidental to the main work carried out by  

the  appellant  and  that  supervision  over  the  work  of  such  

employees by the appellant is also established.  The appellant  

challenged the aforesaid order before High Court of Karnataka  

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by filing statutory appeal under Section 82(2) of 1948 Act which  

has been dismissed by the impugned order.

The Bangalore Urban and Rural District Co-operative Milk  Producers Societies Union Limited (for short, ‘BURDCMPS  Union’)           

5. BURDCMPS Union is a cooperative society.  By virtue of  

a tripartite agreement,  Bangalore Dairy became its unit w.e.f.  

September 1, 1988.   Bangalore Dairy was earlier a constituent  

of Karnataka Dairy Development Corporation and subsequently  

became a constituent of Karnataka Milk Federation.  For the  

purpose of transportation, distribution and procurement of milk  

and milk products, Bangalore Dairy used to entrust the work to  

independent  contractors  after  inviting  tenders.  The  said  

contractors were being paid charges on kilometer basis.  The  

appellant  adopted  the  same  system.  An  inspection  was  

conducted by ESI Inspector in respect of transportation of milk  

and milk products through transport contractors for the period  

from October 1985 to December 1991 and from January 1992  

to  March  1993.  On  October  13,  1993,  a  notice  indicating  

tentative determination of dues was issued to the appellant to  

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show cause as to why contribution under 1948 Act should not  

be recovered from them.  In response to the show cause notice,  

the  appellant  appeared  through  its  representative  and  

contested the liability.  It appears that the authority asked the  

appellant to bifurcate the wage element involved in the amount  

paid to the contractors and produce the same for verification  

which  was  not  done.  The  Assistant  Regional  Director,  

Bangalore  by  his  order  dated  September  6,  1994  finally  

determined  an amount  of  Rs.  4,81,313/-  for  the  period  from  

October 1985 to March 1993 and held that the said amount was  

liable to be paid by the appellant within 15 days from the date of  

receipt of the order.   In the said order, interest at the rate of 12  

per cent per annum was also ordered to be paid.  The appellant  

challenged the aforesaid order   before ESI Court,  Bangalore  

under  Section  75  of  1948  Act.  ESI  Court  dismissed  the  

application vide order dated October 30, 1999.  The appellant  

then filed an appeal under Section 82 of 1948 Act before the  

Karnataka High Court which too was dismissed on August 24,  

2007.

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6. 1948 Act was enacted to provide for certain benefits  

to employees in case of sickness, maternity and employment  

injury  and  for  certain  incidental  matters.  That  the  Act  is  

beneficial legislation admits of no doubt. It is appropriate at this  

stage to refer to definition of terms, ‘contribution’, ‘employee’,  

‘immediate  employer’,  ‘principal  employer’  and  ‘wages’  

occurring in 1948 Act.   

7. ‘Contribution’  is  defined  in  Section  2  (4)  which  

means  the  sum  of  money  payable  to  the  Employees  State  

Insurance Corporation by the principal employer in respect of  

an employee and includes any amount payable by or on behalf  

of the employee in accordance with the provisions of 1948 Act.

8. ‘Employee’ is defined in Section 2(9) as follows :

“S. 2(9).- "employee" means any person employed for  wages in or in connection with the work of a factory or  establishment to which this Act applies and--

(i)  who  is  directly  employed  by  the  principal  employer,  on  any  work  of,  or  incidental  or  preliminary to or connected with the work of, the  factory  or  establishment',  whether  such work  is  done  by  the  employee  in  the  factory  or  establishment or elsewhere; or

(ii)  who  is  employed  by  or  through  an  immediate  employer,  on  the  premises  of  the  factory  or  establishment  or  under  the  supervision  of  the  principal employer or his agent on work which is  

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ordinarily  part  of  the  work  of  the  factory  or  establishment or which is preliminary to the work  carried on in or incidental to the purpose of the  factory or establishment; or

(iii) whose services are temporarily lent or let on hire  to  the  principal  employer  by  the  person  with  whom the person whose services are so lent or  let on hire has entered into a contract of service;

and includes any person employed for  wages on any  work connected with the administration of the factory or  establishment or any part, department or branch thereof  or  with  the  purchase  of  raw  materials  for,  or  the  distribution  or  sale  of  the  products  of,  the  factory  or  establishment  or  any  person  engaged  as  apprentice,  not being an apprentice engaged under the Apprentices  Act, 1961 (52 of 1961), or under the standing orders of  the establishment; but does not include --

