Holding

The Act applies to an establishment only when the number of employees, as defined in s.2(9), is twenty or more; therefore the 1988 notification does not apply to the respondent’s shop.

Summary

The Employees' State Insurance Corporation (ESIC) appealed against a Delhi High Court order that held a 1988 notification extending the Employees' State Insurance Act, 1948 to shops was inapplicable to M.M. Suri & Associates (P) Ltd., a shop with five officers and fewer than twenty workers. The Supreme Court examined whether the 20‑person threshold for the Act’s applicability must be measured by persons who satisfy the statutory definition of "employee" under s.2(9) and whether the term "wages" in s.2(12) could be given a broader meaning. Relying on the Act’s definitions and prior Supreme Court decisions, the Court held that the Act applies only when the number of employees, as defined in s.2(9), is twenty or more. Since the respondent’s establishment had fewer than twenty such employees, the notification did not apply. Consequently, the appeal was dismissed.

Issues considered

Whether the 20‑person threshold for the Employees' State Insurance Act, 1948, must be satisfied by persons who qualify as "employees" under s.2(9).
Whether the phrase "persons employed for wages" in s.2(12) can be interpreted to include all persons irrespective of the definition of "wages" in s.2(22).
Whether the beneficial nature of the legislation can expand its scope beyond the statutory scheme.

Legislation cited

Employees' State Insurance Act, 1948s. 1(5), s. 2(12), s. 2(22), s. 2(9)
Mines Act, 1952

Subjects

Employees' State Insurance Actdefinition of employeeshopapplicability thresholdbeneficial legislationwage definitionnotification

Judgment

EMPLOYEES STATE INSURANCE CORPORATION A
V.

M/S. M.M. SURI AND ASSOCIATES (P.) LTD.

OCTOBER 28, 1998

[S. SAGHIR AHMAD AND D.P. WADHWA, JJ.] B

Employees' State Insurance Act, 1948:

SS. 1(5), 2(9), 2(12) and 2(22)-Delhi Administration-Notification dated
30.9.1988-Extending the Act to 'Shops'-Held, Act would apply to an
establishment only when number of its employees answering the description
of 'employee' as contained ins. 2(9) is twenty or more.
Wards and Phrases: Words 'r!mployee', 'factory' and 'wages' occurring
in ss.2(9), 2(12) and 2(22) ofEmployees' State Insurance Act, 1948-Meaning
of

A notification dated 30.9.1988 was issued by the Delhi Administration
extending the provisions of s.1(5) of the Employees' State Insurance Act,
1948 to 'shops' situated within the Union Territory of Delhi, if twenty or
more persons were employed therein. Jn a writ petition challenging the
notification, the High Court held that the word "employees" was applicable
to those who were not officers and, since in the establishment of the
respondent there were five officers and the balance of the workers numbered
less than twenty, the notification was not applicable to the respondent's
establishment Aggrieved, the Employees' State Insurance Corporation filed
the present appeal.

It was contended for the appellant Corporation that in view of the
definition of'factory' as given in s.2(9) and the words used in s.2(12) of the
Act, namely, "persons are employed for wages" the stress was on the word
persons and, therefore, for the Act to be applicable the only criteria would
be to see if the establishment engaged twenty or more persons in its
employment. It was also contended that the Act being a welfare legislation,
if majority of the persons employed were 'employees' even though their
number is less than twenty they should not be deprived of the benefit under
the Act.
Dismissing the appeal, this Court
451
452 SUPREME COURT REPORTS [1998) SUPP. 2 S.C.R. [
A HELD: 1.1. The Employees' State Insurance Act, 1948 would apply
to an establishment only when number of employees is twenty or more and
all those employees answer the description of'employee' contained in s.2(9)
of the Act. It is important to note that till the Act was amended by the
amending Act 44of1966, the definition of'factory', as provided in s.2(12)
of the Act, meant any premises "wherein twenty or more persons are
B working". This definition of"factory" was changed and at the relevant time
it was substituted by the words "employed for wages". When the word
'wages' is specifically introduced in the section it can only mean to have
reference to what "wages" mean in s.2(22) of the Act. It cannot be given
any other meaning. [457-A-C)
c
Regional Director Employees State Insurance Corporation, Trichur v.
Ramanuja Match Industries, (1985) l SCC 218 and Employees' State Insurance
Corporation v. Apex Engineering Pvt. Ltd., (1998) l SCC 86, relied on.

