IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL NO. 1914 OF 2002

M/s. Sumangali ...Appellant

Versus

          Regional Director, E.S.I. Corporation ... Respondent

With

CIVIL  APPEAL NO. 1915 OF 2002

And

CIVIL  APPEAL NO.            OF 2008 (Arising out of SLP (C) No.17173 of 2008)       

J U D G M E N T  

Dr. ARIJIT PASAYAT, J.

1. Leave granted in SLP (C) No.17173 of 2008.      

2. Challenge  in  these  appeals  is  to  the  judgment  of  a

Division Bench of the Kerala  High Court  dealing with three

Misc.  First  Appeal  Nos.  MFA  No.  884/95,  MFA  No.  886  of

1995  and 964  of  1995.  By the  impugned  judgment  all  the

three Misc.  First Appeals  were dismissed.  The applicants in

I.A. Nos.21, 44 and 69 before the Employees’ Insurance Court,

Alleppey (in short the ‘E.I.  Court’)  were the appellant before

the High Court.  Before the E.I. Court the order of the Regional

Director  of  the  Employees  State  Insurance  Corporation  (in

short  the  ‘Corporation’)  Trichur  clubbing  the  applicant  with

other establishments for  the purpose  of  coverage  under  the

Employees  State  Insurance  Scheme  (in  short  the  ‘ESI

Scheme’)  framed under  the Employees  State  Insurance  Act,

1948 (in short the ‘Act’) were challenged.   All the applications

were  dismissed  by  the  E.I.  Court  by  common  order  dated

30.3.1995.   Aggrieved by the said order applicants filed the

Misc. First Appeal before the High Court.  

3. The Corporation clubbed Jos Textiles and Jos Cut Piece

Centre,  two  proprietary  concerns  of  two  brothers  both

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functioning in the same building at Broadway, Ernakulam, for

the purpose of ESI coverage and issued notice as there were

20  or  more  employees  at  a  time  when  the  inspection  was

conducted.  Notice  was  issued  clubbing  the  above

establishments.  The  order  was  challenged,  as  noted  above,

before the E.I. Court.   

4. The  Corporation  also  clubbed  M/s.  Rose  Fabrics,  Jos

Brothers Silk and Sarees and M/s. Jos Associates and issued

notice claiming coverage.  All these three establishments were

functioning  in  Jos  Annex  Building,  Ernakulam.   M/s.  Jos

Associates  was  functioning  on  the  5th floor  of  the  same

building  whereas  the  other  two  establishments  were

functioning in the same premises. The inspection conducted

in  November  1990  revealed that  there  were  12  employees

working in M/s. Rose Fabrics, 13 employees in Jos Brothers

Silk and Sarees and 9 employees in M/s. Jos Associates. The

above  order  clubbing  the  three  establishments  were

challenged by M/s.  Rose Fabrics in I.C.44/91 before the E.I.

Court, Alleppey.

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5. The applicant in I.C.69/91 was M/s. Sumangali. It was

clubbed with four other establishments viz. M/s. Jos Silk and

Sarees,  M/s.  Gents  Fabrics,  M/s.  Jacobs  and  M/s.  Jos

Brothers Trades and Investments. The clubbing of the above

establishments was on the basis of an inspection conducted

on  14.11.90.  The  inspection  revealed  that  there  were  more

than 30 employees in the month of April, 1990. The notice of

clubbing  of  the  establishments  was  challenged by  M/s.

Sumangali in I.C.69/91. All the above three applications were

heard and dismissed by the common judgment passed by the

E.I. Court, Alleppey.

6. Jos Textiles  and Jos Cut Piece Centre,  two proprietory

concerns were owned by two brothers, namely K.A.Sebastian

and K.A.Joshy. Jos  Textiles  was  engaged  in  the  business  of

textile  goods and was carrying on the business  in a rented

building. Jos Cut Piece Centre was functioning in a portion of

the  first  floor  of  the  same  building  and  Jos  Textiles  was

functioning in the remaining portion of the same floor as well

as  in  the  second  floor  of  the  same  building.  There  was

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temporary  wooden  partition  separating  the  above  two

establishments.  The  Inspector  of  the  ESI  Corporation

conducted  inspection  on  6.1.1988  and  11.1.1988 and

reported that the total employment strength in both the units

together  was  20  (12+8)  in  April  1984 and from June  1985

onwards.  Again  the  Inspector  inspected  on  9.8.1990.  The

building was taken on rent by Sri K.J. Abraham, the father of

Sri K.A. Sebastian and Sri K.A. Joshy. The father permitted

his son Sri K.A. Sebastian and his daughter Dorothy Edeth

Louiz initially to run the business and Sri K.A. Joshy obtained

a transfer of the business from his sitar. The father Sri K.J.

