Holding

The Equipment Maintenance Department is a factory under the ESI Act, so the Act applies; the dominant‑nature test is not relevant.

Summary

The Christian Medical College, a hospital, operates an Equipment Maintenance Department with 45 workers that repairs and maintains medical equipment. The Employees' State Insurance Corporation (ESIC) issued a notice that the department fell within Section 2(12) of the Employees' State Insurance Act, 1948 (ESI Act) and should comply retrospectively. The college argued that the department was merely a limb of the hospital and not a factory, invoking the dominant‑nature test. The Supreme Court held that repairing equipment for use constitutes a "manufacturing process" under Section 2(k) of the Factories Act, 1948, making the department a "factory" within the meaning of the ESI Act, and therefore the Act applies. The Court rejected the need to apply the dominant‑nature test because the question was limited to the department, not the whole hospital. Consequently, the appeal was dismissed and the ESI Act was held applicable to the Equipment Maintenance Department.

Issues considered

Whether the Equipment Maintenance Department of a hospital qualifies as a "factory" under Section 2(12) of the Employees' State Insurance Act, 1948.
Whether the department's repair activities fall within the definition of "manufacturing process" under Section 2(k) of the Factories Act, 1948.
Whether the dominant‑nature test is applicable to determine the applicability of the ESI Act to the department.
Whether the ESI Act can be applied to a department that is a limb of a larger hospital institution.

Legislation cited

Employees' State Insurance Act, 1948s. 2(12), s. 2(14AA)
Factories Act, 1948s. 2(k)

Subjects

Employees' State Insurance ActFactories Actfactory definitionmanufacturing processdominant nature testhospital equipment maintenancesocial welfare legislation

Judgment

A CHRISTIAN MEDICAL COLLEGE
v.
EMPLOYEES' STATE INSURANCE CORPORATION

NOVEMBER 23, 2000

B [S. RAJENDRA BABU AND S.N. VARIAVA, JJ.]

Employees State Insurance Act, I 948-Sections 2(12); 2(l 4AA)-,-
Department of a hospital, employing 45 persons, maintaining and repairing
C equipments of the hospital-Whether department is governed by provisions
of ES! Act even if hospital is not governed-Held, yes-Factories Act, 1948;
Section 2(k).

Appellant is a hospital, which is a part of a Medical College. It has a
department called Equipment Maintenance Department, which maintains and
D repairs various equipments used in the hospital. There are 45 persons
working in the department. Respondent issued a notice to the appellant stating
that the department fell within the purview of section 2(12) of the Employees
State Insurance Act, 1948 (ESI Act) and that the appellant should comply with
the provisions of the Act with retrospective effect. The appellant's
representation, that the ESI Act would not apply to it on the ground that the
E department was part and parcel of the appellant hospital, was rejected. The
appellant filed a petition under section 75 of the ESI Act before the District
Court. The District Judge allowed the petition. The respondent filed an appeal
before the High Court, which was dismissed by Single Judge. The respondent
then filed a Letters Patent Appeal, which was allowed.
F
In appeal to this Court, the appellant contended that the department is
not independent of the appellant hospital but merely a limb of the hospital;
and that the department cannot be considered as a factory, even though some
process is carried on therein.

G Dismissing the appeal, the Court

HELD: I.I. As per section 2(k) of the Factories Act, 1948, amongst
other things, if any repairing takes place with a view to use the equipment
then it amounts to manufacturing process. It is appellant's own case that the
Equipment Maintenance Department maintains and repairs their equipment
H 24
CHRISTIAN MEDICAL COLLEGE v. E.S.I.C. [VARIAVA, J.] 25

for the efficient use of the equipment in the hospital. Therefore, this A
department is clearly covered by the term "factory" under the Employees State
Insurance Act, 1948. Once it squarely falls within this term the provisions
of the Act become applicable to this department. 133-A-BI

1.2. The test of dominant nature would have become applicable only if
on the basis of this department falling within the definition of the term B
"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. 133-CI

Andhra University v. R.P.F. Commissioner of A.P., 11985] 4 SCC 509 and
Osmania University v. Regional Director, E.S.f.C., 11985] 4 SCC 514, relied C
on.

Bangalore Water Supply and Sewerage Boardv. Rajappa, ]1978] 2 SCC
213; Associated Industries (P) Ltd. v. Regional Provident Fund Commissioner,
Kera/a, Trivandrum, 11964] 2 SCR 905; The Regional Provident Fund, D
Bombay v. Shree Krishna Metal Manufacturing Co., Bhandara, 119621 Supp.
3 SCR 815; General Manger, Telecom v. A. Srinivasa Rao, 11997] 8 SCC 767
and Dr. P.S.S. Sundar Rao v. Inspector of Factories, Ve/lore, (1984) II LLJ
237, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3125of1998. E
From the Judgment and Order dated 25.7.97 of the Madras High Court
in L.P.A. No. 143of1995.

Anil B. Divan, P.H. Parekh, Sanjay Mohan, E.R. Kumar, Ranvir Singh and
Zulfikar for the Appellant. F
V.J. Francis for the Respondent.