1.2. There is no dispute that as per the Notification dated 30.9.1988
D issued by the Delhi Administration, the number of employees falling within
the definition of s.2(9) of the Act, employed in the establishment of the
respondent are less than twenty. The High Court has, therefore, rightly held
that the notification extending the Act to the shops is not applicable to the
establishment of the respondent. (459-G-H; 460-A)
E
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5640 of
1997.

From the Judgment and Order dated 23.4.97 of the Delhi High Court
in L. P. A. No. 74 of 1997.
F
V.J. Francis for the Appellant.

Dushyant Dave, Tarun Sharma and Arun K. Sinha for the Respondents.

The Judgment of the Court was delivered by
G
D.P. WAD HWA, J. Dissatisfied with the judgment of Delhi High Court
holding that the notification dated September 30, 1988 issued under sub-
section (5) of Section I of the 'Employees' State Insurance Act, 1948 (for
short, the 'Act') was inapplicable to the establishment of the respondent,
H Employees, State Insurance Corporation (ESIC) has filed the present appeal
E.S.l. CORPN. v. M.M. SURI AND ASSO. (P.) LTD. [D.P. WADHWA, J.] 453
after obtaining leave from this Court. A
Under sub-section (5) of Section 1 of the Act, notification was issued,
,, after complying with necessary formalities, extending the provision of the
Act to 'shops'. It is not disputed that respondent is a shop and that the
notification would be applicable to it if other conditions for application of the
Act are fulfilled. The notification is as under : B

"DELHI ADMINISTRATION"

(LABOUR DEPARTMENT)
c
Dated : 30.9.1988

NOTIFICATION

In exercise of power conferred by sub-section (5) of Section 1 of
the Employees' State Insurance Act, 1948 (34of1948), read with the D
Ministry of Labour, Government of India, Notification No. 55.122
(2) dated the 14th Dec., 1949 the Lt. Governor of the Union Territory
of Delhi in consultation with the approval of the Central Government,
and having previously given the requisite notice vide this
Administration's Notification No. F. 28 (2) 87/TMP/LC/Lab dated E
the 9th Feb. 1988 published in the Delhi Gazette (extra ordinary)
Part-IV dated the 9th Feb, 1988 hereby extends the provisions of the
said Act to the classes of establishments specified in column I of the
Schedule below w.e.f. the 2nd day of Oct.,1988.

SCHEDULE F
Description of establishment Area in which the
establishments are
situated

G
The following establishments
wherein twenty or more persons are
employed or were employed for
wages on any day of the preceding
twelve months namely : H
454 SUPREME COURT REPORTS (1998] SUPP. 2 S.C.R.

A "SHOPS" In the Union

Territory of Delhi.
[
By order and in the name of the Lt.
Governor of the Union Territory of Delhi.
B Sd/-
(Mrs. M. Bassi)
Deputy Secretary (Labour)
Delhi Administration, Delhi"

Provisions of the Act apply to factories. 'Factory' is defined under
C clause (l 2) of Section 2 of the Act. It reads as under :
'"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 of which a manufacturing process is being carried on
D
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,
E
but does not include a mine subject to the operation of the Mines Act,
1952 ( 35 of 1952 ) or a railway running shed."

This definition of"factory" was introduced w.e.f. October 20, 1989. Definition
p of 'factory' as it originally existed prior to amendment by Act 44 of 1966
(w.e.f. 28.1.1968) was as under :

"factory' means any premises including the precincts thereof wherein
twenty or more persons are working or were working on any day of
the preceding twelve months and in any part of which a manufacturing
G process is being carried on with the aid of power or is ordinarily so
carried on but does not include a mine subject to the operation of
the Indian Mines Act, 1923 (IV of 1923) or a railway running shed."

After the amendment by Act 44 of 1966 as aforementioned the words "or
were working" in the definition of 'factory' were substituted by the words
H "or employed or were employed for wages". By subsequent amendment the
E.S.I. CORPN. v. M.M. SURI AND ASSO. (P.) LTD. (D.P. WADHWA, J.] 455

number of persons have now been reduced to ten or more persons instead of A
twenty or more persons in the definition of 'factory'.

