Supreme Court of India
M/S. HOTEL NEW NALANDAversusREGIONAL DIRECTOR, E.S.I. CORPORATION
- Citation
- 2009 INSC 911
- Decided
- 15 July 2009
- Disposal
- Appeal(s) allowed
- Bench
- TARUN CHATTERJEE
Holding
An establishment is covered by s.2(12) of the Employees State Insurance Act only if it carries out a manufacturing process as defined in s.2(k) of the Factories Act, and where 11‑20 persons are employed, that process must be directly and proximate aided by power; mere presence of powered appliances does not satisfy this requirement.
Summary
The Employees' State Insurance Corporation inspected Mis. Hotel New Nalanda and, noting a refrigerator and grinder, deemed it a "factory" under s.2(12) of the Employees State Insurance Act, 1948, directing compliance. The hotel contested, asserting it was a tourist home with fewer than ten employees and no manufacturing process. The Insurance Court found no evidence that the appliances were used in any manufacturing process and held the hotel not to be a factory. The High Court reversed, treating the mere presence of powered appliances as sufficient to infer a manufacturing process with aid of power, and allowed the corporation's appeal. On review, the Supreme Court examined whether the Insurance Court's factual finding was perverse and whether the High Court could interfere under s.82(2) of the Act. It held that to qualify as a factory, an establishment must conduct a manufacturing process as defined in s.2(k) of the Factories Act, and where 11‑20 workers are employed, that process must be directly aided by power; mere presence of appliances is insufficient. Consequently, the Insurance Court's finding was reasonable, the High Court's interference was unwarranted, and the appeal was allowed, setting aside the High Court judgment.
Issues considered
- Whether the hotel establishment qualifies as a "factory" within the meaning of s.2(12) of the Employees State Insurance Act, 1948.
- Whether the presence of a refrigerator and an electric grinder, connected to the main power line, is sufficient to infer a manufacturing process carried on with the aid of power.
- Whether the High Court was justified in interfering with the Insurance Court's factual finding under s.82(2) of the Employees State Insurance Act, 1948.
- Interpretation of "manufacturing process" under s.2(k) of the Factories Act, 1948 in the context of the ESI Act.
Legislation cited
- Employees' State Insurance Act, 1948s. 2(12), s. 75, s. 77, s. 82(2)
- Factories Act, 1948s. 2(k)
Subjects
Employees State Insurance Actfactory definitionmanufacturing processuse of powerperverse findingappeal under s.82fact findinghigh court reversalSupreme Court judgmenthotel
Judgment
[2009] 10 S.C.R. 995
..__,, MIS. HOTEL NEW NALANl)A A
v.
REGIONAL DIRECTOR, E.S.I. CORPORATION
(Civil Appeal No. 7050 of 2002)
JULY 15, 2009
B
[TARUN CHATIERJEE AND AFTAB ALAM, JJ.]
'(
f
~
Employees State Insurance Act, 1948: s.2(12) - Factory
- Presence of refrigerator and grinder in an establishment
even though connected to the main power line would not in c
itself lead to an inference that the establishment was a factory
as defined under s.2(12) - For holding an establishment to
be a 'factory' within the meaning of said section, it must be
established that some work or process was carried on in any
i
part of the establishment that amounted to 'manufacturing D
process' as defined under s.2(k) of the Factories Act, 1948.
The officers of the E.S.I. Corporation conducted
inspection in the appellant-hotel. They found that 15
persons were working in the hotel and that a refrigerator
E
and electric grinder was in use. The inspection party was
of a view that appellant was a factory within the meaning
- J-
of s.2(12) of Employees State Insurance Act, 1948 and
directed the appellant to comply with the provisions of
the Act w.e.f. date of inspection. Aggrieved appellant filed
application u/s.75 r.w. s.77 of the Act seeking declaration F
that the establishment in question was not covered by the
Act.