(a) any member of [the Indian] naval, military or air  forces; or

(b)any  person  so  employed  whose  wages  (excluding  remuneration  for  overtime  work)  exceed such wages as may be prescribed by the  Central Government] a month:”

Provided  that  an  employee  whose  wages  (excluding  remuneration  for  overtime  work)  exceed such wages as may be prescribed by the  Central  Government  at  any  time  after  (and  not  before) the beginning of the contribution period,  shall continue to be an employee until the end of  that period;”

9. Section  2(13)  defines  ‘immediate  employer’  while  

Section  2(17)  defines  ‘principal  employer’.  The  definitions  of  

‘immediate employer’ and ‘principal employer’ in the 1948 Act  

are as follows :

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“S.  2(13).-  "immediate  employer",  in  relation  to  employees  employed  by  or  through  him,  means  a  person  who  has  undertaken  the  execution,  on  the  premises of a factory or an establishment to which this  Act  applies  or  under  the  supervision  of  the  principal  employer or his agent, of the whole or any part of any  work which is ordinarily part of the work of the factory or  establishment of the principal employer or is preliminary  to the work carried on in, or incidental to the purpose of,  any  such  factory  or  establishment,  and  includes  a  person by whom the services of an employee who has  entered  into  a  contract  of  service  with  him  are  temporarily lent or let on hire to the principal employer  and includes a contractor”

“S. 2 (17) "principal employer" means--

(i) in a factory, the owner or occupier of the factory and  includes  the  managing  agent  of  such  owner  or  occupier,  the  legal  representative  of  a  deceased  owner  or  occupier,  and where  a  person has been  named  as  the  manager  of  the  factory  under  the  Factories  Act,  1948  (63  of  1948),  the  person  so  named;

(ii)in  any  establishment  under  the  control  of  any  department of any Government in India, the authority  appointed  by  such  Government  in  this  behalf  or  where no authority is so appointed, the head of the  Department;

(iii) in any other establishment, any person responsible  for  the supervision and control of the establishment;”

10. Section 2 (22) defines ‘wages’ thus :  

“S. 2 (22).- "wages" means all remuneration paid  or payable in cash to an employee, if the terms of  

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the contract of employment,  express or implied,  were  fulfilled  and  includes  any  payment  to  an  employee in respect of any period of authorized  leave, lock-out, strike which is not illegal or lay-off  and other additional remuneration, if any, paid at  intervals not exceeding two months, but does not  include –-

(a) any  contribution  paid  by  the  employer  to  any pension fund or provident fund, or under this  Act;  (b) any traveling allowance or the value of any  traveling concession;  (c) any sum paid to  the person employed  to  defray special expenses  entailed  on  him  by  the nature of his employment; or  (d) any gratuity payable on discharge;”

11. Sections 46 to 73 in Chapter-V provide for claims  

and  benefits  such  as  sickness  benefit,   maternity  benefit,  

disablement benefit,  medical benefit, etc.   

12. The answer to the controversy presented before us  

has  to  be  found  primarily  from  Section  2(9)  which  defines  

‘employee’  and  the  terms  of  agreements.   Section  2(9)  has  

been  extensively  analysed  by  this  Court  in  Royal  Talkies,  

Hyderabad  and  Others  v.  Employees  State  Insurance  

Corporation1 thus :

“14. Now here is a break-up of Section 2(9). The clause  contains  two  substantive  parts.  Unless  the  person  employed qualifies under both he is not an ‘employee’.  

