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PETITIONER: HYDERABAD ASBESTOS CEMENT PRODUCTS LTD.

       Vs.

RESPONDENT: THE EMPLOYEES INSURANCE COURT & ANR.

DATE OF JUDGMENT02/12/1977

BENCH: KAILASAM, P.S. BENCH: KAILASAM, P.S. KRISHNAIYER, V.R.

CITATION:  1978 AIR  356            1978 SCR  (2) 345  1978 SCC  (1) 194  CITATOR INFO :  R          1984 SC1916  (7)

ACT: Employees  State  Insurance Act 1948-Sec. 2(9) &  2(1),  38- Whether employees not working in the factory but employed in connection  with the work of the factory are covered by  the act.

HEADNOTE: The  appellant Company has a factory situated at  Sanatnagar where  asbestos  sheets are manufactured.  The  Company  has zonal  sales  offices in various cities.  In  the  State  of Andhra  Pradesh they have such zonal offices  at  Vijayawada and Vizagapatnam.  There are employed in the zonal office at Vijayawada  who  do the work of canvassing for the  sale  of products manufactured in the factory located at  Sanatnagar. The   appellant  contended  that  the  zonal   offices   are establishments  and are not factories and, as such,  do  not fall within the scope of the Employees State Insurance  Act, 1948.   The  High  Court negatived  the  contention  of  the appellant. The  appellant  in an appeal by certificate granted  by  the High  Court  contended  that the  Act  makes  a  distinction between  a factory and an establishment and that  the  zonal offices   and   branch  offices  are  in   the   nature   of establishments  and cannot be brought within the purview  of factories.   In order to bring an employee within the  scope of  the  Act  it  was submitted he should  not  only  be  an employee  within the meaning of section 2(9) of the Act  but also  he should be an employee of the factory as defined  in section  2(12)  of  the  Act.  The scheme  of  the  Act  and particularly  section 38, which is the charging it was  sub- mitted  section would indicate that the Act was intended  to cover  only  employees in factories and  employees  who  are connected  with  the work of the factory.   The  respondents supported the judgment of the High Court. Dismissing the appeal held : 1.The  object of the enactment is to provide for  certain benefits  to  employees in case of sickness,  maternity  and employment  injury and to make provision for  certain  other matters   in  relation  thereto.   Section  2_(9)’   defines employee  to  mean any person employed for wages  in  or  in

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connection  with the work of a factory or  establishment  to which  the Act applies and includes any person employed  for wages  on any work and includes 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.  The latter  part of the definition was added by the Amending Act 44 of 1966. [348 B, F, G, 349 C] Nagpur Electric Light & Power Co..Ltd. v. Regional  Director Employees  State Insurance Corporation Etc. [1967] 3 SCR  P. 92 Employees’ State, Insurance Corporation with its Regional Office  at  Combatore v. Ganpathia Pillai and  Ors.   A.I.R. 1961 Mad. 176, referred to. 2.The  amendment  was made for the  purpose  of  covering cases  which  were held to be outside the scope  of  section 2(9) by the decisions of Bombay and Madras High Courts.  The amended  section includes any person employed for  wages  on any work connected with the administration of the factory or any  part department or branch thereof or with the  purchase of raw materials or for the distribution or sale of products of  the factory.  It is clear that the work  connected  with the  administration  of  the factory, the  purchase  of  raw materials  and  the  distribution of sale  of  products  are brought within the scope of the definition. [353 H, 354 A-B] 346 3.The court negatived the contention that only  employees who  are employed in the factory are required to be  insured and  not employees employed in connection with the  work  of the  factory.   The court held that employees  employed  for administrative purposes or for purchase of raw materials, or for  sale  of the finished goods if employed  in  connection with  the  work  of  the factory  are  Included  within  the definition of employees. [352 A-D]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 652 of 1976. From  the Judgment and Order dated 5-12-1975 of  the  Andhra Pradesh High Court in Writ Petition No. 2907/74 and Civil Appeal No. 1314 of 1977 Appeal by Special Leave from the Judgment and Order dated 9- 11-1976 of the Calcutta High Court in Matter No. 631 of 1973 and Civil Appeal No. 900 of 1977 From  the Judgment and Order dated 21-6-1976 of  the  Andhra Pradesh High Court in Writ Appeal No. 286/76 and CMP Nos. 8014/76 and 7030, 7853, 7854 and 12195 of 1977. Sachin  Choudhary  and Naunit Lal for the  Appellant  in  CA 652/76. Shanker  Ghose  and D. N. Gupta for the  Appeallant  in   CA 1314/77. Naunit  Lal, Kailash Vasudev and Miss Manju Jetley  for  the Appellant in C.A. 900 of 1977. G.P. Pai, O. C. Mathur and D. N. Mishra for the  Intervener- Voltas. Sachin Choudhary, Anil Diwan, O. C. Mathur and D. N.  Mishra for the Intervener in Hindustan Lever. O.C. Mathur, D. C. Shroff and D. N. Mishra for Intervener Rallia India Ltd. Anil  Diwan,  D.  C.  Shroff  and  O.  C.  Mathur  for   the Intervener--Merch Shop & Dhome of India. D.C.  Shroff  and  I. N. Shroff  for  the  Intervener-I.C.I. (India) P.Ltd. S.N. Kacker, Sol.  Genl., K. N. Bhat and Girish Chandra for

