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CASE NO.: Appeal (civil) 3125 1998

PETITIONER: CHRISTIAN MEDICAL COLLEGE

       Vs.

RESPONDENT: E.S.I.C.

DATE OF JUDGMENT:       23/11/2000

BENCH: S.N.Variava, S.R.Babu

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J       J U D G M E N T

     S.  N.  VARIAVA, J.

     This  Appeal is against an Order dated 25th July, 1997 passed  in  a Letters Patent Appeal filed by the  Appellant. Briefly stated the facts are as follows:  The Appellant is a Hospital  which is part of a Medical College.  The Appellant has  a department, which is called the Equipment Maintenance Department.   This department maintains the equipment in the hospital  such as X-ray, ECG and Radiation equipment, kidney dialysis,  heart and lung machine, operating table equipment etc.   In  effect this department, inter alia,  repairs  the equipment  which is being used in the hospital.  Admittedly, in  this  department there are 45 persons working.  In  1978 the Respondent issued a notice to the Appellant stating that the Equipment Maintenance Department fell within the purview of  Section 2(12) of the Employees State Insurance Act, 1948 (hereinafter  referred  to  as  the ESI Act)  and  that  the Appellant  should comply with the provisions of the Act with retrospective  effect.   The Appellant represented that  the ESI  Act  would  not  apply  to  the  Equipment  Maintenance Department,  inter alia, on the ground that this  department was  part  and  parcel  of   the  Appellant  College.    The Respondent  did  not accept this explanation and  threatened the  Appellant  with  legal action.  The Appellant  filed  a Petition under Section 75 of the ESI Act before the District Court,  Vellore.   By  a Judgment dated 4th  May,  1985  the District   Judge  held  that   the   Equipment   Maintenance Department  was not separate and distinct from the Appellant Hospital  and  that it was just a limb of the hospital.   It was  held that the Equipment Maintenance Department was  not amenable  to  the  provisions of the ESI Act  and  that  the Respondent  was not entitled to apply the provisions of  the ESI Act or to demand any contribution.  The Respondent filed an  Appeal  before the High Court.  That Appeal came  to  be dismissed on 27th June, 1994.  The learned single Judge held that the Equipment Maintenance Department was just a limb of the  Medical College and it could not be separated from  the main  Institution.   It  was  held   that  the  primary  and paramount  character  of  the Appellant Institution  was  to

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teach  medicines  to  the students.  It was held  that  this department  was merely maintained for proper functioning  of the  main  institution  and  it,  therefore,  could  not  be considered  to  be  a factory, even  assuming  manufacturing process  was carried on there.  The Respondent then filed  a Letters  Patent  Appeal  which was allowed by  the  impugned Judgment  dated 27th July, 1997.  The learned Judges of  the High  Court  relied upon the decision of this Court  in  the case  of Andhara University v.  R.P.F.  Commissioner of A.P. reported in (1985) 4 SCC 509.  In this case the question was whether  the Departments of Publication and Press run by the Andhra University and the Osmania University were liable for coverage   under   the  Employees’   Provident   Funds   and Miscellaneous  Provisions Act.  Relying upon Section 2-A  of that  Act  it  had been submitted that for the  purposes  of determining   the  applicability  of   the  Act  the  entire University must be treated as an establishment.  It had been submitted  that  if  the University cannot be said to  be  a factory, then a Department of that University could not also be covered by the Act.  This Court held as follows:  "7.  We are unable to see how this provision is of any assistance to the  appellants.  Section 2-A was inserted in the Act merely for  the  purposes of clarifying the position that  the  Act applies to composite factories.  It is not the intendment of the section to lay down even by remotest implication that an establishment,  which  is a factory engaged in  an  industry specified  in  Schedule  I will not be liable  for  coverage under  the  Act  merely  because  it is  part  of  a  larger organisation  carrying  on some other activities also  which may not fall within the scope of the Act.  In construing the provisions  of the Act, we have to bear in mind that it is a beneficent  piece  of  social welfare legislation  aimed  at promoting  and securing the well-being of the employees  and the  Court will not adopt a narrow interpretation which will have  the effect of defeating the very object and purpose of the  Act.   Once it is found that there is an  establishment which  is a ’factory’ engaged in an ’industry’ specified  in Schedule  I and employing 20 or more persons, the provisions of  the  Act will get attracted to the case and it makes  no difference  to this legal position that the establishment is run  by a larger organisation which may be carrying on other additional activities falling outside the Act.