1 (1978) 4 SCC 204

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Firstly, he must be employed “in or in connection with”  the  work  of  an  establishment.  The  expression  “in  connection with the work of an establishment” ropes in a  wide variety of workmen who may not be employed in  the  establishment  but  may  be  engaged  only  in  connection  with the work  of  the establishment.  Some  nexus  must  exist  between  the  establishment  and  the  work of the employee but it may be a loose connection.  ‘In connection with the work of an establishment’  only  postulates  some  connection  between  what  the  employee does and the work of the establishment. He  may not do anything directly for the establishment; he  may  not  do  anything  statutorily  obligatory  in  the  establishment;  he may not even do anything which is  primary or necessary for the survival or smooth running  of the establishment or integral to the adventure. It  is  enough  if  the  employee  does  some  work  which  is  ancillary, incidental or has relevance to or link with the  object  of  the  establishment.  Surely,  an  amenity  or  facility  for  the  customers  who  frequent  the  establishment  has  connection  with  the  work  of  the  establishment. The question is not whether without that  amenity or facility the establishment cannot be carried  on but whether such amenity or facility, even peripheral  may  be,  has  not  a  link  with  the  establishment.  Illustrations  may  not  be  exhaustive  but  may  be  informative. Taking the present case, an establishment  like a cinema theatre is not bound to run a canteen or  keep a cycle stand (in Andhra Pradesh) but no one will  deny that a canteen service, a toilet service, a car park  or cycle stand, a booth for sale of catchy film literature  on actors, song hits and the like, surely have connection  with the cinema theatre and even further the venture.  On the other hand, a bookstall where scientific works or  tools are sold or a stall where religious propaganda is  done,  may  not  have  anything  to  do  with  the  cinema  establishment and may, therefore, be excluded on the  score  that  the  employees  do  not  do  any  work  in  connection with the establishment, that is, the theatre.  In the case of a five-star hotel, for instance, a barber  shop or an arcade, massage parlour, foreign exchange  counter  or  tourist  assistance  counter  may  be  run  by  some one other than the owner of the establishment but  

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the employees so engaged do work  in connection with  the establishment or the hotel even though there is no  obligation  for  a  hotel  to  maintain  such  an  ancillary  attraction.  By  contrast,  not  a  lawyer’s  chamber  or  architect’s  consultancy.  Nor,  indeed,  is  it  a  legal  ingredient  that  such adjunct  should be  exclusively for  the establishment if it is mainly its ancillary.

15. The  primary  test  in  the  substantive  clause  being  thus wide, the employees of the canteen and the cycle  stand  may  be  correctly  described  as  employed  in  connection  with the  work  of  the  establishment.  A  narrower  construction  may  be  possible  but  a  larger  ambit  is  clearly  imported  by  a  purpose-oriented  interpretation. The whole goal of the statute is to make  the principal employer primarily liable for the insurance  of kindred kinds of employees on the premises, whether  they are there  in the work  or are merely  in connection  with the work of the establishment.

16. Merely being employed in connection with the work  of an establishment, in itself, does not entitle a person  to be an ‘employee’. He must not only be employed in  connection with the work of the establishment but also  be shown to be employed in one or other of the three  categories mentioned in Section 2(9).

17. Section  2(9)(i)  covers  only  employees  who  are  directly employed by the principal employer. Even here,  there are expressions which take in a wider  group of  employees  than  traditionally  so  regarded,  but  it  is  imperative  that  any  employee  who  is  not  directly  employed by the principal employer cannot be eligible  under  Section  2(9)(i).  In  the  present  case,  the  employees  concerned  are  admittedly  not  directly  employed by the cinema proprietors.

18. Therefore, we move down to Section 2(9)(ii). Here  again,  the  language  used  is  extensive  and  diffusive  imaginatively  embracing  all  possible  alternatives  of  employment by or through an independent employer. In  such  cases,  the  ‘principal  employer’  has  no  direct  employment relationship since the ‘immediate employer’  

