Holding

The Act applies to the regional offices because the principal employer exercises control over the employees, irrespective of the proportion of business transacted.

Summary

Kirloskar Brothers Ltd., a manufacturer with factories in Maharashtra and Deewas, set up regional offices in Secunderabad and Bangalore to sell its products. The State Governments of Andhra Pradesh and Karnataka treated these offices as establishments under Section 2(g) of the Employees' State Insurance Act, 1948 and issued notices for contribution under Section 3(g). The appellant challenged the liability before the Insurance Court, which held the offices were covered; the High Courts upheld that decision. The Supreme Court examined whether the Act applies to such regional offices, focusing on the appropriate test – predominant business activity versus control by the principal employer. Relying on the Hyderabad Asbestos Cement Products case, the Court held that the decisive factor is the principal employer’s control over employees, not the volume of sales. Consequently, the regional offices were deemed covered by the Act and the appellant was ordered to pay contributions, and the appeals were dismissed.

Issues considered

Whether the Employees' State Insurance Act, 1948 applies to regional offices of a principal employer whose factories are not covered by the Act.
Whether the test for applicability should be based on the predominance of business activity or on the control exercised by the principal employer over employees.

Legislation cited

Employees' State Insurance Act, 1948s. 2(15), s. 2(17), s. 2(9), s. 2(g), s. 39, s. 3(g), s. 75
Factories Act, 1948

Subjects

Employees' State Insuranceregional officeprincipal employercontrol teststatutory contributionlabour welfareindustrial law

Judgment

A KIRLOSKAR BROTHERS LTD.
v.
EMPLOYEES' STATE INSURANCE CORPN.

JANUARY 24, 1996

B [K. RAMASWAMY, S. SAGHIR AHMAD AND
G.B. PATTANAIK, JJ.]
~

Employees State Insurance Act, 1948 : ..
c place-Fact01ies
Sections 2(g)2(9), 2(15), 2( 17), 3(g) 75-Registered Office in one
situated in different States-Benefit to employees of the
factories under the Act-TTUe test is control by the principal employer over
the employe~Test of predominant business activity of two remote connec-
lion-Not relevant-When there is connection ·between the factory and the
finished products sold or distributed in the regional offices or establishment
D and principal employer has control over employee the Act is applicabl~on-
tribution payable accordingly.

Hyderabad Asbestos Cement Products Ltd. v. The Employee Insurance
Cowt&Anr., [1978] 2 SCR345; C.E.S.C. Limitedv.Subhash Chandra Bose,
[1992] 1 SCC 441 and Consumer Education & Research Centre & Ors. v.
E
Union of India & Ors., [1995] 3 SCC 42, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 177 of
1984 Etc. .,
,I

F From the Judgment and Order dated 24.8.83 of the Karnataka High
Court in M.F.A. No. 1128 of 1979.

R.F. Nariman, P.H. Parekh and Arivind Kumar Sharma for the
·A ppellant.

G V.C. Mahajan, T .C. Sharma for Mrs. Anil Katiyar for the Respon-
dent.

The following Order of the Court was delivered :

In these appeals short question that arises for consideration is:
H whether the Employees' State Insurance A ct, 1948 (for short, ' the Act')
884
KIRLOSKAR BROS. LTD. v. E.S.l. CORPN. 885

would apply to the regional offices of the appellant at Secunderabad· in A
Andhra Pradesh and Bangalore in Karnataka State. The Appellant had
established its registered office at Poona for sale and distribution of its
products from three factories - one situated at Kirloskarvadi, second at
Karad in State of Maharashtra and the third one at Deewas in the State of
Madhya Pradesh. Admittedly factories situated in Maharashtra are not B
covered under the Act. They set up regional offices at several places. The
Governments of Andhra Pradesh and Karnataka have applied the
provisions of Section 2(g) of the Act to the aforesaid regional offices
situated at Secunderabad and Bangalore and the respondent had issued
notice under Section 3(g) of the Act calling upon them to contribute their
share of the health insurance of the workmen working in the respective c
regional offices. Disputing the liability, the appellant filed application
before Insurance Court under Section 75 of the Act. The Court had held
that the appellant's regional offices are covered under the Act and accord-
ingly it directed them to pay their contribution. The High Courts of Andhra
Pradesh and Karnataka have upheld the said orders. Hence these appeals D
by special leave.