The Insurance. Court pointed out that in the
inspection report it was simply stated that a Kelvinator G
__J
fridge and a one litre grinder were used in the
manufacturing process. But the report was completely
~
silent in regard to the activities that were termed as
'manufacturing process' and the purpose for which the
995 H
996 SUPREME COURT REPORTS [2009] 10 S.C.R.
A two electrical appliances were used. The report left it
completely for the court to presume that the cooking of
food was the 'manufacturing process' and the two
appliances were used in that connection. The Insurance
Court also observed that both PW1, the Managing
B Director and PW3, the person who was named in the
inspection report as operating the grinder, in their
deposition before the court denied the use and even
presence of the two appliances in the establishment But Y·
neither of them was even cross-examined on that issue.
c Insurance Court held that there was no evidence that
the refrigerator and a grinder was used in any
manufacturing process carried on in the establishment
and so the establishment was not a factory u/s.2(12) of
the Act and was not covered by the Act. On appeal, High
D Court observed that the inspection report, showed the
presence of a grinder and a refrigerator in the
establishment and it was sufficient to hold that there was
use of power in the manufacturing process. The review
petition filed thereagainst was also dismissed.
E
The question which arose for consideration in the
present appeal was whether the findings recorded by the
Insurance company can be said to be perverse and fit to
be interfered with, in appeal u/s.82(2) of the Act.
F Allowing the appeal, the Court
HELD: 1. The High Court seems to have taken the
inspection report Exhibit 02 and the testimony of the
Insurance Inspector DW1 as non-rebuttable, conclusive
G pieces of evidence. Further, it took recourse to presuming
that the establishment must have kitchen where food
would be cooked using the two appliances running with
the aid of power. The High Court did not even advert to
the reasons given by the Insurance Court for not
H
HOTEL NEW NALANDA v. REGIONAL DIRECTOR, 997
E.S.I. CORPORATION
accepting the Corporation's case on that issue. The A
'--t
Insurance Court rightly pointed out that the inspection
report did not state the process or the work that was
called 'the manufacturing process'. It did not even say
that the refrigerator and the grinder were used in
connection with cooking food in the establishment. [Para B
11] [1003-G-H; 1004-A-C]
2. For holding an establishment to be a 'factory'
·""!
within the meaning of section 2(12) of the Act it must first
be established that some work or process is carried on
in any part of the establishment that amounts to
c
'fiTlanufacturing process' as defined under section 2(k) of
the Factories Act, 1948. In case the number of persons
employed in the establishment is less than twenty but
more than ten then it must further be established that the
.,.,:4
manufacturing process in the establishment is being D
carried on with the aid of power. Further, the use of power
in the manufacturing process should be direct and
proximate. The expression 'manufacturing process being
carried on with the aid of power' in section 2(12) of the
Act does not mean a very indirect application of power E
such as use of electric bulbs for providing light in the
~ work-area. Unless the links are established, that is to say,
it is shown that some process or work is carried on in
the establishment which qualifies as 'manufacturing
process' within the meaning of section 2(k) of the F
Factories Act and the manufacturing process is carried
on with the aid of power, the mere presence of a
refrigerator and a grinder there, even though connected
to the main power line may not necessarily lead to the
inference that the establishment is a factory as defined G
___,,. under section 2(12) of the Act. The Insurance Court came
to a reasonable finding of fact. Against this finding neither
any appeal was maintainable under section 82(2) ·of the
Act nor was the High Court justified in interfering with it.
H
998 SUPREME COURT REPORTS [2009] 10 S.C.R.
A [Paras 12 and 13] [1004-C-H; 1005-A-B]
't.I
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7050 of 2002.
From the Judgment & Order dated 08.11.2001 of the High
B Court of Kerala at Ernakulam in M.F.A. No. 879 of 1998.
Subramonium Prasad, Jay Kishor Singh and Jasneet Kaur
for the Appellants. y.
C.S. Rajan, V.S. Francis and Anupam Mishra for the
c Respondents.