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of the employee concerned is some one else. Even so,  such an employee, if he works (a) on the premises of  the establishment, or (b) under the supervision of  the  principal  employer  or  his  agent  “on  work  which  is  ordinarily part of the work of the establishment or which  is preliminary to the work carried on in or incidental to  the  purpose  of  the  establishment”,  qualifies  under  Section  2(9)(ii).  The  plurality  of  persons  engaged  in  various activities who are brought into the definitional  net is wide and considerable; and all that is necessary is  that the employee be on the premises or be under the  supervision  of  the  principal  employer  or  his  agent.  Assuming that the last part of Section 2(9)(ii) qualifies  both these categories, all that is needed to satisfy that  requirement is that the work done by the employee must  be  (a)  such  as  is  ordinarily (not  necessarily  nor  statutorily) part of the work of the establishment, or (b)  which is merely preliminary to the work carried on in the  establishment, or (c) is just incidental to the purpose of  the  establishment.  No  one  can  seriously  say  that  a  canteen or cycle stand or cinema magazine booth is not  even  incidental  to  the  purpose  of  the  theatre.  The  cinema goers ordinarily find such work an advantage, a  facility, an amenity and some times a necessity. All that  the  statute  requires  is  that  the  work  should  not  be  irrelevant  to  the  purpose  of  the  establishment.  It  is  sufficient if it is incidental to it. A thing is incidental to  another  if  it  merely  appertains  to  something  else  as  primary. Surely, such work should not be extraneous or  contrary to the purpose of the establishment but need  not be integral to it either. Much depends on time and  place, habits and appetites, ordinary expectations and  social  circumstances.  In  our  view,  clearly  the  two  operations in the present case, namely, keeping a cycle  stand and running a canteen are incidental or adjuncts  to the primary purpose of the theatre.”

13. The masterly  analysis  and clear  exposition of  the  

term  ‘employee’  as  defined  in  Section  2(9)  done  by  V.R.  

Krishna  Iyer,  J.  in  Royal  Talkies1  has  been  consistently  

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followed in subsequent decisions. Some of these decisions are  

:  (1)  Regional  Director,  Employees’  State  Insurance  Corpn.,   

Madras v.  South  India  Flour  Mills  (P)  Ltd.2 ;  (2)  Kirloskar  

Brother  Ltd. v.  Employees’  State  Insurance  Corporation3;  (3)  

RaJakamal  Transport  and  Another  v. Employees’ State  

Insurance Corporation, Hyderabad4;  (4)  Transport Corporation  

of  India v.  Employees’  State  Insurance  Corporation  and  

Another5 and (5)  M/s.  Saraswat  Films v.  Regional  Director,   

E.S.I. Corporation,. Trichur6.  

14. In the light of the definition of the ‘employee’ under  

Section 2(9) as interpreted by this Court in Royal Talkies1 and  

subsequent  decisions,  we  may  examine  the  question  as  to  

whether  the  workers  employed  by  the  contractors  in  

performance of the contract awarded to them by the appellants  

for  transportation  of  milk  are  covered  by  Section  2(9).  The  

reference to relevant clauses of the agreement at this stage will  

be appropriate.

2 (1986) 3 SCC 238 3 (1996) 2 SCC 682 4 (1996) 9 SCC 644 5 (2000) 1 SCC 332 6 JT 2002 (Suppl 1) SC 454

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15. The  relevant  clauses  of  the  agreements  between  

HCMPS Union and contractors are :

“1) That in consideration of the H C M P S U Ltd.,  paying to the contractor  at  the rate of  Rs.  2.50  (Rupees two and fifty paise only) per Kilometer of  journey, the contractor hereby agrees to transport  the Milk from  the places on routes specified in  schedule-1 annexed to this agreement, which all  shall form part of this agreement.

2) It is further agreed that the rate of specified above  shall  include the cost of  loading the milk at the  points  specified  as  above  into  the  vehicles,  transporting the same on the routes specified to  the specified Dairy/Chilling Centres and unloading  the same at the specified Dairies/Chilling centre.  The contractor  also bring back the empty cans,  bottles, etc. to the place from where he had taken  them out.

7) The  contractor  shall  ply  the  vehicles  owned  by  him and shall  provide/produce the vehicles with  the  registration  certificate  tax  paid  receipts,  comprehensive  insurance  certificate  and  all  the  specified  for  the  purpose  of  satisfying  the  ownership of the vehicles and road worthiness of  the vehicles and farther undertakes to replace the  such  vehicles  which  in  the  option  of  the  authorities of  the HCMP SUL are not fit  for the  purpose of transporting the milk as agreed to.

9) The contractor shall make his own arrangements  for the engaging the workers required for loading  and  unloading  and  transport  operations  and  further agrees to abide by the provisions of the  contract labour (Regulation and Abolition) Act, in  the  matter  of  payment  of  their  wages  etc.  and  further  indemnify  the  HCMP  SUL  against  any  claim by such workers.