The Judgment of the Court was delivered by

S.N. YARIAV A, J. This Appeal is against an Order dated 25th July, 1997
passed in a Letters Patent Appeal filed by the Appellant. G
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 suc:1 as H
26 SLl'RlcME COURT REPORTS 12000) SUPP. 5 S.C.R.

A 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 pers9ns working.

In 1978 the Respondent issued a notice to the Appellant stating that
B the Equipment Maintenance Department fell within the purview of Section
2( 12) of the Employees State Insurance Act, 1948 (hereinafter referred to as
the ES! Act) and that the Appellant should comply with the provisions of the
Act with retrospective effect. The Appellant represented that the ES! Act
would not apply to the Equipment Maintenance Department, inter alia, on
C 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
D of the hospital. It was held that the Equipment Maintenance Department was
not amenable to the provisions of the ES! Act and that the Respondent was
not entitled to apply the provisions of the ES! Act or to demand any
contribution.

E The Respondent tiled 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 (t could not be separated from the main Institution. It was held that the

I
primary and paramount character of the Appellant Institution was to teach
medicines to the students. It was held that this department was merely
F 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
G 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 Andhra
University v. R.P.F. Commissioner ofA.P. reported in [ 1985] 4 SCC 509. In this
case the que>tion 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.
H Relying upon Section 2-A of that Act it had been submitted that for the
CHRISTIAN MEDICAL COLLEGE v. E.S.l.C. IV ARIA VA . .l. J 27
purposes of determining the applicability of the Act the entire University A
must be treated as an establishment. It had been submitted that ifthe 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 insetted in the Act merely for the B
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 C
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 D
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. E
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, WB., (1983) I 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
F
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 G
I 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 H
28 SCPREME COURT REPORTS [2000] SUPP. 5 S.C.R.

A 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 clearly attracted.

I0. In the cases before us there cannot be any doubt that the
B 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
c 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 I (3) of the Act are fully satisfied
D 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.l.C reported
in [1985] 4 SCC 514, this Court, has on above mentioned principles, held that
E 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.
F 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.
G In support of this he relied upon the case of Bangalore Water Supply
and Sewerage Boardv. Rajappa. reported in [1978] 2 SCC 213, wherein it has
been held as follows:
"143. The dominant nature test:

H (a) Where a complex of activities, some of which qualify for
CHRISTIAN MEDICAL COLLEGE v. E.S.LC. [VARIAVA, J.] 29
exemption,_others not, involves employees on the total undertaking, A
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 B
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, Kera/a Trivendrum reported in [1964] 2 SCR
905. In this case the Appellant ran a tile factory and an engineering works. C
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 D
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 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 E
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.
F
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 8 I 5. 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". G
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 H
30 SUPREME COURT REPORTS [2000] SUPP. 5 S.C.R.

A 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 !."
B
Mr. Divan next relied upon the case of General Manager, Telecom v.
A. Sri11ivasa 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
C dominant nature test as given in the Bungalore 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
D 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 ensurmg 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
E 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
F
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 facrory, even assuming some manufacturing process is carried on therein
G 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 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. Sundur Rao v. Inspector of
H Factories. l'ello··e reported in (1984) (II) LLJ 237. In this case it had been held
CHRISTIA'.'J MEDICAL COLLEGE v. l'.S.l.C. IY ARIA YA.LI 31

that the Laundry Department of the Appellant College was not a factory as A
it could not be 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 I 3th
October, 1984 in Criminal Misc. Petition No. 6519 of I984, wherein the High
Court had quashed criminal prosecution by the Factories Inspector for offences B
under Section 6 and Rule 7( I) and (2) of the Factories Act. The criminal
proceedings were quashed on the ground that the Equipment Maintenancee,
Department of the Appellant College was not a factory and the provisions of}'
the Factories Act did not apply.

In his t1sual fairness, Mr. Divan, however, pointed out that this Court C
has in a decision in the case of C.M.C. Hoc<pital Employees' Union v. CM.C.
Ve/lore Association repmied in [1987] 4 SCC 691, held that the provisions of
Sections 9-A, IO, I 1-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 D
Osmania University cases (supra) are contrary to the decision of larger
benches of this Comi relied upon by him. He submitted that a contrar)
decision was taken as it was clear that the Departments of Pub Iication 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 E
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 Jaw as larger benches of this Court have held otherwise. He
submitted that in that case there would be a conflict between these two cases F
and the cases rited by him. He submitted that if this court was not accepting
his submissicn 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. G
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 H
32 SUPREME COURT REPORTS (2000] SUPP. 5 S.C.R.

A is not whether the Appellant Hospital gets covered by reason of the fact that
the ES! 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 ES!
B 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 months, and in any part
c 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
D 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(!4AA) of the ES! Act provides that the term "manufacturing
E 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,
F 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
G
(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

H (vi) preserving or storing any article in cold-storage."
CHRISTIA~ MEDICAL COLLEGE v. E.S.LC. [VAR!AVA, L] 33

Thus, under this definition, amongst other things, if any repairing takes A
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 th/! ESI Act. Once, it squarely falls within this term the B
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 C
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 submis:;ion that decision in Andhra
University and Osmania University cases was based on fact that the D
Departments of Pu~lication 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 ES! Act are
E
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 order as to costs.

B.S.
F
Appeal dismissed.