K.R. ANITHA AND ORS.versusREGIONAL DIRECTOR, E.S.L. CORPORATION AND ANR.

j



                    K.R. ANITHA AND ORS.                                    A
                               v.
        REGIONAL DIRECTOR, E.S.l. CORPORATION AND ANR.

                            SEPTEMBER 17, 2003

         [SHIVARAJ V. PATIL AND D.M. DHARMADHIKARI, JJ.]                    B
          Employees' State Insurance Act, 1948-Section 1(4), (5) and (6)-
    Toddy shops run by licensee contractors on the basis of yearly auction
    conducted by State Government-Applicability of the Act-Held, toddy
    shop come under the entry 'shop' in the Schedule to the Act-ls not exempt C
    under proviso to sub-section (4) of Section I since it neither belongs to
    nor is under the control ofState Government-Hence, the Act is applicable-
    Kerala Abkari Act and Rules.

         Appellants are licensee-contractors in respect of toddy shops run
    on the basis of yearly auction conducted by the Excise Department of D
    the State Government. The appellants did not make contribution
    during the period of their license as required under the Employees'
    State Insurance Act, 1948 on the ground that the provisions of the Act
    are not applicable to the employees working in toddy shops. Respondent-
    Corporation conducted inspection and initiated recovery proceedings E
    for collection of contribution am(lunt against the appellants under the
    Act taking the stand that the toddy shops are covered under the Act.

         The appellants filed applications before the Employees Insurance
    Court (EI Court) under the Act for a declaration that the toddy shops
    run by the appellants during the period 1991-94 could not be brought F
    under the purview of the Act since the toddy shops are not included
    specifically in the notification dated 18.9.1974 issued by the State
    Government under section 1(5) of the Act. The appellants further
    contended before the EI Court that the appellants are not liable under
    the Act even though the previous contractors were complying with the G
    ESI Scheme. The EI Court allowed the applications of the appellants
    by holding that the provisions of the Act are not applicable to the toddy
    shops of the appellants. The respondents challenged the validity and
    correctness of the orders passed by the EI Court before High Court.
    The High Court allowed the appeals of the respondents.                    H
                                      881
    882                  SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A        In appeal to this Court the appellants contended that the toddy
    shops established under the State Abkari Act are not covered by the
    ESI Act since they are not included specifically under the notification
    dated 18.9.1974 issued by the State Government under section 1(5) of
    the ESI Act; that the toddy shops are exempted under the proviso to
B   subsection (4) of Section I of the Act since they are owned and
    controlled by the State Government and its employees are enjoying
    similar or even superior benefits provided under the Act; and that the
    appellants, being Abkari contractors, are only immediate employers
    under the State Government, who is the principal employer.

C        The respondents contended that the appellants did not raise the
    plea before the EI Court that the toddy shops were not covered by the
    Act even previously even though the previous contractors were
    complying with the ESI Scheme and that the strength of the employees
    in toddy shops was less and not covered by the Act; that the toddy
D   shops in question were covered by the Act long prior to the appellants
    became licensees to trade in liquor for the period in question.

          Dismissing the appeals, the Court

          HELD : 1. The High Court was right in holding that toddy shop
E   is a premises where the business of buying and selling is going on and
    that a toddy shop would come under the entry 'shop' in the Schedule.
    the appellants did not seriously dispute this finding of the High Court.
                                                                  [888-G-H]

F        Mis International Ore and Fertilisers (India) Pvt. Ltd. v. Employees'
    State Insurance Corporation, [1987] 4 SCC 203; Mis Cochin Shipping
    Co. v. E.S.l. Corporation, [1992] 4 SCC 245 and Employees' State
    Insurance Corporation v. R.K. Swamy & Ors., (1994] I SCC 445, relied
    on.
G        2. In order to take shelter under the proviso to sub-section (4) of
    Section I of the Employees' State Insurance Act, 1948, the appellants
    have to satisfy that their establishments belonged to or were under the
    control of the Government; and that the employees in their
    establishments were otherwise receiving benefits substantially similar
H   or superior to the benefits under the Act. The State has the monopoly
              K.R. ANITHA v. REGIONAL DIRECTOR                     883
in liquor trade but it is open to the State to part with that right for A
a consideration so as to grant privilege of carrying on trade in liquor
to the licensees. The provisions contained in the State Abkari Act,
Rules and conditions oflicence dealing with liquor are merely regulatory.
None of these provisions interfere with a right to carry on business by
licensee subject to the regulatory measures contained therein. In the B
matter of carrying on business and trade of liquor under licences
granted to the appellants, it is not shown by the appellants as to how
the State dominated or controlled the toddy shops financially,
functionally and administratively. The proviso to subsection (4) of
Section 1 of the Act, hence, did not cover the toddy shops of the
appellants and that neither the State nor the Excise Department came C
in the picture of management of the business of the appellants. On
facts, the State Government had no participation in terms of finance
and carrying on the business of liquor by the appellants either
functionally or administratively. Thus, the High Court rightly took the
view that toddy shops of the appellants neither belonged to nor were D
under the control of the State Government. (889-A-E]

     Pradeep Kumar Biswas v. Indian Institute of Chemical Biology and
Ors., (2002] 5 SCC 111, relied on.