'Employee' and 'wages' have also been defined in clauses (9) and (22) and
are as under:

"(9) "employee" means any person employed for wages in or in B
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
c
elsewhere; or
(ii) Who is employed by or through an immediate employer on the
3 premises of the factory or establishment or under the supervision
of the principal employer or his agent on work which is ordinarily
D
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;
E
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 of 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 F
apprentice engaged under the Apprentice 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 G
for overtime work) exceed Rs. 1600 a month 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."
"(22) "Wages" means all remuneration paid or payable in cash to an
employee, if the terms of the contract of employment, express or H
456 SUPREME COURT REPORTS [1998) SUPP. 2 S.C.R.

A implied, were fulfilled and includes any payment to an employee in
respect of any period of authorised leave, lock-out, strike which is

B
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 travelling allowance or the value of any travelling
concession;

(c) Any sum paid to the person employed to defray special expenses
entailed on him by the nature of his employment; or
c
(d) Any gratuity payable on discharge."

Considering these provisions, High Court was of the view that "the
word 'employee' is applicable to those who are not officers. In the instant
case, there are five officers and the balance of the workers are less than 20". c
D High Court was, thus, of the view that the notification was not applicable in
the case of the respondent.

There is conflict on decisions of the High Courts. One view is that for
Act to be applicable to an establishment total number of employees should
E be 20 or more (now it is 10 or more) irrespective of the fact whether all the
employees fall within the definition of 'employee' as given in Section 2 (9)
meaning thereby that drawing of any amount of wages is immaterial. Other
view is that these 20 or more persons shoulcJ be those who fall within the
definition of employee' as given in Section 2 (9) of the Act getting wages
as prescribed therein. As to what 'wages' means has also been defined. Second
F view commends to us. It was submitted that ifthere are 18 employees drawing
the amount of wages prescribed and only two or more are drawing more than
that, the Act should be applicable as in any case this is beneficial legislation.
Reliance has been placed on a Division Bench decision of the Andhra Pradesh
High Court in Andhra Pradesh State Electricity Board, Ne/lore v. Employees
G State Insurance Corporation, Hyderabad, (1997) Lab.LC. 1107 where the
High Court said that the expression 'wages' used under Section 2 (12) must
be understood in wider sense as meaning any remuneration paid to any person
who is employed in the factory and cannot be restricted only to remuneration
paid to the employees, who come within the definition of Section 2 (9).
Section 2(12), no doubt, uses the words "persons are employed or were
H employed for wages". Stress was, therefore, on the word 'persons' and it is
E.S.J. CORPN. v. M.M. SURI AND ASSO. (P.) LTD. (D.P. WADHWA, J.] 457
submitted that for the Act to be applicable only criteria is to see if the A
establishment has 20 or more persons in its employment. This interpretation
ignores the fact of wages as defined in Section 2(22). If we refer to the
definition of 'factory' when the Act came into force or at least till I 968 when
the Act was amended by amending Act 44 of 1966, 'factory' meant any
premises "wherein 20 or more persons are working''. This definition of B
'factory' was changed and at the relevant time it was substituted by the
words "employed for wages". The exact amendment we have already noticed
above. When the word 'wages' is specifically introduced in the Section it
can only mean to have reference to what 'wages' mean in Section 2 (22) of
the Act. It cannot be given any other meaning as has been done by the
Andhra Pradesh High Court. In our view, therefore, the Act would apply to C
an establishment only when number of employees is 20 or more and all those
employees answer the description of employee contained in Section 2(9) of
the Act.

To controvert the argument that even though majority of the persons
employed are 'employees' and their number is Jess than 20 they should not D
be deprived of the benefit under the Act, it was submitted that what will
happen when the 'employees' falling within the definition of Section 2(9) of
the Act are only 2 or 3 though the total strength in the establishment is more
than 20. How can it be said in that case that the Act should nevertheless
apply to such an establishment? The answer is obviously in negative that Act E
cannot apply.