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Respondent  No.  2 in CA 652/76 and RR in CA  No.  1414  and 900/77. The Judgment of the Court was delivered by KAILASAM,  J. These appeals raise the same question  of  law and  may be dealt with together and can be disposed of by  a common judgment. Civil  Appeal  No.  652 of 1976 is filed  by  the  Hyderabad Asbestos Cement Products Ltd. by certificate granted by  the High  Court of Andhra Pradesh by an order dated  2nd  April, 1976.   The  appellant  company is  a  factory  situated  at Sanatnagar  Where  asbestos sheets  are  manufactured.   The company has Zonal Sales, Offices in various States 347 Offices  at Vijayawada and Visakhapatnam.  We are  concerned with the Vijaywada Zonal Office.  There are employees in the Zonal  Office who do the work of canvassing for the sale  of products manufactured in the factory located at  Sanatnagar. It  is contended that the Zonal Offices  are  establishments and  are  not factories and as such do not fall  within  the scope of the Employees’ State Insurance Act, 1948.  The High court negatived the contention of the appellant. Civil Appeal No. 900 of 1977 is, by a certificate granted by the Andhra Pradesh High Court to the appellant, M/s.  Foods, Fats  &  Fertilisers  Ltd.,  Tadepalliguden,  West  Godavari District.    The   appellant   is  having   a   factory   at Tadepalligudem  in West Godavari district where  rice  bran, oil,  alvitone and cattle food etc. are being  manufactured. The  appellant is also having an administrative  and  export office at No. 115B.N. S. C. Bose Road, from where rice bran, textile  yarn etc. are ,exported to foreign countries.   The administrative work is also carried ,on in the Madras office in  relation  to  the  business  of  the  company.   It  was contended  that the employees of the company at  the  Madras office   are  not  employees  under  the  Employees’   State Insurance  Act,  1948.   The High Court  of  Andhra  Pradesh following  its  decision in W.P. No. 2907  of  1974  against which  Civil Appeal No. 652 of 1976 is preferred,  dismissed the petition and granted a certificate. Civil  Appeal No. 1314 of 1977 is an appeal by  M/s.   Union Carbide (India) Ltd. against the decision of a Bench of  the Calcutta  High Court ’in Matter No. 631 of 1973  by  special leave  granted  by this Court.  The appellant  is  a  public limited company carrying on business in the manufacture  and sales   of  diverse  consumer  products  such  as   finished batteries, flashlights, Arc carbons, Chemicals and  Plastics and  also in pesticide and processing and export of  shrimp. For  carrying  on the business of the  company  the  company operates   factories  all  over  India.  Right  of  do   man units  have  been placed under the Calcutta  General  Office which is situate at 1-Middleton Street, Calcutta.  According to the appellant, the Calcutta General Office of the company is  concerned  with managing the affairs of the  company  in general  and with laying down the broad policies in  respect of the business of the eight ’factories and falls within the meaning  of West Bengal.  Shops & Establishments  Act.   The High  Court rejected the plea of the appellant holding  that the  employees in question fall under the  Employees’  State ’Insurance Act. Apart  from the three appellants, several companies,  Voltas Ltd.,  Hindustan Lever Ltd., Rallis India Ltd., Merck  Sharp and  Dohme  of India Ltd., and Indian  Chemical,  Industries were all permitted to appear as interveners. The main contentions that were put forward in these  appeals are  that the Act maintains a distinction between a  factory and  an establishment and that the Zonal Offices and  Branch