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14) The contractor shall strictly confirm to the various  instructions to be given from time to time by the  authorities  of  the HCMPSU Ltd.,  with  regard to  the safe transportation of the can milk/sachet Milk  and  other  materials  as  agreed  to  under  this  contract.   

17)   The contractors further agreed that the addition to  his  workmen he shall  allow the staff  authorized  representatives  of   HCMPSU Ltd,  including  the  officials  of  the  Milk  Producing  Co-operatives  societies  to  travel  free  of  charges  in  the  contractors vehicle.

26) (i)  If  any  employee/representative  of  the  contractor  is  found  pilfering  and/or  adulterating  and/or  destroying  the  milk  and  other  items  entrusted  to  the  contractor  during  the  transportation  or  during/loading/unloading  operations to the premises of the milk producers  Union/societies  the  contractor  shall  responsible  for the loss and the contractor shall make good all  such  losses  incurred  by  DCs  from  the  day  of  default upto 15 days H C M P S U Ltd., may at its  discretion  forfeit  the  security,  deposit  and  terminate the contract.

(ii)  If  any  employee  of  representative  of  the  Contractor  misbehaves  and  or  indulges  in  disorderly  conduct  with  the  staff  of  the  milk  producers union/societies, or with the members of  the General public the H C M P S U Ltd., may  require the contractor to remove such undesirable  persons from the transport work.  The contractor  shall  not  reemployed  such undesirable  persons  who have been removed from the transport work  either by the contractor himself  or by any other  contractor engaged by H C M P S U Ltd., ”

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16. As regards the agreements between  BURDCMPS  

Union and contractors, the relevant clauses are :

“1) In consideration of payment of transport charges  by the Dairy the Contractor at the rate of Rs.6-40  (Rupees  six  and  paise  forty  only)  per  K.M.  of  journey,  the contractor  shall  carry in his  motor  vehicles and deliver at the appointed sale points  the  Dairy  products  entrusted  to  him  for  such  purpose,  once  in  the  morning  and  one  in  the  evening  or  as  required  by  the  Dairy  daily.  The  Contractor,  who files tenders for more than two  routes  should  have  one  standing  vehicle  for  replacement in the event of any breakdown of his  vehicle  during  the  transport  of  Dairy  products.  After delivery of the Dairy products at all the sale  point,  the Contractor  shall  deliver  all  the  teens,  crates containers and returned dairy products to  the Dairy immediately upon arrival at the Dairy.

5) No person other than the persons employed by  the  Dairy  or  the  contractor  for  the  purpose  of  Transport,  shall  be carried in any vehicle of the  contractor while it is engaged in the performance  of this contract.

6) The  contractor  shall  promptly  remove  any  employee of his who behaves improperly with the  Dairy staff or the selling agents or their men at the  sale points, on a complaint by the Dairy.

7) If  any  pilferage  or  shortage  or  adulteration  is  found to have occurred in the course of transport,  the full value of the Dairy property pilfered, short  found or adulterated shall be recoverable by the  Dairy  from  the  contractor.  If  any  pilferage  or  shortage or adulteration is found to have occurred  in  the  course  of  transport  for  second  time,  the  contractor  will  also  incur  the  liability  for  cancellation  of  the  contract  in  addition  to  his  

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liability  to  pay  full  value  of  the  Dairy  property  pilfered, short-found or adulterated.”  

17. We  shall  assume,  to  test  the  validity  of  the  

contention,   in  favour  of  the  E.S.I.  Corporation  that  workers  

engaged  by  the  contractor  (immediate  employer)  for  

transportation of milk have been employed in connection with  

the work of the principal employer and these employees, thus,  

qualify under first substantive part of Section 2(9). But as stated  

in Royal Talkies1 that merely being employed in connection with  

the work of an establishment, in itself, does not entitle a person  

to  be  an  ‘employee’;  he  must  not  only  be  employed  in  

connection  with  the  work  of  the  establishment  but  also  be  

shown to be employed in one or other of the three categories  

mentioned in Section 2(9). Are these workers covered by any of  

these categories?  