The view which we have taken find support from two decisions of this
Court in Regional Director, Employees State Insurance Corporation, Trichur
v. Ramanuja Match Industries, [1985] 1 SCC 218 and Employees' State
Insurance Corporation v. Apex Engineering Pvt. Ltd, (1998] 1 SCC 86. p
In Regional Director, Employees State Insurance Corporation, Trichur
v. Ramanuja Match Industries, [1985] 1 SCC 218 the question before this
Court was whether a partner of a firm is an employee within the meaning of
Section 2 (9) of the Act. Three partners of the firm were also getting wages
and with them the strength of total number of employees was more than G
twenty. There was thus no dispute that there were twenty or more persons
employed for wages. This Court held that the partners were not the employees
and rather they were the proprietors of the firm and with the partners being
out the total number of employees would be less than twenty, the Act would
not be applicable to th.e establishment of the firm. The Court considered the
arguments of ESIC that the Act was a beneficial legislation and said as H
458 SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A under:-

"Counsel for the appellant emphasised on the feature that the
statute is a beneficial one and the Court should not interpret a provision
occurring therein in such a way that the benefit would be withheld
from employees. We do not doubt that beneficial legislations should
B have liberal construction with a view to implementing the legislative
intent but where such beneficial legislation has a scheme of its own
there is no warrant for the Court to travel beyond the scheme and
extend the scope of the statute on the pretext of extending the statutory
benefit to those who are not covered by the scheme. The Act covers
all factories or establishments with 20 or more employees and the
c benefit is intended to be given to institutions with more than that
number. It is not the contention of counsel that because the legislation
is beneficial i: should also apply to factories or establishments with
less than 20 employees. If that be not so, in finding out whether a
partner would be an employee a liberal construction is not warranted.
D A person who would not answer the definition cannot be taken into
account for the purpose of fixing the statutory minimum. We are,
therefore, not inclined to accept the contention of counsel that on the
basis of the statute being beneficial, a partner should also count as an
employee."

E In Employees' State Insurance Corporation v. Apex Engineering Pvt.
Ltd., [1998] l SCC 86 there was challenge to the judgment of the Bombay
High Court holding that Managing Director of the respondent company was
not an employee within the meaning of Section 2 (9) of the Act and since the
number of regular employees was less than 19 engaged for wages by the
F Company, it would not be covered under the Act as it would be outside the
definition of 'factory' under Section 2(12) of the Act. This Court, after
examining the provisions of Section 2 (9) of the Act, said :-

"A mere look at the aforesaid provision shows that before a person
can be said to be an employee the following characteristics must exist
G qua his service conditions --
(I) He should be employed for wages. This would presuppose
relationship between him as employee on the one hand and the
independent employer on the other ;
(2) Such employment must be in connection with the work of the
H factory or establishment to which the Act applies;
E.S.l. CORPN. v. M.M. SURI AND ASSO. (P.) LTD. [D.P. WADHWA, J.] 459

(3) He must be directly employed by the principal employer on A
any work of, or incidental or preliminary to or connected with work
of, the factory or establishment ;

(4) In the alternative he should be employed by or through an
immediate employer on the premises of the factory or establishment
or under supervision of the principal employer or his agent ; B
(5) We are not concerned with clause (3) of the said definition.
But the inclusive part of the definition being relevant has to be noted
as condition No. 5. He should be employed for wages on any work
connected with the administration of the factory or establishment or C
any part, department or branch thereof. We are also not concerned
with the exempted categories of persons in the present case and hence
we need not dilate on the same.

(6) This is subject to the further condition that the wages of the
person so employed excluding remuneration for overtime should not D
exceed such wages as prescribed by the Central Government."

The Court then referred to the definition of 'wages' as provided in Section
2(22) of the Act. The duties and powers of the Managing Director of the
respondent company were referred to and this Court said that all these activities
of the Managing Director were connected with the administration of the E
factory. The fifth condition, as aforesaid, was, therefore, satisfied. Then this
Court observed as under :-

"So far as the last condition is concerned it is also not in dispute
between the parties that remuneration of Rs. 12000 per year or Rs.
1000 per month as paid to him for discharging his duties as Managing F
Director remained within the permissible limits of wages as prescribed
by the Central Government at the relevant time for applicability of
the definition of the term 'employee' as per Section 2 sub-section (9)
of the Act. Thus all the requisite conditions for applicability of the
term 'employee' as defined by the' Act stood .satisfied in the case." G
In the present case there is no dispute that as .per the notification in
question establishment of respondent is a shop and number of employees
falling within the definition of Section 2 (9) of the Act are less than 20. We,
therefore, uphold the impugned judgment of the High Court that since in the
establishment of the respondent the employees number less than 20 the H
460 SUPREME COURT REPORTS (1998] SUPP. 2 S.C.R.

A notification dated September 30, 1988 extending the Act to the establishment
of the respondent is not applicable.

Therefore, the appeal is accordingly dismissed. There shall, however ,
be no order as to co~ts.

B R.P. Appeal dismissed.