     3. There was no plea or material placed before EI Court or High E
Court by the appellants as to how many employees were working in the
toddy shops in question from the beginning or whether the new licensees
could change or reduce the number of employees in exiting toddy shops.
In the absence of the pleas, the High Court was right in rejecting the
contention urged on behalf of the appellants based on section 1(6) of the F
Act. The question of law based on section 1(6) of the Act is left open by
this Court to be decided in an appropriate case. (890-8-D)

    CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6486-
6494 of 200 I.
                                                                          G
     From the Judgment and Order dated 18.12;99 of the Kerala High
Court in M.F.A. Nos. 1152, 1356, 1434, 1353, 1363, 1433, 1362, 1361 and
1301 of 1998.

     Sunil Gupta, Roy Abraham, Ms. Seema Jain and Himinder Lal for H
                                                          ·'
    884                   SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A the Appellants.
          C.S. Rajan, V .J. Francis, P.L. Jose and Jenis Francis for the
    Respondents.

          The Judgment of the Court was delivered by
B
          SHIVARAJ V. PATIL, J. : The appellants were contractors in
    respect of toddy shops during the given period. Toddy shops were run on
    the basis of yearly auction conducted by the Excise Department of the
    Government of Kerala. Varioµs guidelines were issued by the Board of
C   Revenue and the State Government from time to time for running toddy
    shops. The employees working in the toddy shops during the period in
    question were not brought under the coverage of the ES! Scheme mainly
    on the ground that the provisions of ES! Scheme were not applicable to
    the toddy shops according to the appellants; assuming that the Employees'
    State Insurance Act, I 948 (for short 'the Act') was applicable to the toddy
D   shops in the previous years, that did not create any continuing liability of
    the appellants. On the basis of the inspection conducted by the officers of
    the respondent Corporation, respondents took up the position that the toddy
    shops were covered under the Act and assessed to the coptribution;
    recovery proceedings also were initiated for collection of contribution
E   amount. At that stage the appellants approached the Employees' Insurance
    Court (EI Court) seeking declaration that the toddy shops run by the
    appellants during the period 199 I -1994 could not have been brought under
    the ES! Scheme and, therefore, no liability to pay contribution could be
    foisted on them.
F
           According to the respondents the toddy shops were covered by the
    ES! Scheme from 1983 onwards and only when the inspection was
    conducted it was noticed that the appellants did not pay the contribution
    during the period of their licence; in spite of the communication of the
    coverage and demand for payment of contribution the appellants did not
G   respond and in those circumstances revenue recovery proceedings were
    initiated. According to the respondents there was no illegality in the action
    taken by them. The appellants elaborated their case in reply statement
    contending, even assuming, that the previous contractors were complying
    with the ES! Scheme, that did not make the appellants liable in any manner
H   to continue the coverage as the very applicability of the Act to the workers
         K.R. ANITHA v. REGIONAL DIRECTOR [PATIL, J.]                885

of toddy shops was quite uncertain. It was their further case that the A
appellants could not be treated as principal employers insofar as the toddy
shops were concerned because the responsibility to run the toddy shops
through some agent was purely that of the Excise Department under the
Act; therefore, Excise Department was the owner and principal employer
of the toddy shops; the functioning of the toddy shops was covered by the B
provisions of the Abkari Act and Rules and not by the provisions of Kerala
Shops and Commercial Establishments Act; for the benefit of the workers
in toddy shops there is separate enactment and schemes framed thereunder,
i.e., Kerala Toddy Workers Welfare Fund Act and Scheme; benefits to the
workers under the Kerala Toddy Workers Welfare Fund Act and the C
Scheme were more beneficial to them; the licence given to a contractor to
run a toddy shop is not similar to the licence issued to the owners of the
shops and other establishments under the shops and Establishments Act.
The toddy shops constitute different class of establishments; if the
Government had any intention to include the toddy shops also under the
purview of the ES! Scheme, they would have found place in the notification D
 issued under Section 1( 5) of the Act. According to the appellants as
 contractors of toddy shops, at the most, they had only the role of an
 immediate employer; even assuming the Act is applicable to toddy shops
the primary responsibility to pay contribution was that of the Excise
 Department being the principal employer.                                   E
       The EI Court after considering facts, respective contentions and
referring to the provisions of the Act and the Abkari Act and Rules
concluded that toddy shops were the establishments belonged to or were
under the control of the Department of the Government and the employees
working in those shops were enjoying the benefits substantially similar to F
the benefits provided in the cases covered by the ES! Scheme. In this view
the EI Court held that the provisions of ES! Scheme were not applicable
to the employees working in toddy shops of the appellants during the
relevant period. The Court also made it clear that since the proviso to
Section 1(4) of the Act was added to the statute book only with effect from G
20. l 0.1989, any demand for contribution for the prior period had to be
viewed differently. In this view the EI Court allowed the applications filed
by the appellants and granted relief to them. The respondents challenged
the validity and correctness of the orders passed by the El Court by filing
miscellaneous first appeals before the High Court. The High Court, after H
    886                   SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A hearing the learned counsel for the parties and considering the respective
    contentions raised by them, allowed the appeals and set aside the judgment
    of the EI Court. Hence these appeals are filed by the appellants questioning
    the validity and correctness of the impugned common judgment.

