Holding

Any action taken on an inspection conducted prior to the coming into force of the Employees' State Insurance Act is ultra vires, rendering the show‑cause notice void and entitling the employer to a hearing.

Summary

MIS Srinivasa Rice Mill was brought under the Employees' State Insurance Act, 1948 on 1 August 2000. The ESIC had inspected the mill before that date and, based on the inspection, issued a show‑cause notice under section 85(g) threatening criminal prosecution for failure to pay contributions. The mill challenged the notice in the Employees' Insurance Court (section 75(1)(g)) and, after dismissal, appealed to the High Court (section 82); both were dismissed. The Supreme Court held that the inspection and any consequent action taken before the Act became applicable were ultra vires because applicability is a jurisdictional fact that must be determined before exercising power. Consequently, the show‑cause notice was void, the employer was entitled to a hearing, and the earlier judgments were set aside. The appeal was allowed.

Issues considered

The inspection and subsequent action were taken before the Employees' State Insurance Act, 1948 became applicable to the rice mill.
Whether the applicability of the Act is a jurisdictional fact that must be determined before the authority can act.
Whether the principles of natural justice under sections 44 and 45 of the Act were complied with.
Whether the ESIC was required to disclose employee details under Regulation 10B of the Employees' State Insurance (General) Regulations, 1950.
Whether the rice mill qualifies as a "factory" under section 2(12) of the Act.

Legislation cited

Employees' State Insurance Act, 1948s. 1, s. 2(12), s. 44, s. 45, s. 75(1)(g), s. 82, s. 85(g)
Employees' State Insurance (General) Regulations, 1950s. 10B

Subjects

Employees' State Insurance Actjurisdictional factultra viresnatural justiceinspectionshow‑cause noticefactory definitionemployer liabilityprocedural fairness

Judgment

MIS SRINIVASA RICE MILL A
v.
EMPWYEES STATE INSURANCE CORPORATION

NOVEMBER 10, 2006

[S.B. SINHA AND DALVEER BHANDARI, JJ.] B

Employees' State Insurance Act, 1948-Sections 44, 45 and 85-
Inspection carried out on employer mill before coming into force of the Act-
Notice issued to the employer for initiating criminal proceedings under the C
Act-Petition filed by the employer before Employees' Insurance Court
challenging the notice was dismissed-Appeal filed before High Court was
also dismissed~orrectness of-Held, action taken on an inspection carried
out prior to the coming into force of the Act, is ultra vires the Act-Hence,
the criminal proceedings initiated against the employer is void and illegal.
D
Employees' State Insurance Act, 1948 was made applicable to appellant-
rice mill with effect from 1st August 2000. Respondent c:uried out inspections
on the appellant prior to the applicability of the Act and found that the
appellant employed more than 10 employees. The respondent, after the act
came into force, issued a show cause notice to the appellant as to why criminal·
proceedings should not be initiated under section 85 (g) of the act. The E
appellant filed a petition under section 75(1) (g) of the Act before Employees'
Insurance Court, which was dismissed. The appellant then filed an appeal
before High Court under section 82 of the Act, which was also dismissed.

Iri appeal to this Court, the appellant contended that it was obligatory
for the respondent under the Act to determine whether the appellant is covered F
under the Act of not; that the respondent has not complied with the principles
of natural justice as required under sections 44 and 45 of the Act; and that
the respondent has not complied with Regulation lOB of the Employee's State
Insurance (General) Regulations, 1950 in not disclosing the details of the
employees and the wages drawn by them and hence the show-cause notice was G
liable to be set aside.

The respondent contended that the appellant is liable to pay the
insurance and furnish the details under the Act and that the show-cause notice
is legal since the appellant had failed to carry out the statutory obligations;
955 II
956 SUPREME COURT REPORTS [.2006] SUPP. 8 S.C.R.

A that the appellant is required to disclose the details of the employees and the
wages drawn by them; and that both the Courts have correctly arrived at a
finding that the rice mill run by the appellant is a 'factory' under section 2
(12) of the Act.