     8.  Our attention was drawn to a decision of a learned Single  Judge of the Calcutta High Court in Visva Bharati v. Regional  Provident  Fund Commissioner, W.B.  [(1983) 1  LLJ 332  (Cal)], wherein it was held that the provisions of  the Act  were  inapplicable  in  respect  of  a  "Silpa  Sadan", Agricultural  Farm  and a Hospital run by the Visva  Bharati University.   The learned Judge was of the view that "if the University  as  an  establishment does not  come  under  the provisions  and  or  the purview of the Act,  the  different branches   or  departments  of   the  University  which  the University  is  empowered and or entitled to maintain  under the  provision  of the Visva Bharati Act cannot  be  brought within  the  mischief of the Act." We have no hesitation  to hold  that the aforesaid view expressed by the learned Judge is  not correct or sound and that the said decision does not lay down correct law.

     9.  As already indicated, the true tests to be applied is  whether  there is an establishment which is a  ’factory’ engaged in any of the scheduled industries and whether 20 or more persons are employed in the said establishment.  If the answer  is in the affirmative, the provisions of the Act are

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clearly attracted.

     10.   In the cases before us there cannot be any doubt that   the  establishments  namely,   the   Departments   of Publications  and press are ’factories’ as defined in clause (g)  of  Section  2 of the Act.  Under the  said  definition factory  means  any  premises  in  any  part  of  which  any manufacturing  process is being carried on.  The printing of textbooks,  journals, registers, forms and various items  of stationery  clearly  constitutes  ’manufacture’  within  the meaning of the said expression as defined in clause (i-c) of Section  2  of  the  Act.   That  printing  is  one  of  the industries  specified in the Schedule is not in dispute.  It is  also  not  disputed that much more than 20  persons  are employed   in  the  concerned   establishments  of  the  two Universities.   Thus  all the requirements of clause (a)  of Section  1(3) of the Act are fully satisfied in these  cases and hence the conclusion recorded by the High Court that the establishments in question are liable for coverage under the Act is perfectly correct and justified."

     In  the  case  of   Osmania  University  v.   Regional Director,  E.S.I.C reported in (1985) 4 SCC 514, this Court, has  on  above mentioned principles, held that the  ESI  Act also  applied to Department of Publication and Press of  the Osmania  University.   Based  on the  above  decisions,  the Appellate  Court  held that the provisions of ESI Act  would apply  to  the  Equipment   Maintenance  Department  of  the Appellant.   Mr.  Divan assailed this decision on the ground that the Court had not applied the test as required in cases where  a  complex of activities, some of which  qualify  for exemption and others not, are carried on.  He submitted that the  test  of pre- dominant nature of the services  and  the integrated  nature  of  the Establishment would have  to  be looked  at.   In support of this he relied upon the case  of Bangalore  Water  Supply  and  Sewerage  Board  v.   Rajappa reported  in  (1978) 2 SCC 213, wherein it has been held  as follows:  "143.  The dominant nature test:

     (a)  Where  a  complex of activities,  some  of  which qualify for exemption, others not, involves employees on the total  undertaking, some of whom are not ’workmen’ as in the University of Delhi case (supra) or some departments are not productive of goods and services if isolated, even then, the predominant nature of the services and the integrated nature of the departments as explained in the Corporation of Nagpur (supra),  will be the true test.  The whole undertaking will be  ’industry’  although  those  who are  not  ’workmen’  by definition may not benefit by the status."

     He  also relied upon the case of Associated Industries (P)  Ltd.  v.  Regional Provident Fund Commissioner,  Kerala Trivendrum  reported  in 1964(2) SCR 905.  In this case  the Appellant  ran a tile factory and an engineering works.  The two industries were independent of each other, but they were carried  on by the same company from the same premises.  The engineering  industry employed only 24 workers, whereas  the tile  industry employed more than 50.  The license under the Factories  Act  was for the entire premises.   The  question before  the  Court  was whether the  provisions  of  Section 1(3)(a)  of the Employees’ Provident Funds Act, 1952 applied to  the Appellant.  A Constitution Bench of this Court  held that  the character of the dominant or primary industry will determine the question if a company carries on both dominant and  subsidiary  industries.   It was also held  that  if  a