18. It is not the case of any of the parties nor there is  

any evidence to show that  the persons who did loading and  

unloading  were  directly  employed  by the  appellants.  Section  

2(9)(i) is, therefore clearly not attracted as it covers the workers  

who  are  directly  employed  by  the  principal  employer.  As  a  

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matter of fact, the thrust of the arguments centred round clause  

(ii)  of  Section  2(9).  This  clause,  requires  either  (a)  that  the  

person to be an employee should be employed on the premises  

of the factory or establishment, or (b) that the work is done by  

the  person  employed  under  the  supervision  of  the  principal  

employer or his agent on work which is ordinarily part of the  

factory  or  establishment  or  which  is  preliminary  to  the  work  

carried  on  in  or  incidental  to  the  purpose  of  the  factory  or  

establishment.  The expression “on the premises of the factory  

or establishment” comprehends presence of the persons on the  

premises of  the factory or establishment for  execution of  the  

principal activity of the industrial establishment and not casual  

or occasional presence.  We shall again assume in favour of  

the  E.S.I.  Corporation  that  for  the  purposes  of  loading  and  

unloading the milk cans, the truck driver and loaders enter the  

premises  of  the  appellants  but  mere  entry  for  such  purpose  

cannot be treated as an employment of those persons on the  

premises of the factory or establishment.  We are afraid, the  

said expression does not comprehend every person who enters  

the factory for whatever purpose.  This is not and can never be  

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said to be the purpose of the expression.  It has to be held that  

the  persons  employed  by  the  contractor  for  loading  and  

unloading of milk cans are not the persons employed on the  

premises of the appellants’ establishment.

19. Now, the next question is, can these workers, in the  

facts  and  circumstances  of  the  case,  be  said  to  be working  

under  the  supervision of  the appellants.   It  is  appropriate  to  

refer to a decision of this Court in C.E.S.C. Limited and Others  

v.  Subhash  Chandra  Bose  and  Others7. In  that  case,  the  

question that fell  for consideration was, whether on the facts  

found,  the right  of  the  principal  employer to  reject  or  accept  

work  on  completion,  on  scrutinizing  compliance  with  job  

requirements, as accomplished by a contractor, the immediate  

employer, through his employees, is in itself an effective and  

meaningful  “supervision”  as  envisaged under  Section  2(9)  of  

the 1948 Act.   The majority view explained :

“14. ……In  the  textual  sense  ‘supervision’  of  the  principal employer or his agent is on ‘work’ at the places  envisaged and the word ‘work’ can neither be construed  so broadly to be the final act of acceptance or rejection  of work, nor so narrowly so as to be supervision at all  times  and  at  each  and  every  step  of  the  work.  A  harmonious construction alone would help carry out the  

7 (1992) 1SCC 441

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purpose of the Act, which would mean moderating the  two extremes. When the employee is put to work under  the eye and gaze of the principal employer, or his agent,  where  he  can  be  watched  secretly,  accidentally,  or  occasionally,  while  the  work  is  in  progress,  so  as  to  scrutinise the quality thereof and to detect faults therein,  as also put to timely remedial measures by directions  given, finally leading to the satisfactory completion and  acceptance  of  the  work,  that  would  in  our  view  be  supervision for the purposes of Section 2(9) of the Act.  It  is  the consistency of vigil,  the proverbial  ‘a  stich in  time saves nine’. The standards of vigil would of course  depend on the facts of each case. Now this function, the  principal employer, no doubt can delegate to his agent  who in the eye of law is his second self, i.e., a substitute  of  the  principal  employer.  The  immediate  employer,  instantly,  the  electrical  contractors,  can  by  statutory  compulsion  never  be  the  agent  of  the  principal  employer.  If  such  a  relationship  is  permitted  to  be  established it  would  not  only  obliterate  the  distinction  between the two, but would violate the provisions of the  Act as well as the contractual principle that a contractor  and a contractee cannot be the same person……….”.

20. The  decision  also  referred  to  the  definition  of  

“agent” drawn in Halsbury’s Laws of England (Hailsham Edition)  

Vol. I at page 145, para 350 which is as follows :

“An agent is to be distinguished on the one hand from a  servant,  and  on  the  other  from  an  independent  contractor. A servant acts under the direct control and  supervision of his master, and is bound to conform to all  reasonable  orders  given  to  him  in  the  course  of  his  work; an independent contractor, on the other hand, is  entirely independent of any control or interference and  merely  undertakes  to  produce  a  specified  result,  employing  his  own means to  produce  that  result.  An  agent,  though  bound  to  exercise  his  authority  in  accordance  with  all  lawful  instructions  which  may  be  given to him from time to time by his principal,  is not  

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subject  in  its  exercise  to  the  direct  control  and  supervision of the principal.”