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Offices with which we are concerned in these appeals are  in the  nature of establishments and cannot be  brought  within the  purview  of factories.  It was next contended  that  in order  to  bring  an  employee  within  the  scope  of   the Employees’ State 348 Insurance Act, he should not only be an employee within  the meaning  of section 2(9) of the Act but also that he  should be  an employee of a factory as defined in section 2(12)  of the  Act.  It was submitted that the scheme of the  Act  and particularly  the  charging  section,  section,  38.   would indicate  that the Act was intended to cover only  employees in 1 factories and not employees who are connected with  the work of the factory. For  appreciating  the contentions of the appellants  it  is necessary  tot  set  out  the  relevant  provisions  of  the Employees’ State Insurance Act.  The object of the enactment is to provide, for certain benefits to, employees in case of sickness,  maternity  and  employment  injury  and  to  make provision  for  certain other matters in  relation  thereto. Section 1, subsection (4) provides that the Act shall apply, in   the  first  instance,  to,  all  factories   (including factories  belonging to the Government) other than  seasonal factories.   Section  1 (5) provides  that  the  appropriate Government  may  in consultation with  the  Corporation  and where the appropriate Government is a State Government, with the  approval  of the Central Government, after  giving  six months’ notice of its intention of so doing by  notification in  the Official Gazette, extend the provisions of this  Act or  any  of  them, to any other establishment  or  class  of establishments,   including  commercial,   agricultural   or otherwise.  While sub-section (4) to section 1 provides that the  Act shall at the first instance apply to all  factories other than seasonal factories, sub-section’ (5) empowers the Government  after giving six months’ notice by  notification in the Official Gazette to extend the provisions of the  Act to any establishment or class of establishments.  Before the Act  is  made applicable to an establishment  the  procedure envisaged under subsection (5) will have to be followed.  It is  admitted  that  the  Government  have  not  issued   any notification as provided in subsection (5) and therefore the Act  is not made applicable to any establishment.  The  plea on  behalf of the appellants is that in,  the  circumstances the word "employee" should only be confined to employees who are  employed  in  factories and not to  employees  who  are employed   in  establishments.   The  submission   is   that employees  in Zonal Offices for sale of manufactured’  goods and  employees in administrative offices are not  employees, of the factory. Section 2(9) defines "employee’ as follows               "employee"  means  any  person  employed   for               wages,  in of, in connection or 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               x      x      x      x     x               (iii)whose  services are temporarily  lent  or               let  on hire to the principal employer by  the               person with whom the person               349

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             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;  but   does   not               include-               x               x             x              x The  definition  as  it originally stood  under  clause  (i) applied to a person employed for wages by a person  directly employed  by  the  principal employer on  any  work  of,  or incidental or preliminary to, or connected with the work  of the  factory of establishment, whether such work is done  by the  employee in the factory or establishment or  elsewhere. By  an amendment by Act 44 of 1966 the words  "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  the  purchase  (A   raw materials for, or the distribution or sale, of the  products of, the factory or establishment., but does not include" for the words "but does not include" were added to (iii).   ’The scope of the word "employee" as defined before the amendment came  to  be  considered  by the  Supreme  Court  in  Nagpur Electric  Light  & Power Co., Ltd.  vs.   Regional  Director Employees  State Insurance Corporation, Etc.(1) The  company in  that  case,  carried on the  work  of  transforming  and transmitting  electrical energy.  There was dispute  between the  company and the respondent, Employees’ State  Insurance Corporation, as to whether certain employees of the  company like engineers, draughtsmen, clerks, accountants, etc.  were employees  within  the  meaning  of  section  2(9)  of   the Employees’  State, Insurance Act.  The court hold  that  all the   employees  of  the  disputed  categories   clerks   or otherwise, were employed in connection with the work of  the factory,  that is to say, with the work of transforming  and transmitting electrical power, and a person doing non-manual work can be an employee if he is employed in connection with the   work   of  the  factory  and  the  duties,   of   the, administrative staff are also, directly connected within the work of the factory.  The court also held that few employees who  worked  outside  the  factory  but  whose  duties  were connected  with  the work of the factory, the scope  of  the definition  of the word "employee" the Court held  that  the assistant   engineers,   supervisors,   electricians.    and overseers are engaged in the erection and maintenance of the electricity  supply  lines connected  with  transmission  of power.   The cable jointer, mistries, linemen,  coolies  and wiremen  are  employed for inspection of the  supply  lines, digging  pits, erecting poles for laying distribution  mains and   service  lines.  The  attendants  in-charge   of   the substations  look after the transformation and  transmission of  power.  The motor drivers and cleaners are employed  for carrying   materials  and  tower  ladders  in   trucks   for maintenance  of  the supply lines. The  telephone  operators attend to the telephone calls for ,ill the departments.  The menial staff is required to, do miscellaneous work including be, cleaning of the (i)  [1967] 3 SCR P 92. 350 office  compound.  The motor car staff is employed  to  look after the cars employed in the administration section.   All these  employees,  clerical or otherwise,  are  employed  in