Abraham  was paying  the  rent  to  the  landlord  and  Sri

Sebastian was paying the entire rent to his father though he

was collecting a portion of the rent from his brother who was

running the cut piece centre. The establishments were having

separate  registration  under  the  Shops  and  Commercial

Establishments Act, Kerala Sales-tax Act and the Income-tax

Act.  On  inspection  it  was  found  that  there  were  20  (12+8)

employees and both these units had a common entrance, a

common staircase and no separate office was seen working for

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Jos Cut Piece Centre. The electric connection was common for

both  the  units  and  electricity  charges  were  paid  by  Jos

Textiles  and  Jos  Textiles  alone  had  telephone  connection.

There  was no  sufficient  space  for  opening  cloth  bails  or

bundles  and  stitching  the  same  in  Jos  Cut  Piece  Centre

whereas all such works were done in M/s. Jos Textiles. The

General  Ledger showed  financial  dealings- between  the  two

units. On a consideration of all the above circumstances viz.

the  unity  of  management,  geographical  unity,  functional

integrality,  financial  unity and the general  unity in purpose

between the two units,  the ESI Corporation decided to club

both the units for coverage under the ESI Scheme.

7. M/s. Ros Fabrics was a partnership firm of two partners

- Joseph Francis and his mother Rosakutty Francis. The wife

of the above Joseph Francis was the  sole proprietor of M/s.

Jos  Brothers  Silks  and  Sarees.  M/s.  Jos  Associates  was  a

proprietory  concern of  the  above  Joseph Francis.  Thus two

establishments  were  owned separately  by  the  husband and

wife and the other owned by the mother as well as the son as

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a   partnership  firm.  The  Inspector  of  the  ESI  Corporation

conducted inspections on 6.11.90 and 13.11.90 and prepared

the reports. M/s. Jos Brothers Silks and Sarees and M/s. Ros

Fabrics were functioning in the same premises in the ground

floor and M/s. Jos Associates was functioning in the 5th floor

of  the  same building.  The  Inspector  of  the  ESI Corporation

found the employees of M/s. Jos Associates working in M/s.

Jos  Fabrics  and there  was  only  one  office  for  all  the  three

units.  According to the ESI Corporation the activities of these

three units were interlinked and one was directly promoting

the  business  of  the  others  and  all  the  three  units  were

supplementary and complementary to each other.

8. Aggrieved  by  the  above  judgment,  the  applicants  in

I.C.21/91, I.C.44/91 and I.C.69/91 filed  MFA 964/95, MFA

886/95  and  MFA  884/95  respectively.  As  the  question

involved in all  the three appeals was common, all  the three

appeals were heard jointly and were disposed of this common

judgment.

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9. The  main  stand  before  the  High  Court  was  that  M/s

Sumangali  is  a  partnership  firm  registered  under  various

statutes.  There were three partners who were related to each

other.  Merely because the partners or proprietors were related

to  each  other  that  cannot  be  a  ground  for  clubbing  the

employees for the purpose of coverage. On the other hand the

Corporation referred to several factors to establish functional

integrality  and  general  unity  of  purpose.  High  Court  found

that Corporation’s view was correct and accordingly as noted

above dismissed the appeals.

10. In  support  of  the  appeal  learned  counsel  for  the

appellants submitted that the ownership of the composition of

various concerns is as follows:

Name of the shop Owners/Partners No.  of emplo yees

Floor No.