21. After taking into consideration Section 182 of the Indian  

Contract  Act,  1872  that  defines  ‘agent’,  the  majority  view  

recorded its conclusion thus :

“20. Thus on both counts, the principal question as well  as the subsidiary question must be answered against  the ESIC holding that  the employees of  the electrical  contractors, on the facts and circumstances, established  before  the  Division  Bench  of  the  High  Court,  do  not  come in the grip of the Act and thus all demands made  towards ESI contribution made against the CESC and  the  electrical  contractors  were  invalid.  We affirm  the  view of the High Court in that regard.”

22. Although, E.S.I. Court in respect of the appellants in  

separate orders, has recorded a finding that such workers work  

under the supervision of  the principal  employer  and the said  

finding has not been interfered with by the High Court but we  

find it difficult to accept the said finding. The ordinary meaning  

of the word ‘supervision’ is ‘authority to direct’ or ‘supervise’ i.e.,  

to  oversee.   The  expression  ‘supervision  of  the  principal  

employer’  under  Section  2(9)  means  something  more  than  

mere  exercise  of  some  remote  or  indirect  control  over  the  

activities or the work of the workers. As held in C.E.S.C. Ltd.7  

that supervision for the purposes of Section 2(9) is ‘consistency  

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of vigil’ by the principal employer so that if need be, remedial  

measures  may  be  taken  or  suitable  directions  given  for  

satisfactory completion of work.  A direct disciplinary control by  

the  principal  employer  over  the  workers  engaged  by  the  

contractors may also be covered by the expression ‘supervision  

of the principal employer’.  The circumstances, as in the case of  

HCMPSU  Ltd.,  that  the  authorized  representatives  of  the  

principal  employer  are  entitled  to  travel  in  the vehicle  of  the  

contractor free of charge or in the case of BURDCMPS Union,  

that the principal employer has right to ask for removal of such  

workers  who  misbehave  with  their  staff  are  not  the  

circumstances  which may even remotely suggest the control or  

interference  exercised  by  the  appellants  over  the  workers  

engaged by the contractor for transportation of milk.  From the  

agreements entered into by the appellants with the contractors,  

it  does  not  transpire  that  the  appellants  have  arrogated  to  

themselves any supervisory control over the workers employed  

by the contractors.   The said  workers  were  under  the direct  

control of the contractor.  Exercise of supervision and issue of  

some direction by the principal employer over the activities of  

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the contractor and his employees is inevitable in contracts of  

this  nature  and  that  by  itself  is  not  sufficient  to  make  the  

principal employer liable.  That the contractor is not an agent of  

the  principal  employer  under  Section  2(9)(ii)  admits  of  no  

ambiguity.   This  aspect  has  been  succinctly  explained  in  

C.E.S.C. Ltd.7 with which we respectfully agree.  No evidence  

has  been  collected  by  the  E.S.I.  Corporation  during  the  

inspection  of  the  appellants’  establishments  or  from  the  

contractors that the appellants have any say over the terms and  

conditions  of  employment  of  these  employees  or  that  the  

appellants have any thing to do with logistic operations of the  

contractors. As a matter of fact, there is nothing on record to  

show  that  principal  employer  had  any  knowledge  about  the  

number of persons engaged by the contractors or the names or  

the other details of such persons.  There is also no evidence  

that the appellants were aware of the amount payable to each  

of these workers. In the circumstances, even if it be held that  

the transportation of milk is incidental to the purpose of factory  

or establishment, for want of any supervision of the appellants  

on  the  work  of  such  employees,  in  our  opinion,  these  

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employees  are  not  covered  by  the  definition  of  ‘employee’  

under Section 2(9) of the Act.

23. As  a  result  of  the  foregoing  discussion,  both  

appeals are allowed and the impugned orders are set aside. No  

order as to costs.  

…..…….……………..J            (R. V. Raveendran)

…..…….……………..J                  (R. M. Lodha)

New Delhi April 26, 2010.   

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