In point of time, the judgment of the Andhra Pradesh High Court is
the earliest rendered in C.M.A No. 593 of 1976. It had· followed the
decision of this Court in Hyderabad Asbestos Cement Products Ltd. vs. 17ze E
Employees Insurance Court & Anr. [(1978) 2 SCR 345] and held that the
regional offices are established for sale or distribution of the appellant's
products, which have their connection to its factory at Deewas and as such
the appellant is liable to pay contribution. When similar question had
arisen in the Orissa High Court, in Misc. Appeal No. 187 of 1982, by an
F
order dated March 5, 1987, the learned single Judge had held that since
the percentage of sale of products form Dewas at Bhubaneswar regional
office is not predominantly higher but is only incidental, it is not covered
under the Act. Therefore, the appellant is not liable to contribute to the
insurance of the workmen. S.L.P. No. 7372 of 1987 against the said judg-
ment was dismissed by a Bench of two Judges of this Court on January 28, G
1988 holding that having regard to the peculiar facts of the case, no
interference under Article 136 of the Constitution was called for. When the
appeals came for hearing before a Bench of two Judges, by an order dated
January 17, 1990, the appeals were referred to this Bench for decision.
Thus these appeals have come before us. H
(
886 SUPREME COURT REPORTS [199611 S.C.R.

A Shri R.F. Nariman, learned senior counsel for the appellant, raised
two-fold contentions. It is contended that as per material on record, the
regional offices at Secunderabad and Bangalore are transacting business
of the products manufactured by Deewas factory ranging between 3% to
33%. It is not predominantly products of the factory at Deewas and
B the other factories are not covered under the Act. Therefore, the view
expressed by the Orissa High Court is correct interpretation of the law
and that of the High Courts of Andhra Pradesh and Karnataka is incor-
rect. It is also contended that the decision said of the High Court of Orissa
between the same parties become final, it operates as res judicata. There-
fore, the appellant is entitled to be excluded from the purview of the Act.
c
Shri V.C. Mahajan, the learned senior counsel appearing for the
State, contended that regional offices having been established by the ap-
pellant at different places to sell or distribute their products at the respec-
tive places, the quantum of business transaction is not relevant
D consideration. Equally, the test of predominant business turnover of the +
products manufactured by Deewas factory is not a relevant consideration.
The test laid down in Hyderabad Asbestos Cement Products Ltd. case, i.e.,
control by the principal employer connected with the sale or distribution
of the products of the appellant is relevant. Therefore, the test laid down
E by the learned Judge of the Orissa High Court is not correct one, the
Andhra Pradesh and Karnataka High Courts' view has correctly laid down
the test and commanded for acceptance. It is also contended that the
J
principle of res judicata cannot be applied in the facts of this case, since
the entire issue is now at large.

F
Having regard to the respective contentions, the question that arises
for consideration is whether the Act applies to the respective regional
offices. Section 2(9) of the Act defines "employee" to mean any person
employed for wages in or in connection with the work of a factory or
establishment to which this Act applies ........ and includes any person
G 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 he products
of, the factory ...... (Emphasis supplied), "Occupier" of the factory under
Section 2(15) shall have the meaning assigned to it in the Factories Act.
H "Principal employer" defined in Section 2(i7) means, "in a factory, the
KIRLOSKAR BROS. LID. v. E.S.J. CORPN. 887

owner or occupier of the factory and includes the managing agent of such A
owner or occupier, the legal representative or a deceased owner or oc-
cupier, and where a person has been named as the manager of the factory
under the Factories Act, 1948, the person so named; in any establishment
under the control of any department of any Government in India, the
authority appointed by such Government in this behalf or where no B
authority is so appointed the head of the Department; in any other estab-
lishment, any person responsible for the supervision and control of the
establishment". It would thus be seen that the Principal employer is the
exclusive owner or occupier of the factory and includes the managing agent
of the owner or occupier or where a person has been named as the
manager of the factory under the Factories Act the person so named or c
any other person responsible for the supervision and control of the estab-
lishment etc., is the principal employer. Having established the regional
offices at the respective places, the person who keeps control or is respon-
sible for the supervision of the establishment at the respective regional
offices in connection with factory whose finished products are distributed D
or sold, would be the principal employer for the purpose of the Act. The
person appointed for sale or distribution of the products in the regional
office is the employee covered under the Act.