1.M/s. Sumangali (Partnership) (Saree  and  cut pieces)

1. M/s. K.J. Abraham 2. M/s.Dothy Honry    w/o K.A. Henry 3. M/s. Betsy Sabu

   w/o K.A. Sebastian

12 Ground Floor

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2.  M/s.  Gents Fabrics (Partnership) (Shirtings  and Suitings)

1. Sri K.A. Henry     s/o K.J. Abraham 2  Mrs.  Marykutty Abraham      w/o K.J. Abraham 3.  Mrs.  Jessintha Edward,    w/o K.A. Edward

10 Ground Floor

3. M/s. Jose Silk & Sarees Proprietary (Wedding Sarees)

1. Sri K.A. Edward 2. s/o K.J. Abraham

5   -

4. M/s. Jacobs (Proprietory)

Sri K.A. Jacob, s/o K.J. Abraham

2 3rd Floor

5. M/s.  Jose brothers Trades &  Investments (Partnership)

(Purchase of all)

1. Sri K.J. Abraham 2. Sri K.A. Edward s/o  Sri  K.J. Abraham 3. Sri K.A. Henry s/o  Sri  K.J. Abraham 4. Shri  K.A.

Sebastian, s/o  Sri  K.J. Abraham 5. Sri K.A. Jacob, s/o  Sri  K.J. Abraham 5. Shri K.A. Josey, s/o  Sri  K.J. Abraham

2 4th Floor

6. M/s.  Rose Fabrics

(Partnership)

1. Joseph Francis 2. Rosakutty Francis (mother  of  Joseph Francis)

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9

7. M/s.  Jose Brothers Silk & Sarees

(Proprietorship)

w/o Joseph Francis 13

8. M/s.  Jose Associates

(Proprietorship) Joseph Francis

9

                  TOTAL 34

11. According to him there was no functional integrality.

12. Learned counsel for the Corporation on the other hand

submitted that because  of the findings recorded by the ESI

Court  and  the  High  Court  the  impugned  judgment  do  not

suffer from any infirmity to warrant interference.  According to

him the names of the Unit and numbers of the employees and

numbers  of  the  applicants  before  the  ESI  Court  are  to  the

following effect:

No. of Application Name of the Unit No. of Employees I.C. 21 of 1991 1. Jos Textiles

2  Jos  Cutpiece Centre

11 10

                   21

10

I.C. 44 of 1991 1. Rose Fabrics 2. Jose Brothers     Silk & Sarees 3.  Jose Associates

12

13  09

                   34

I.C. 69 of 1991 1. Sumangali 2.  Jose  Silk  & Sarees 3. Gents fabrics 4. Jacobs 5. Jose Brothers    Traders  & Investments

12 05

10 02

                    31

13. In the counter affidavit before this Court the Corporation

gave  the  following  reasons  which  were  indicated  in  details

before the EI Court and High Court for clubbing were:

(a) there  was  one  common  entrance between the two units;

(b) there was one common staircase;

(c) they had no separate office;

(d) they had one rented building;

(e) the rent was paid by the father of the two  proprietors  who  were  brothers

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and sons of the father who paid the rent;

(f) there  was  a  common  electric connection/phone connection;

(g) there  was  single  general  Ledger  for financial dealings of both the units.

14. The  High  Court  noted  that  the  ESI  Corporation  was

justified in clubbing Jose Cut Piece Centre with Jos Textiles,

Jose Brothers Silks and Sarees and M/s. Jos Associates with

M/s. Rose Fabrics and M/s. Jos Silks and Sarees, M/s. Gents

Fabrics,  M/s.  Jacobs  and  M/s.  Jos  Brothers  Trades  and

Investments with M/s. Sumangali  and treating Jos Textiles,

M/s.  Rose  Fabrics  and  M/s.  Sumangali  as  “single

establishments”  for  the  purpose  of  coverage  under  the  ESI

Scheme  as  there  was  functional  integrality,  unity  in

management, financial unity, geographical proximity, unity in

supervision and control and general unity of purpose.  Even if

each unit was an establishment having separate registration

under the Sales Tax Act, Shops and Establishments Act and

the  Income-Tax  Act,  all  the  units  were  interdependent  and

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were supplementary and complementary to each other for the

sake of their textile business.