The Judgment of the Court was delivered by
AFTAB ALAM, J.1. In an inspection held on May 7, 1991,
D the officers of the Employees' State Insurance Corporation
found that there were 15 persons working as employees in the
appellant-establishment, called M/s. Hotel New Nalanda. They
also found a refrigerator and an electric grinder in use there in
the 'manufacturing process'. On the basis of the inspection the
E officers of the Corporation took the view that the appellant-
establishment. was a factory within the meaning of section 2(12)
of the Employees' State Insurance Act, 1948 and it came within
the purview of the Act. They, accordingly, asked the Managing
Director of the establishment to comply with the provisions of
the Act provisionally with effect from May 7, 1991, the date of
F
the inspection.
2. The appellant did not accept the findings recorded in
course of the inspection and filed an application under section
75 read with section 77 of the Act (E.l.C. 55/91) before the
G Employees' Insurance Court, Kozhikode, seeking a declaration
that the establishment in question was not covered by the Act
and that the applicant/appellant was not bound to observe the
provisions of the Act. According to the applicant/appellant, the
establishment called Mis. Hotel New Nalanda was a tourist
H
HOTEL NEW NALANDA v. REGIONAL DIRECTOR, 999
E.S.I. CORPORATION [AFTAB ALAM, J.]
home where rooms were let out to people on monthly or daily A
·-~ rent basis. The establishment never employed more than 8
persons. No manufacturing process was carried on there, much
less with the aid of power. The establishment did not constitute
a factory as defined under section 2(12) and it was not covered
by the E.S.I. Act. The applicant/appellant also pleaded that at B
the time of inspection there were only 8 persons working as
employees in the establishment; the other 7 persons whose
names were mentioned in the inspection report were actually
brokers/agents/errand boys who brought prospective clients to
the tourist home from the railway station and bus stand etc. for c
small commission and used to hang around there for carrying
out errands for the residents staying there on payment of tips
by them.
3. The Regional Director, ESI Corporation, the opposite
D
~-"' party in the application filed an objection relying upon the
findings recorded in the inspection report. On behalf of the
opposite party reliance was also placed on a written statement
submitted by the applicant to the Insurance Inspector at the time
of inspection stating the names with de~:1nation of the 15
persons working as employees in the establishment. E
4. Before the Insurance Court, the applicant/appellant
examined four witnesses; PW1 was the applicant-appellant
himself and PWs 2 & 4 were persons who were shown in the
inspection report as employees in the establishment but who
F
came before the court to depose that they were not employees
inJhe tourist home but were only brokers and errand boys. The
applicant-appellant also produced a number of documents that
were marked as exhibits P-1 to P-18. On behalf of the Regional
Director ESI Corporation, the Insurance Inspector who had
G
made the inspection of the establishment was examined as
... .J DW1 and three documents were produced that were marked
as exhibits D1 to D3; exhibit D1 was the written statement
submitted by the applicant-appellant and exhibit 02 the
inspection report.
H
1000 SUPREME COURT REPORTS [2009) 10 S.C.R.
A 5. On hearing the parties and on a consideration of the
materials on record, the Insurance Court found and held that -.. ..
as a matter of fact 14 persons were employed in the
establishment; the fifteenth person named in the inspection
report was the Managing Partner and he could not be counted
B among the employees in the establishment. The Insurance
Court further held there was no satisfactory evidence that there
was a refrigerator and a grinder being used in any
manufacturing process being carried on in the establishment.
On the basis of the second finding the Insurance Court came
c hold that the establishment in question was not a factory
to
within the meaning of section 2(12) of the ESI Act and it was
not covered by the Act. It, accordingly, allowetl the application
filed by the appellant by its judgment and order dated April 2,
1998.
D 6. Against the aforesaid judgment the Regional Director 1'
ESI Corporation preferred an appeal (MFA No. 879 of 1998
B) before the High Court. In appeal, the High Court reversed
the Insurance Court's finding in regard to use of power in
manufacturing process in the establishment. The High Court
E observed that exhibit D-2, the inspection report, showed the
presence of a grinder and a refrigerator in the establishment
and found it sufficient to hold that there was use of power in
the manufacturing process. The High Court, accordingly,
allowed the appeal of the Regional Director by a brief judgment
F and order dated November 8, 2001.