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connection with the work of the factory, that is to say,  in connection  with the work of transforming  and  transmitting electrical  power." The Court proceeded to observe that  few employees  who  work outside the factory have  their  duties connected  with the work of the factory.  The law  therefore is clear that any employee who is connected with the work of the factory would be an employee under section 2(9)  whether he works within the factory or outside its promises. The  question arose whether the employees whose work was  to sell  the products of the factory would be called  employees of the factory and as to whether persons employed purely  on the  administrative side of the Mills and sale  of  finished goods  could come within the purview of the  definition,  of "employee"  under section 2(9) of the Act.   In  (Employees’ State  Insurance  Corporation,  Bombay  vs.  Raman  (Chittur Harihar  Iyer) (1), Gajendragadkar J., as he then was,  held that  to satisfy the requirement’s of section 2 (9)  (i)  it must be shown that the employee was employed in any work of, or incidental or preliminary to, or connected with the  work of  the,  factory.   As in the case of the  factory  in  the present  case  the work "began with the  collection  of  raw materials   and  ended  with  the  production  of   finished articles,  it would be difficult to accede, to the  argument that  the  work of selling the products of the  factory  was connected with the work of the factory.  The work of selling cannot  be said to be incidental or preliminary to the  work of  the factory." In Employees’ State Insurance  Corporation with its Regional office at Coimbatore vs.  Ganpathia Pillai and  Others(2), a Bench of the Madras High Court  considered the  question whether persons employed in  managing  agent’s office not connected with manufacturing process or with work of factory can be deemed to be employees liable for  contri- butions  under  the Employees’ State Insurance  Act.   Chief Justice Rajamannar held following the decision of the Bombay High.   Court  reported in 1957 Vol. I, L.L.J.  267  (supra) that only persons who are in some manner or other  connected with the manufacturing process  can be said to be  employee- ,;  within the meaning of the definition.  Adverting to  the words "incidental or preliminary to" the learned Judge  held that  both  the words have to be understood  in  conjunction with the work of the factory.  Accepting the affidavit filed on  behalf  of  one  of the  respondents  that  he  was  not attending to, the accounts of the factory and that his  work was confined to the accounts of the managing agents  office, the  learned Judge held it cannot be said in any sense  that he was employed in any work incidental or preliminary to the work of the factory. The  amendment  to section 2(9)  introducing  the  inclusive definition  referred to above was enacted by Act 44 of  1966 which  came into force on 28-1-1968.  It may be  noted  that the  decisions  of  the Bombay and the  Madras  High  Courts referred to above (supra) were rendered before the amendment was introduced and it appears the amendment was (2)  A.I.R. 1961 Mad P. 176. 351 introduced for the purpose of covering cases which were held to  be  outside  the  scope  of  section  2(9)  by  the  two decisions.  The amended section includes any person employed for  wages on any work connected with the administration  of the  factory  or any part, department or branch  thereof  or with  the purchase of raw materials or for the  distribution or  sale of products of the factory.  It will be  seen  that the  work connected with the administration of the  factory, the  purchase of raw materials and the distribution or  sale of products are brought within the scope of the  definition.