B         This Court, on 9.5.2000, issued notice limited to the question whether
    the provisions of the Act are applicable to the employees of toddy shops
    in the State of Kerala under the notification in question. Subsequently leave
    was granted on 13.9.2001.

          Section I of the Act reads : -
c
             "I. Short title, extent, commencement and application. - (I) This
             Act may be called the Employees' State Insurance Act, 1948.

             (2) It extends to the whole of India.
D            (3) It shall come into force on such date or dates as the Central
             Government may, by notification in the Official Gazette, appoint,
             and different dates may be appointed for different provisions of
             this Act and for different States or for different parts thereof.

E            (4) It shall apply, in the first instance, to all factories including
             factories belonging to the Government other than seasonal
             factories :

             Provided that nothing contained in this sub-section shall apply to
             a factory or establishment belonging to or under the control of the
F
             Government whose employees are otherwise in receipt of benefits
             substantially similar or superior to the benefits provided under this
             Act.

             (5) The appropriate Government may, in consultation with the
G            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,
H            industrial, commercial, agricultural or otherwise :
         K.R. ANITHA v. REGIONAL DIRECTOR [PATIL, J.]                    887
              Provided that where the provisions of this Act have been A
         brought into force in any part of a State, the said provisions shall
         stand extended to any such establishment or class of establishments
         within that part if the provisions have already been extended to
         similar establishment or class of establishments in another part of
         that State.
                                                                               B
         (6) A factory or an establishment to which this Act applies shall
         continue to be governed by this Act notwithstanding that the
         number of persons employed therein at any time falls below the
         limit specified by or under this Act or the manufacturing process
         therein ceases to be carried on with the aid or power."           C

     State of Kerala issued a notification dated 18.9.1974 in exercise of
power conferred under sub-Section (5) of Section 1 of the Act extending
the provisions of the Act to classes of establishments specified in the
schedule to the notification.                                             D
       The learned senior counsel for the appellants urged that (1) the toddy
shops established under the Kerala Abkari Act are not covered by the Act
since in a notification issued under Section 1(5) of the Act they are not
specifically included; though Government specifically included hotels and E
restaurants, intentionally excluded toddy shops while issuing notification
in 1974; this exclusion was because the employees attached to a toddy shop
are enjoying substantially similar or even superior benefits under the
Abkari Welfare Fund Act; hence the High Court was wrong in holding that
toddy shops are covered by the Act. (2) Toddy shops were owned and
controlled by the State Government and employees of these shops were F
otherwise receiving benefits substantially similar or superior to the benefits
provided under the Act; because of the same the toddy shops were
exempted from the purview of the Act by virtue of proviso to Section I (4)
of the Act; the State is the sole authority to do the business of any
intoxicating substance and no citizen has any right to do such business; the G
appellants being only licensees (known as Abkari contractors) to run abkari
business of the Government, were only immediate employers under the
State Government or its Excise Department, who is the principal employer;
from various provisions of Abkari Act, Rules and the licence conditions
it is clear that the authority to run the business is only limited and the main H
    888                  SUPREME COURT REPORTS [2003) SUPP. 3 S.C.R.

A powers are vested with the Government itself. (3) The finding of the High
    Court that the establishments of the appellants, i.e., toddy shops having
    been covered by the Act, they shall continue to be governed by virtue of
    Section 1(6) of the Act even though sub-Section (6) of Section I of the Act
    came into force with effect from 20.10.1989 by an amendment is not
B   correct; even assuming that the Act w1s made applicable as on 20. I 0.1989
    to the then contractors, that itself will not automatically make the Act
    applicable to the appellants since they contracted to run toddy shops in
    question for the first time in the year 1991-92.

          In opposition, learned senior counsel for the respondents made
C   submissions supporting the reasons recorded by the High Court to arrive
    at the conclusions in accepting the plea of the respondents negativing the
    contentions raised on behalf of the appellants. He specifically pointed out
    that before the EI Court, as observed by the High Court in the impugned
    judgment, the appellants did not specifically contend that the toddy shops
D   were not covered by the Act previously; the appellants only contended that
    the toddy shops functioning in the State are not covered by the Act; it was
    also not their case that strength of the employees in toddy shops was less
    for being covered by the Act.