Allowing the appeals, the Court
B
HELD: 1.1. Before an Act is made applicable, in the event, a dispute is
raised, the authorities exercising statutory power must determine the
jurisdictional fact. Applicability of the Act would be a jurisdictional question.
The employer is entitled to raise such a question before the appropriate.
C authority. Such a question can also be raised for the first time before a court
exercising the power of judicial review although ordinarily the same should
be raised before the concerned authority as a preliminary issue. (965-A, B]

Management of the Express Newspapers (P) Ltd, Madras v. Workers &
Ors., AIR (1963) SC 569 and Arun Kumar & Ors. v. Union ofIndia & Ors., JT
D (2006) 12 SC 121 referred to.
1.2. The inspection of the factories of the appellant was carried out prior
to the date of coming into force of the Employees' State InsuranceAct, 1948.
Such inspections could have been carried out only in terms of the provisions
contained in section 45 of the Act, which could mean that the Inspector would
E be appointed for the purpose of the Act. He is authorized under the Act to
enquire into the correctness of any of the particulars stated in any return
referred to in section 44 of the Act or for the purpose of ascertaining whether
any of the provisions has been complied with. It is, therefore, evident that any
action taken prior to or in furtherance of a report made on an inspection,
prion to coming into force of the Act, would be ultra vires section 45(2) of the
F Act. Once the inspection is held to be illegal, the respondent could not have
taken any statutory action for imposition of penalty. A notice was required to
be issued directly in terms of section 44 (2) of the Act. Having regard to the
facts and circumstances of the case, the interest of justice would be sub-
served, if appellant is given an opportunity of hearing.
G (966-A, B, C; 967-F; 970-F, GJ
Employees' State Insurance Corporation v. MM Suri & Associates (P)
Ltd., (1998) 8 SCC 111 and Employees' State Insurance Corporation v. Balaji
weaving Mills and Ors., (1997] 11 SCC 96, referred to.
Employees' State lnsttrancer Corporation v. MIS U.P. Hotel &
H
SRINIVASA RICE MILL 1·. EMPLOYEES STATE INSURANCE CORPN. [S.B. SINHA, J .) 957

Restaurants Ltd & Anr., (1975) Lab. I.C. 1025; Employees' State Insurance A
Corporation v. Karnataka Asbestos Cement Products, (1991) 63 FLR 638 and
E.S.J. Corporation v. Subbaraya Adiga, (1988) 57 FLR 612, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4774 of2006.

From the Judgment and Order dated 29.6.2004 of the High Court of B
Judicature, Andhra Pradesh at Hyderabad in Appeal against Order No. 4334/
2003.

WITH

C.A. Nos. 477, 4775 and 4776 of2006. c
C. Mukund, Shashank Sharma, Pankaj Jain, Neeraj Anand and Bijoy
Kumar Jain for the Appellant.

C.S. Rajan, V.J. Francis, A. Radhakrishnan and Anupam Mishra for the
Respondent. D
·· The Judgment of the Court was delivered by

S.B. SINHA, J. Leave granted.

Applicability of the provisions of the Employees' State Insurance Act, E
1948 (for short "the Act") to the rice mills situate in the State of Andhra
Pradesh arises for question in these matters. Appellants are owners of
various rice mills situate in the State of Andhra Pradesh. The operation in
these rice mills is said to be seasonal. The Act admittedly was made applicable
in relatiun to the rice mills with effect from 1.8.2000. Prior to coming into force
of the Act, inspections were carried out and allegedly it was found that in the F
mills more than I 0 employees were employed. They were allegedly asked to
comply with the provisions of the Act. Without, however, giving an opportunity
to explain as to why they have not made any contribution towards insurance,
by a notice dated 20th October, 2000, they were asked to show cause stating:

"I therefore call upon to explain the reasons if any as to why you
G
should not be prosecuted, within a week of receipt of this letter. If
no reply is received within stipulated time it will be presumed that you
have no valid reasons to explain and further action will be taken
accordingly without any further notice."
H
958 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A Suits were filed before the Employees' Insurance Court under Section
75(l)(g) of the Act. The question which inter alia was raised therein was as
to whether the aforementioned notice was legal. By reason of a judgment and
order dated 30.6.2003, the learned Employees' Ir.surance Court dismissed the
applications. Aggrieved thereby and dissatisfied therewith, appeals were
B preferred before the High Court purported to be in terms of Section 82 of the
Act. The said appeals, by reason of the impugned order, have been dismissed.

Mr. C. Mukund, learned counsel appearing on behalf of Appellants
would raise three contentions in support of these appeals, viz.,

(i) Having regard to the definitions of "employees" and "wages" as
c also the applicability of the Act in relation to the factories, it was
obligatory on the part of the authorities under the Act to determine
the question as to whether the establishments are covered under
the Act or not.
(ii) The principles of natural justice, as are required in terms of
D Sections 44 and 45 of the Act, having not been complied with,
the impugned notice proposing criminal action against them is
void ab initio.
(iii) Having regard to the rrovisions contained in Regulation JOB of
the Employees' State Insurance (General) Regulations, 1950 (for
E short "the Regulations") framed under the Act, it was obligatory
on the part of the Inspector to disclose the details of the employees
as also the wages drawn by them and the said mandatory
provisions having not been complied with, the impugned notice
was liable to be set aside.
F Mr. C.S. Rajan, learned senior counsel appearing on behalf of Respondent,
on the other hand, submitted:

(i) The provisions of the Act as contained in Sections 38 to 45 of
the Act lay down a scheme in terms whereof statutory obligations
are on the employer not only to pay the amount of insurance but
G also to furnish the details and as the said statutory obligations
have not been carried out, the impugned notice issued by the
Employees' State Insurance Corporation (for short "the
Corporation") must be held to be legal.
(ii) Keeping in view the statutory obligations on the part of the
H
SRINIVASA RICE MILL"· EMPLOYEES STA TE INSURANCE CORPN. (S.B. SINHA, J .) 959
employer, it is idle to contend that the authorities under the Act A
while issuing notice must disclose the details as regards the
employees as also the wages drawn by them.

(iiij The Employees' Insurance Court as also the High Court has
rightly arrived at a finding that the rice mills run by Appellants
are factories within the meaning of Section 2(12) of the Act and, B
thus, it is covered.

Before we embark upon the rival contentions raised by the learned
counsel for the partit:s, we may notice certain provisions of the Act.

The Act was enacted to provide for certain benefits to employees in C
case of sickness, maternity and empleyment injury and to make provision for
certain other matters in relation thereto. The Act although extends to whole
of India but in terms of sub-section (3) of Section l of the Act, it may come
into force on such date or dates as the Central Government may, notify in the
official gazette, appoint and different dates may be appointed for different
provisions of the Act and for different States or for different parts thereof. D
However, Sub-section (4) of Section I states that the Act at the first
instance shall apply to all factories 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 Government whose
employees are otherwise in receipt of benefits substantially similar or superior E
to the benefits provided under this Act.

"Contribution" is defined in Section 2(4) of the Act to mean "the sum
of money payable to the corporation by the principal employer in respect of
an employee and includes any amount payable by or on behalf of the employee F
in accordance with the provisions of this Act".