The object of the Act is to provide certain benefits to employees in E
of sickness, maternity, employment injury and for certain other matters in
relation thereto. Section 39 of the Act enjoins upon the employer to make
payment of contribution and deduction of the contribution of the
employees from their wages at the rates specified in the First Schedule to
the Act and to credit the same to their account. The employees covered
F
under the Act in return would receive treatment for sickness, maternity,
payment for employment injury etc. Every human being has the right to
live and to feed himself and his dependents. Security of one's own life and
livelihood is a pre-condition for orderliness. Liberty, equality and dignity
of the person are intertwined precious right to every citizen. Article 1 of
the Universal Declaration of Human Rights, 1948 assures human sensitivity G
and moral responsibility of every State and that all human beings are born
free and equal in dignity and rights. Article 3 assures everyone the right to
life, liberty and security of person. Article 25(1) assures that everyone has
a right to a standard of living adequate for the health and well-being of
himself and of his family, including, among others things, medical care and H
I
1.

888 SUPREME COURT REPORTS (1996] 1 S.C.R.

A right to security in the event of sickness, disability etc. Article 6 of Inter-
national Covenant on Civil and Political Rights, 1966 assures that every
human being has inherent right to life. This right shall be protected by law.
Article 7(b) recognises the right of everyone for the enjoyment of just and
healthy conditions of work which ensures in particular safe and healthy
B working conditions. The Preamble of the Constitution of India, the Fun-
damental Rights and Directive Principles constituting trinity, assure to
every person in a welfare State social and economic democracy with
equality of status and dignity of person. Political democracy without social ~
and economic democracy would always remain unstable. Social democracy
must become a way of life in an egalitarian social order. Economic
C democracy aids consolidation of social stability and smooth working of
political democracy. For welfare of the employees, the employer should
provide facilities and opportunities to make their life meaningful: The
employer must be an equal participant in evolving and implementing
welfare schemes. Article 39 [e] of the Constitution enjoins upon the State
D to secure health and strength of the workers and directs that the operation
of the law is that the citizens are not forced by economic necessity to work
under forced labour or unfavourable and unconstitutional conditions of
work. It should, therefore, be the duty of the State to consider that welfare
measures are implemented effectively and efficaciously. Article 42, there-
E fore, enjoins the State to make provision for just and human conditions of
work and maternity relief. Article 47 imposes a duty on the State to
improve public health.

Economic security and social welfare of the citizens are required to
F be reordered under rule of law. In C.E.S. C. Limited v. Subhash Chandra
Bose ((1992)] 1 SCC 441 at 463], in paragraph 31 this Court surveyed
various functions of the State to protect safety and health of the workmen
and emphasised the need to provide medical care to the workmen to
prevent disease and to improve general standard of health consistent with
human dignity and right to personality. In para 32, it was held that the term
G "health" implies more than an absence of sickness. Medical care and health
facilities not only protect against sickness but also ensures stable manpower
for economic development. Facilities of health and medical are generate
devotion and dedication to give the workers' best, physically as we)! as
mentally, in productivity. It enables the worker to enjoy the fruit of his
H labour, to keep him physically fit and mentally alert for leading a successful,
\
KIRLOSKAR BROS. LTD. v. E.S.I. CORPN. 889

economic, social and cultural life. It was held that "medical facilities are, A
therefore, part of social security and like gilt-edged security, it would yield
immediate return to the employer in the increased production and would
reduce absenteeism on grounds of sickness, etc." It would thus save valu-
able man power and conserve human resources.
B
Health is thus a state of complete physical, mental and social well
being right to health, therefore, is a fundamental and human right to the
worlmen, "The maintenance of health is the most imperative constitutional
' goal whose realisation requires interaction of many social and economic
fact-Ors. Just and favourable condition of work implies to ensure safe and
health working conditions to the workmen. The periodical medical treat- c
ment invigorates the health of the workmen and harnesses their human
resources. Prevention of occupational disabilities generates devotion and
dedication to duty and enthuses the workmen to render efficient service
which is a valuable asset for greater productivity to the employer and
national production to the State." Interpreting the provisions of the Act in D
para 33, it was held that the Act aims at relieving the employees from
health and occupational hazards. The legal interpretation is to ensnre
social order and human relations.