        After careful consideration of the submissions made on either side
E
  and looking to the discussion made and reasons recorded by the High Court
  in the impugned judgment in the light of the facts and circumstances found
  in these cases we are unable to find fault with the impugned judgment. The
  High Court, dealing with the contention that the toddy shops are not
  covered by the notification issued under Section 1(5) of the Act, referred
F to and followed the judgments of this Court in Mis International Ore and
  Fertilizers (India) Pvt. Ltd v. Employee's State Insurance Corporation,
  [1987) 4 SCC 203, Mis. Cochin Shipping Co. v. E.S.J. Corporation, [1992)
  4 SCC 245 and Employees State Insurance Corporation v. R.K. Swamy and
  Ors., [1994) 1 SCC 445. Keeping in view the position, as made clear in
G aforementioned decisions of this Court, the High Court was right in
  holding, "Toddy Shop is a premises where the business of buying and
  selling is going on. Therefore, according to us, a toddy shop would come
  under the entry 'shop' in the schedule." We may add here that the
  appellants were not in a position to seriously dispute this finding of the
H High Court.
          K.R. ANITHA v. REGIONAL DIRECTOR [PATIL, J.]                     889

       In order to take shelter under the proviso to sub-Section (4) of Section A
  I of the Act the appellants have to satisfy that (1) their establishments
belonged to or were under the control of the Government; and (2) the
employees in their estabishments were otherwise receiving benefits
substantially similar or superior to the benefits provided under the Act. The
High Court rightly took the view that the toddy shops of the appellants B
neither belonged to the government nor they were under the control of the
Government. If the first requirement of the proviso itself is not satisfied,
 it becomes unnecessary to examine as to the satisfaction of second
requirement of the proviso. No doubt, the State has the monopoly in liquor
trade but it is open to the State to part with that right for a consideration
so as to grant privilege of carrying on trade in liquor to the licensees. Under C
Abkari Act right to run toddy shops is auctioned annually and licences are
granted to carry on business in liquor subject to the provisions of Abkari
Act, Rules and conditions of licence. The provisions contained in the
Abkari Act and Rules and conditions oflicence having regard to the ntature
of business, namely, dealing with liquor, are regulatory. None of these D
provisions of the Act, Rules and conditions of licence interfere with a right
to carry on business by licensee subject to the regulatory measures
contained therein. In the matter of carrying on business and trade of liquor
under licences granted to the appellants it is not shown to us as to how
financially, functionally and administratively the State either dominated or E
controlled. Looking to the facts of the case, keeping in view the provisions
of Abkari Act and Rules and conditions oflicence, the control of the State
Government in regard to the trade in liquor by the licensees was merely
regulatory. Judged by the tests laid down in recent judgment of the
Constitution Bench of this Court in Pradeep Kumar Biswas v. Indian F
Institute ofChemical Biology and others, [2002] 5 SCC 111 in the context
of establishment of belonging to or under the control of the Government
found in the proviso to sub-Section (4) of Section 1 of the Act,- the High
Court was right in its conclusion that the said proviso did not cover the
toddy shops of the appellants and that neither the State Government nor
the Excise Department came in the picture of management of the business G
of the appellants. It is clear from the facts that the State had no participation
in terms of finance and there was no Government participation in carrying
on the business of liquor by the appellants either functionally or
administratively. Hence we do not see any merit in the second contention
urged on behalf of the appellants.                                                H
    890                  SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A       The High Court rightly pointed out in the impugned judgment that
  the appellants did not raise plea before the EI Court that the toddy shops
  were not covered under the Act previously. According to the respondents
  the toddy shops in question were covered by the Act long prior to the
  appellants became licensees to trade in liquor for the period in question.
B The appellants only contended that the toddy shops functioning in the State
  were not covered by the Act. As already noticed above, this plea was
  rejected by the High Court with which we are in agreement. Neither there
  was a plea nor material placed before EI Court or High Court as to how
  many employees were working in the toddy shops in question from the
C beginning or whether the same employees continued/required to work in
  those shops even though the licensees changed or whether the new
   licensees could change or reduce the number of employees in existing
  toddy shops. In the absence of necessary pleas the High Court was right
   in rejecting the contention urged on behalf of the appellants based on
   Section I(6) of the Act. The question of law based on Section I(6) of the
D Act is left open to be decided in an appropriate case.
        Thus, we do not find any merit in any one of the contentions urged
  on behalf of the appellants. In our view, the impugned judgment does not
  call for any interference. Hence the appeals are dismissed with no order
E as to costs.
    B.S.                                                  Appeals dismissed.