7. The appellant then filed a Review Petition (RP No. 647
of 2001 in MFA No. 879 of 1998) on the plea that the High
Court order was completely silent on the question of
maintainability of the appeal, though on behalf of the Review
G Petitioner (appellant) it was specifically contended that the
appeal was not maintainable. It was submitted that an appeal ~-
against the order of the Insurance Court was maintainable
under section 82(2) of the Act only on a substantial question of
law. It was further stated that the matter before the Insurance
H
HOTEL NEW NALANDA v. REGIONAL DIRECTOR, 01001
E.S.I. CORPORATION [AFTAB ALAM, J.]
Court was concluded by a finding of fact and did not involve A
.......
any question of law, much less any substantial question of law.
The appeal filed by the Regional Director was, therefore, not
maintainable and was liable to be dismissed on that score
alone. The High Court, however, overlooked the plea and
allowed the appeal without considering the appellant's B
objections to its maintainability.
~'-1
8. The High Court rejected the Review Petition by order
dated April 12, 2002 observing that even if there was no
substantial question of law involved, the Court was competent
to entertain the appeal if the judgment of the Court below was
c
perverse. It went on to hold that on the basis of the materials
on record the finding of the Insurance Court that in the
establishment in question there was no use of power in the
manufacturing process, was quite perverse and hence, it was
~-t D
justified in entertaining the appeal and interfering with the
finding.
9. The short question that arises for our consideration is
whether, having regard to the materials on record, the finding
recorded by the Insurance Court can be said to be perverse E
and fit to be interfered with in appeal upder section 82(2) of
the Act.
10. On the issue whether power was used in any
manufacturing process in the establishment the Insurance Court
F
considered the evidences led by the two sides in considerable
detail and rejected the case of the Corporation giving a number
of reasons. It pointed out that in the inspection report it wac;
simply stated that a Kelvinator fridge (sic refrigerator) and a one
litre grinder were used in the manufacturing process. But the
report was completely silent in regard to the activities that were G
termed as 'manufacturing process' and the purpose for which
the two electrical appliances were used. The report left it
completely for the court to presume that the cooking of food
was the 'manufacturing process' and the two appliances were
H
1002. SUPREME COURT REPORTS [2009] 10 S.C.R.
A used in that connection. The Insurance Court next observed that .....
both PW1, the Managing Director and PW3, the person who
was named in the inspection report as operating the grinder,
in their deposition before the court denied the use and even
presence of the two appliances in the establishment. But neither
B of them was even cross-examined on that issue. The court
further observed that the Insurance Inspector had obtained a
written statement from the appellant containing a list of all the
fifteen persons who were working in the establishment as I".
employees. In the same way he could obtain a statement about
c the use of the two appliances in the establishment for cooking
food. But there was no such statement and the grinder and the
refrigerator found a vague and cryptic mention only in the
inspection report. In its order the Insurance Court stated as
follows:
D "Next aspect to be considered is whether the applicant has
r
-
used power in the manufacturing process being carried on
there. It is the specific plea of the respondent that the
applicant has used a grinder and a fridge in their
establishment in order to carry out the manufacturing
E process. It is refuted by the applicant. The applicant as
PW-1 testified before me that no grinder and fridge are
used in their establishment. This aspect of his evidence
is not controverted in his cross examination by the counsel
for the respondent. It is not elicited as to what are all the
F manufacturing process being carried on in the applicant
establishment and how they are got done. It is pertinent to
note that there is no mention about the use of power in the
manufacturing process in Ext.D-1 letter elicited from the
applicant by the Insurance Inspector. It is common case
G that Govindan was an employee of the applicant
establishment. He was examined as PW-3 before me. He ).__~
testified before me that there was no grinder or fridge used
in the applicant establishment. There is no cross
examination at all on the above aspect and therefore his
H
HOTEL NEW NALANDA v. REGIONAL DIRECTOR, 1003
E.S.I. CORPORATION [AFTAB ALAM, J.]
testimony in this regard stands unchallenged. A
"~
The DW-1 Insurance Inspector has noted in his Ext.D-
2 report that a grinder and a fridge are being used in the
applicant establishment. It is pertinent to note that the
Ext. D-2 report is silent with regard to what are the
B
manufacturing processes being carried on in the applicant
establishment and the purposes for which above
equipments are used. A sweeping statement that there is
·~
a grinder of 10 litre capacity and a Kelvinator fridge is
made in the D-2 report."
c
The High Court reversed the findings observing as follows:
"Ext.D-2 survey report shows that grinder and fridge there.