15. So  far  as  the  factual  aspects  are  concerned  the  High

Court noted as follows:

“On verification of the records it was further found that there were 34 employees working in the three units as on 2.4.1990.  M/s. Ros Fabrics  and  M/s.  Jos  brothers  Silks  and sarees were functioning in the ground floor of M/s.  Jos  Annexe.  Building  and  they  were having a common signboard and a common entrance.  The activities of all the three units were administered by Sri. K. Joseph Francis. The  billing  counter,  cash  counter  and delivery  counter  were  common  for  all  the three  units.   M/s.  Jos  Brothers  Silks  and Sarees was an exclusive showroom for sarees whereas M/s. Ros Fabrics was dealing with items other than sarees.  M/s. Jos Associates was  dealing  with  the  sale  of  furnishing clothes.  According to the ESI Corporation all the  three  units  were  different  sections  of  a composite  textile  shop  and  the  customers were  at  liberty  to  purchase  whatever  they wanted from the three units and they need to make payment at the common cash counter. It was further found that there was only one electric connection and the electricity charges were paid by M/s. Ros Fabrics. The standby generator was also common to all the units. According to the ESI  Corporation there was unity in ownership, geographical unity, unity in administration, functional unity, financial unity and inter-chargeability of employees in

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all  the  three  units  and  hence  the  ESI Corporation  decided  to  club  all  the  three units for the purpose of ESI coverage under the ESI Scheme.”  

16. In Associated Cement Cos. V. Their Workmen (AIR 1960

SC 56) it was inter alia observed as follows:

“The  Act  not  having  prescribed  any  specific tests  for  determining  what  is  one establishment.   In  considering  the  question whether  a  cement  factory  and  the  adjacent lime stone quarry supplying lime stone to it, are one establishment, one must fall back on such  considerations  as  in  the  ordinary industrial  or  business  sense  determine  the unity  of  an  industrial  establishment,  having regard no doubt to the scheme and object of the Industrial Disputes Act and other relevant provisions  of  the  Mines  Act,  1952,  or  the Factories Act, 1948.  It is perhaps impossible to lay down any one test as an absolute and invariable test for all cases.  The real purpose of these tests is to find out the true relation between the parts, branches, units etc.  if in their  true  relation  they  constitute  one integrated whole  the  establishment  is  one,  if one  the  contrary  they  do  not  constitute  one integrated whole, each unit is then a separate unit. How the relation between the units will be  judged must depend on the facts proved, having regard to the scheme and object of the statute which gives the right of unemployment compensation  and  also  prescribes  a disqualification therefore.   Thus,  in one case the  unity  of  ownership,  management  and

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control may be the important or general unity may be the important test; and in still another case  the important  test  may be  the  unity  of employment.”

17. In  Rajasthan  Prem  Krishan  Goods  Transport  Co.  v.

Regional  Provident  Fund  Commissioner,  New  Delhi  &  Ors.

(1996 (9) SCC 454) it was observed as follows:

“The  finding  recorded  by  the  Regional Provident Fund Commissioner is that there is unity of purpose on each count inasmuch as the  place  of  business  is  common,  the management is common, the letterheads bear the same telephone numbers and 10 partners of  the  appellant  are  common  out  of  the  13 partners of  the  third respondent.  The trucks plied  by  the  two  entities  are  owned  by  the partners and are being hired through both the units.  The  respective  employees  engaged  by the  two  entities  when  added  together,  bring the  integrated  entities  within the  grip  of  the Act;  so  is  the  finding.  Now,  this  finding  is essentially  one  of  fact  or  on  legitimate inferences drawn from facts. Nothing could be suggested on behalf of the appellant as to why could  the  Regional  Provident  Fund Commissioner  not  pierce  the  veil  and  read between the lines within the outwardliness of the  two  apparents.  No  legal  bar  could  be pointed out by the learned counsel as to why the  views  of  the  Regional  Provident  Fund Commissioner,  as  affirmed  by  the  Central Government, be overturned.”

18. In the instant case factual findings as recorded by the

ESI Court and the High Court go to show that there was unity

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in  management,  supervision  and  control,  geographical

proximity,  financial  unity,  general  unity  of  purpose  and

functional integrality between the different units and for the

sake of ESI coverage, the different units could be treated as

“one establishment”.

19. In  the  given  case  role  of  the  Corporation  is  to  read

between the lines to find out the true intent. The concurrent

conclusions  are  essentially  factual  and  are  legitimate

inferences. That being so, there is no merit in these appeals,

which deserve dismissal which we direct.  No costs.  

………………………….………..J. (Dr. ARIJIT PASAYAT)

………………………….……….J. (P. SATHASIVAM)

New Delhi, July 17, 2008

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