"Factory" is defined under Section 2(12) of the Act which reads as
under:

"2. (12) 'factory' means any premises including the precincts thereof G
-(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 with the aid of
power or is ordinarily so carried on, or

H
,•
960 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A (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, but does not include a mine
subject to the operation of the Mines Act, 1952 (35 of 1952) or a
railway running shed;"
B
"Employee" and "wages" have been defined in Section 2(9) and 2(22)
of the Act and are as under:

"2.(9) 'employee' means any person employed for wages in or in
connection with the work of a factory or establishment to which this
c 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 elsewhere; or
D
(ii) who is employed by or through an immediate employer on the
premises of the factory or establishment or under the supervision of
the principal employer or his agent on work which is ordinarily 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
E 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;

F 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 or with the purchase of raw materials for,
or the distri~ution or sale of the products of, the factory or
establishment or any person engaged as an apprentice, not being an
apprentice engaged under ,he Apprentices Act, 1961 (52 of 1961 ), or
G 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 for
overtime work) exceed Rs 1600 a month:
H
SRINIVASA RICE MILL 1·. EMPLOYEES STATE INSURANCE CORPN. [S.B. SINHA, J.] 961
Provided that an employee whose wages excluding remuneration for A
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;

* * *
B
(22) 'Wages' means all remuneration paid or payable in cash to an
employee, if the tenns of the contract of employment, express or
implied, were fulfilled and includes any payment to an employee in
respect of any period of authorised leave, lockout, strike which is not
illegal or lay-off and other additional remuneration, if any, paid at
intervals not exceeding two months, but does not include - C ...
(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 D
entailed on him by the nature of his employment; or

(d) any gratuity payable on discharge;"

Section 38 occurring in Chapter IV of the Act provides that all employees
are to be insured in the manner provided by the Act. Section 39 provides E
for contributions payable under the Act in respect of the employees. Sub-
section (4) of Section 39 of the Act reads as under:

"(4) The contributions payable in respect of each wag~ period shall
ordinarily fall due on the last day of the wage period, and where an
employee is employed for part of the wage period, or is employed F
under two or more employers during the same wage period, the
contributions shall fall due on such days as may be specified in the
regulations."

Section 40 of the Act enjoins a duty upon the principal employer to pay G
contribution at the first instance. Section 41 provides for recovery of
contribution. Section 42 provides for general provisions as to payment of
contributions whereas Section 43 provides for method of payment of
contribution. Sections 44 and 45, which are relevant for these matters, read
as under:
H
962 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A "44. Employers to furnish returns and maintain registers in certain
cases.-(1) Every principal and immediate employer shall submit to
the Corporation or to such officer of the Corporation as it may direct
such returns in such form and containing such particulars relating to
persons employed by him or to any factory or establishment in
respect of which he is the principal or immediate employer as may be
B specified in regulations made in this behalf.

(2) Where in respect of any factory or establishment the Corporation
has reason to believe that a return should have been submitted under
sub-section (1) but has not been so submitted, the Corporation may
require any person in charge of the factory or establishment to fumish
c such particulars as it may consider necessary for the purpose of
enabling the Corporation to decide whether the factory or establishment
is a factory or establishment to which this Act applies.

(3) Every principal and immediate employer shall maintain such
registers or records in respect of his factory or establishment as may
D be required by regulations made in this behalf.

45. Inspectors, their functions and duties.-(1) The Corporation may
appoint such persons as Inspectors, as it thinks fit, for the purposes
of this Act, within such local limit; as it may assign to them.

E (2) Any Inspector appointed by tlie Corporation under sub-section
(1) (hereinafter referred to as Inspector), or other official of the
Corporation authorised in this behalf by it, may, for the purposes of
enquiring into the correctness of ar.y of the particulars stated in any
return referred to in sectior. 44 or for the purpose of ascertaining
F whether any of the provisions of this Act has been complied with-

(a) require any principal or immediate employer to furnish to him such
information as he may consider necessary for the purposes of this
Act; or

(b) at any reasonable time enter any office, establishment factory or
G other premises occupied by such principal or immediate employer and
require any person found in charge thereof to produce to such
Inspector :.ir other official and allow him to examine such accounts,
books and other documents relating to the employment of persons
and payment of wages or to furnish to him such information as he
H may consider necessary; or
SRINIVASA RICE MILL'" EMPLOYEES STA TE INSURANCE CORPN. [S.B. SINHA, J.] 963

(c) examine, with respect to any matter relevant to the purposes A
aforesaid the principal or immediate employer, his agent or servant, or
any person found in such factory, establishment, office or other
..
_ premises, or any person whom the said Inspector or other official has
reasonable cause to believe to be or to have been an employee;

(d) make copies of, or Jake extracts from, any register, account book B
or other document maintained in such factory, establishment, office or
other premises;

(e) exercise such other powers as may be prescribed.