In Ext.D-2 it is stated that there was a grinder of 1- liter
'! capacity and a Kelvinator fridge. Merely because the D
details of which is not stated is not a ground to discard
the evidence of DW-1 and Ext.DW-2 report. At the time
of examination, DW-1 stated that the grinder was being
operated by one Damodaran Nair, a worker of the
respondent's establishment. In the application itself it is
E
submitted by the applicant that he is running a Tourist
home and the rooms are let out on monthly as well as a
daily basis. The name of the establishment is styled as
"Hotel New Nalanda". DW-1 found grinder and fridge in the
kitchen. Those who occupy a hotel tjo depend upon the
F
food which are prepared in the hotel. It is not possible to
conceive of a hotel without a kitchen. Lodging and boarding
are both essential components of the service rendered by
a Hotel. Hence, it cannot be denied no manufacturing
process is being conducted in the establishment of the
respondent." G
,,.,.J
11. We are unable to appreciate the way the High Court
considered the evidence and deemed fit to interfere with the
finding of fact recorded by the Insurance Court. The High Court
H
1004 SUPREME COURT REPORTS (2009] 10 S.C.R.
A seems to have taken the inspection report exhibit 02 and the
testimony of the Insurance Inspector DW1 as non-rebuttable, 1- "
conclusive pieces of evidence. Further, for filling-up what
remained unsaid in the inspection report and the testimony of
DW1, it took recourse to presuming that the establishment must
B have kitchen where food would be cooked using the two
appliances running with the aid of power. The High Court did
not even advert to the reasons given by the Insurance Court for
not accepting the Corporation's case on that issue. The
~-
Insurance Court had rightly pointed out that the inspection report
c did not state the process or the work that was called 'the
manufacturing process'. It did not even say that the refrigerator
and the grinder were used in connection with cooking food in
the establishment.
12. For holding an establishment to be a 'factory' within
D the meaning of section 2(12) of the Act it must first be '
established that some work or process is carried on in any part
of the establishment that amounts to 'manufacturing process'
as defined under section 2(k) of the Factories Act, 1948. In
case the number of persons employed in the establishment is
E less than twenty but more than ten then it must further be
established that the manufacturing process in the establishment
is being carried on with the aid of power. Further, the use of
power in the manufacturing process should be direct and
proximate. The expression 'manufacturing process being
F carried on with the aid-of power' in section 2(12) of the Act does
not mean a very indirect application of power such as use of
electric bulbs for providing light in the work-area. Unless the
links are established, that is to say, it is shown that some
process or work is carried on in the establishment which
G qualifies as 'manufacturing process' within the meaning of
section 2(k) of the Factories Act and the manufacturing process
I...__~
is carried on with the aid of power, the mere presence of a
refrigerator and a grinder there, even though connected to the
main power line may not necessarily lead to the inference that
H the establishment is a factory as defined under section 2(12)
HOTEL NEW NALANDA v. REGIONAL DIRECTOR, 1005
E.S.I. CORPORATION [AFTAB ALAM, J.]
of the Act. A
13. On hearing counsel for the parties and on a careful
consideration
If
of materials on record we are satisfied that the
lnsuran<~e Court had come to a reasonable finding of fact.
Against friis finding neither any appeal was maintainable under 8
section ,82(2) of the Act nor was the High Court justified in
interferin'g with it. We, accordingly, find the judgment of the High
Court unsustainable. It is set aside. In the result the appeal is
allowed but with no order as to costs.
D.G. Appeal allowed. C
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Employees State Insurance Act"Sign in to search