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factory  runs  more  industries than one all  of  which  are independent of each other, Section 1(3)(a) will apply to the factory  even if one or more, but not all, of the industries run  by it fall under Schedule 1.  It was held that  neither the  tile industry was dominant nor the engineering industry was  subsidiary,  but  that both were  independent  of  each other.   It was held that the factory of the Appellant would be  deemed  to be a composite factory and the provisions  of Section  1(3)(a) would be attracted as one of its industries fell  within  that definition.  Mr.  Divan also relied  upon the  case  of The Regional Provident Fund, Bombay v.   Shree Krishna  Metal Manufacturing Co., Bhandara reported in  1962 Supp.   (3)  SCR 815.  In this case it was held as  follows: "The  other  construction  would  be  that  the   expression "engaged in any industry" means "primarily or mainly engaged in  any  industry".  On this construction, if a  factory  is engaged  in  several  industrial  activities  one  of  which relates to the industry specified in Schedule I, it would be necessary  to enquire whether the said specified activity is subsidiary  or  minor;  if it is subsidiary,  incidental  or minor,  the  factory  cannot be said to be engaged  in  that industry.   Cases may occur where a factory is primarily  or mainly engaged in other industrial activities and it is only for  feeding one or more of such activities that the factory may  undertake  an  activity  in respect  of  the  specified industry.  But such an undertaking is merely for the purpose of feeding its major activity;  it is subsidiary, incidental and  minor.  In that case, the factory cannot be said to  be engaged in the industry specified in Schedule I."

     Mr.   Divan  next  relied  upon the  case  of  General Manager,  Telecom v.  A.  Srinivasa Rao reported in (1997) 8 SCC  767.  In this case the question was whether the Telecom Department  of the Union of India was an industry within the meaning  of  the Industrial Disputes Act, 1947.  This  Court applied  the dominant nature test as given in the  Bengalore Water Supply case (supra) and held that on the basis of this test  the  Telecom Department was an industry.   Mr.   Divan submitted  that  the above mentioned decisions  clearly  lay down that the question has to be decided on the basis of the pre-dominant nature of the activity of the main institution. He  submitted  that  it is not disputed that  the  Equipment Maintenance  Department has been established merely for  the purpose  of ensuring the proper functioning of the equipment in  the hospital such as X-ray, ECG and Radiation equipment, kidney  dialysis,  heart and lung machine,  operating  table equipment  etc.  He submitted that this department rectifies mal-functioning  equipment  in order to avert any danger  to the  lives  of  the  patients.    He  submitted  that   this department  is maintained as the Indian Medical Council  Act requires that such a department be maintained.  He submitted that  this  department is not independent of  the  Appellant Hospital.  He submitted that the department is merely a part and  parcel of the hospital.  He submitted that it is merely a limb of the hospital and cannot be separated from the main institution.   He  submitted that the primary and  paramount character of the Appellant institution is teaching medicines to  the students.  He submitted that as the main institution cannot  be considered to be a factory this Department, which is  merely  intended  for  the  proper  functioning  of  the equipment in the main institution, cannot be considered as a factory, even assuming some manufacturing process is carried on therein.  Mr.  Divan submitted that, therefore, the views taken  by the District Judge in his Judgment dated 4th  May, 1985  and the learned single Judge of the High Court in  the

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Judgment  dated  26th  June, 1994 are correct.   Mr.   Divan pointed  out that same view had been taken in respect of the Appellant  Institute in the case of Dr.  P.S.S.  Sundar  Rao v.   Inspector  of Factories, Vellore reported in 1984  (II) LLJ  237.   In this case it had been held that  the  Laundry Department  of the Appellant College was not a factory as it could  not  separated  from the main institution  and  that, therefore, the provisions of the Factories Act, 1948 did not apply  to  it.   Mr.  Divan also pointed out  an  unreported Judgement  of the Madras High Court dated 13th October, 1984 in  Criminal Misc.  Petition No.  6519 of 1984, wherein  the High Court had quashed criminal prosecution by the Factories Inspector for offences under Section 6 and Rule 7(1) and (2) of the Factories Act.  The criminal proceedings were quashed on  the ground that the Equipment Maintenance Department  of the  Appellant College was not a factory and the  provisions of  the Factories Act did not apply.  In his usual fairness, Mr.   Divan,  however, pointed out that this Court has in  a decision in the case of C.M.C.  Hospital Employees’ Union v. C.M.C.   Vellore  Association reported in (1987) 4 SCC  691, held  that the provisions of Sections 9-A, 10, 11-A, 12  and 33  of  the  Industrial  Disputes Act,  1947  apply  to  the Appellant  College.  Mr.  Divan submitted that the decisions in  the  Andhra  University  and  Osmania  University  cases (supra)  are  contrary to the decision of larger benches  of this Court relied upon by him.  He submitted that a contrary decision  was taken as it was clear that the Departments  of Publication   and  Press  of   the  two  Universities   were independent  of those Universities and catering to the needs of  outsiders/third parties also.  He submitted that in this case  the  Equipment Maintenance Department is not  separate but  just  a limb of the Appellate Hospital and it does  not cater  to any outside party.  He submitted that if decisions in  Andhra and Osmania University cases are to be applied to a department which is just a limb, then they do not lay down the  correct  law as larger benches of this Court have  held otherwise.   He submitted that in that case there would be a conflict between these two cases and the cases cited by him. He  submitted  that  if  this court was  not  accepting  his submission  then  in view of the conflict of  decisions  the question   should  be  referred  to   a  larger  bench   for determination.   We  are  unable  to   accept  any  of   the submissions  made by Mr.  Divan.  It is to be seen that  all the cases relied upon by him