In Co!lsumer Educatioll & Research Celltre & 01'. v. Ullioll of India E
&·Ors., [(1995) 3 SCC 42] a three-Judge Bench of this Court held that the
jurisprudence of personhood or philosophy of the right to life envisaged in
Article 21 of the Constitution enlarges its sweep to encompass human
personality in its full blossom with invigorated health which is a wealth to
the workman to earn his livelihood, to sustain the dignity of person and to F
live a life with dignity equality. The expression 'life' assured in Article 21
does not connote mere animal existence or continued drudgery through
life. It has a much wider meaning which includes right to livelihood, better
standard of living, hygienic conditions in the work place and leisure
facilities and opportunities to eliminate sickness and physical disability of
the workmen. Health of the workman enables him to enjoy the fruits of his G
labour, to keep him physically fit and mentally alert. Medical facilities,
·r therefore, is a fundamental and human right to protect his health. In that
case health insurance, while in service or after retirement was heJd to be
a fundamental right and even private industries are enjoined to provide
health insurance to the workman. H
890 SUPREME COURT REPORTS [1996] 1 S.C.R.

A In expanding economic activity in liberalarised economy Part IV of
the Constitution enjoins not only the State and its instrumentalities but even
private industries to ensure safety to the workman to provide facilities and
opportunities for health and vigour of the workman assured in relevant
provisions in Part IV which are integral part of right to equality under
B Article 14 and right to invigorated life under Article 21 which are fun-
damental rights to the workman. Interpretatio11 of the provisions of the Act,
therefore, must be read in the lig]:tt not only of the objects of the Act but
also the constitutional and fundamental and human rights referred to
hereinbefore.

c The principal test to connect the workmen and employer under the
Act to ensure health to the employee being covered under the Act has been
held by this Court in Hyderabad Asbestos case, i.e., the employee is engaged
in connection with the work of the factory. The test of predominant
business activity or too remote connection are not relevant. The employee
D need not necessarily be the one integrally or predominantly connected with
1
the entire business or trading activities. The true test is control by the
principal employer over the employee. That test will alone be the relevant
test. The connection between the factory and its predominant products sold
or purchased in the establishment or regional offices are irrelevant and
E always leads to denial of welfare benefits to the employees under the Act.
When there is connection between the factory and the finished products
which are sold or distributed in the regional offices or establishment and
principal employer has control over employee, the Act becomes applicable.
The test laid down by the Orissa High Court, namely, predominant busi-
ness activity, i.e., sale or distribution of the goods manufactured in the
F factory at Deewas, is not a correct test. It is true that this Court in the
special leave petition arising from the Orissa High Court judgment, leave
was declined holding it to be of peculiar facts.

This Court has not laid down any law therein. Shri Nariman has
G contended that it would operate as a precedent. Since the entire controver-
sy between the parties is at large and this Court has seisen of the issue and
pending decision, Orissa case should have got posted with these appeals.
That case did not lay any law. The previous decision does not operate as
res judicata. Therefore, we do not find any merit in the contentions.
H Accordingly, we hold that the view expressed by the Andhra Pradesh and
{

KIRLOSKAR BROS. LTD. v. E.S.I. CORPN. 891

the Karnataka High Courts is correct in law. The appellant, therefore, is A
liable to pay contribution from the respective date of demand in 1975 in
Andhra Pradesh case, and on the respective date in Karnataka case under
Section 39 read with first schedule to the Act.

The appeals are accordingly dismissed with the above modifications.
No costs. B

G.N. Appeals dismissed.

+