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After  the amendment therefore the plea that  employment  in connection  with the administration of the factory  or  with the  purchase  of raw materials or distribution or  sale  of products  cannot be contended to, be as not  falling  within the definition. The contention of the learned counsel for the appellants, is that the word "factory" is confined only to persons who  are employed with the manufacturing process. The definition of the word factory is as follows               "factory"  means any premises  including  the,               precincts  thereof  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 earned on  with               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  running               shed;" The  word factory is confined to the premises including  the precincts thereof where the manufacturing process is carried on.   The submission on behalf of the appellants is that  an employee  of  the  factory should not only  be  an  employee falling  within the definition of the word "  employee"  but also an employee of the factory i.e. of a factory as defined in  section 2(12).  In support of their plea reference  was, made  to  section  3 8 of the Act which  requires  that  all employees  of the factories should be insured.   Section  38 lays    down    that    all    employees    in    factories, orestablishmentstowhichthisAct appliesshallbeinsured in  the manner provided by this Act.  It was submitted that to  fall within the charging section 38 employees should be employees in  factories and not employees connected with the  work  of the  factory.  Anil Dewan appearing for the Indian  Chemical Industries submitted that the words ’employees in factories’ are significant and that only employees who are employed  in the factory are required to be insured and not employees who are  employed  in connection with the work of  the  factory. The  learned  counsel  proceeded  to  point  out  that   the amendment  is confined only to persons employed on any  work connected with the administration and not to be employed  in the  factory and submitted that the applicability should  be strictly  confined  to  the  employees  in  factories.   The contention put forward, it was pleaded, is- more  reasonable as  the  Act  through out maintains  a  distinction  between factory  and establishments and it is against the  tenor  of the  Act  to bring employees in  establishments  within  the meaning of employees of the factories.  The learned  counsel also  pointed  out  that  in  various  firms  the  emnloyees themselves are against their being included within the scope of  the Act and the, recall-. tant position will be that  as between two establishments which are 352 functioning  under  the same  conditions  one  establishment which is connected with the sale, of finished product of the factories  will  come  within the scope  of  the  Employees’ State,  Insurance Act whereas the other establishment  would be  outside  the purview of the Employees’  Stale  Insurance Act.   On  a careful consideration of section  2(q)  section 2(12),  section 38 and section 39 we, are unable to,  accept the  restricted  interpretation sought to be put  upon  the, words  "employees La factories".  Even before the  amendment the, word "employee" include persons connected with the work of  the  factory.  The Supreme Court has laid  down  that  a person  employed in connector with the work of  the  factory

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would-fall  within  the definition as it  stood  before  the amendment and it may not be open to, the learned counsel  to contend  that it is only employees that are employed in  the factory   that  would  fall  within  the  definition.    The definition  before  the  amendment  as  well  as  after  the amendment  would  include not only persons employed  in  the factory but also in connection with the work of the factory. Thus  section  39 of the Act makes the position  clear.   It provides  that the contribution payable under the Act is  in respect  of  an  employee.   It  is  not  confined  only  to employees  in  factories.   We  see  no  justification  ’for reading  the words employees in factories in section  38  as meaning  persons employed in factories only.  We are  unable to  accept  the  contention  that  the  employees  that  are required to be insured under the Act are only those employed in factories defined under section 2(12) of the Act. It was submitted that the test as to whether an employee  is an  employed  "in  a factory" is the test  of  not  physical presence or absence outside the precincts of the factory but the  test is whether be is under the control of the  factory and  is on the factory wage, roll, or other  similar  tests. We  are unable to accept the contention for on a reading  of the  relevant sections it is clear that the word  "employee" would  include not only persons employed in the factory  but also  persons, connected with the work of the factory.   The employee  may be working within the factory or  outside  the factory  or may be employed for administrative  purposes  or for  purchase, of raw materials or for sale of the  finished goods all such employees are included within the  definition of. employee’.  A recent decision of the Bench of the Madras igh  Court  in  W.Ps  144-149 and 331  of  1971  dated  14th October, 1976 has also taken a similar view.  We agree  with the view taken by the judgments of the Andhra High Court and of  the Calcutta High Court and dismiss these  appeals  with costs. P.H.P. Appels dismissed., 353