     are  cases  where the question was whether the  entire undertaking or both the undertakings would be covered by the provisions  of  the  various Act referred to  therein.   The question  was  whether  the  entire undertaking  was  to  be covered  because a department or some other industry run  by that  Company  was  covered.   In such  cases  the  test  of dominant  nature  is applied.  In this case the question  is not whether the Appellant Hospital gets covered by reason of the  fact  that  the  ESI   Act  applies  to  the  Equipment Maintenance  Department.  Here the question is only  whether the  Equipment Maintenance Department is covered.  For  that one  has only to see whether this department is a  "factory" within  the  meaning of the term as defined in the ESI  Act. Section  2(12)  of the ESI Act defines a "factory":   "2(12) "factory" means any premises including the precincts thereof -

     (a)  whereon ten or more persons are employed or  were employed  for  wages  on  any day of  the  preceding  twelve

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months,  and in any part of which a manufacturing process is being  carried on with the aid of power or is ordinarily  so carried on, or

     (b)  whereon  twenty or more persons are  employed  or were  employed for wages on any day of the preceding  twelve months,  and in any part of which a manufacturing process is being  carried on without the aid of power or is  ordinarily so carried on.

     but  does not include a mine subject to the  operation of the Mines Act, 1952 or a railway running shed."

     Section  2(14AA) of the ESI Act provides that the term "manufacturing  process" shall have the meaning assigned  to it  in the Factories Act.  Section 2(k) of the Factories Act defines  the term "manufacturing process" as follows:  "2(k) "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 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, or (vi) preserving  or  storing  any article in cold-storage."

     Thus,  under this definition, amongst other things, if any  repairing takes place with a view to use the  equipment then  it  amounts  to  manufacturing  process.   It  is  the Appellant’s   own  case  that   the  Equipment   Maintenance Department  maintains  and repairs their equipment  for  the efficient  use of the equipment in the hospital.  Therefore, this  department  is clearly covered by the  term  "factory" under the ESI Act.  Once, it squarely falls within this term the  provisions  of  the  Act   become  applicable  to  this department.   No  question  arises of applying the  test  of dominant  nature.   The test of dominant nature  would  have become  applicable  only if on the basis of this  department falling  within  the  definition of the term  "factory"  the Respondent  had  sought to make the Appellant Hospital  also amenable  to the provisions of the ESI Act.  As that is  not the  case  here no question arises of applying the  dominant nature  test.   In this case the ratio laid down  in  Andhra University  and  Osmania University cases  (supra)  squarely applies.   We  see no conflict between the  principles  laid down  in  those  cases and the principles laid down  in  the cases  cited  by  Mr.   Divan.    They  apply  to  different situations  and  are thus not conflicting.  We also  see  no substance  in submission that decision in Andhra  University and  Osmania  University  cases was based on fact  that  the Departments of Publication and Press were independent and/or that they catered to third parties also.  A plain reading of these  judgments shows that they are based on the  principle that if the Departments are covered by the provisions of the Acts then they cannot be excluded.  Thus it would have to be held  that  the provisions of the ESI Act are applicable  to the  Equipment Maintenance Department of the Appellant.  We, therefore,  see  no  infirmity  in  the  impugned  Judgment. Accordingly,  the Appeal stands dismissed.  There will be no

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order as to costs.