(3) An Inspector shall exercise such functions and perform such C
duties as may be authorised by the Corporation or as may be specified
in the regulations."

Section 97 provides for the power of the Corporation to make regulations,
pursuant whereto the Corporation framed Regulations. Regulation 1OB reads
as under: D
"10 B. Registration offactories or establishments.-(a) The employer
in respect of a factory or an establishment to which the Act applies
for the first time and to which an employer's Code No. is not yet
allotted, and the employer in respect of a factory or an establishment
to which the Act previously applied but has ceased to apply for the E
time being, shall furnish to the appropriate Regional Office not later
than fifteen days after the Act becomes applicable, as the case may
be, to the factory or establishment, a declaration or registration in
writing in Form 10 (hereinafter referred to as.Employer's Registration
Fonn). F
(b) The employer shall be responsible for the correctness of all the
particulars and infonnation required for and furnished on the employer's
registration form.

(c) The appropriate Regional Office may direct the employer who fails G
to comply with the requirement of paragraph (a) of this regulation
within the time stated therein, to furnish to that office Employer's
Registration Form duly completed within such further time as may be
specified and such employer shall thereupon, comply with the
instructions issued by that office in this behalf.
H
964 SUPREME COURT REPORTS (2006) SUPP. 8 S.C.R.

A (d) Upon receipt of the completed Employer's Registration Form, the
appropriate Regional Office shall, if satisfied that the factory or the
establishment is one to which the Act applies, allot to an Employer's
Code Number (unless the factory or the establishment has already .._
been allotted an Employer's Code Number) and shall inform the employer
of that number.
B
(e) The employer shall enter the Employer's Code Number on all
documents prepared or completed by him in connection with the Act,
the rules and these regulations and in all correspondence with
appropriate office."

C Indisputably, in terms of the said Regulation, Form 01 has been
prescribed which is required to be filled up by the employer for the purpose
of furnishing return.

A notification issued by the appropriate government reads as under:

D "S.O. 1842 - In exercise of the powers conferred by sub-section (3)
of Section I of the Employees' State Insurance Act, 1948 (34 of 1948)
the Central Government hereby appoints the l st August, 2000 as the
date on which the provisions of Chapter IV (except Sections 44 and
45 which have already been brought into force) and Chapters V and
VI (except sub-section (i) of Section 76 and Sections 77, 78, 79 and
E
81 which have already been brought into force) of the said Act shall
come into force in the following areas in the State of Andhra Pradesh
namely: -

Areas falling within the limits of revenue villages of :

F (i) Kovvada and Narsimhapuram in Bheemavaram Manda;

(ii) Vandrum and Cherukuwada in Undi Manda!

(iii) Peda Amiram in Kalla Manda!; and

(iv) Akiveedu in Akiveedu Manda! of West Godavari District."
G
Admittedly, the rice mills are situated within the Narsimhapuram area.
The appointed day therefor was !st August, 2000. The factories of Appellants
were inspected prior to that date. Prior to that date, therefore, Appellants
were not bound to comply with the provisions of the Act. They could
H appoint employees at their own sweet will. But the period wherefor the
SRINIVASA RICE MILL 1•. EMPLOYEES STA TE INSURANCE CORPN. [S.B. SINHA, J.) 965
provisions of the Act would be applicable is 12 months preceding the said A
date, viz., from lst August, 1999 to 31st July, 2000. Compliance of the
requirements of the statutes on the part of the employer, however, would
begin from the appointed day, viz., 1st August, 2000.

Before an Act is made applicable, in the event, a dispute is raised, the
authorities exercising statutory power must determine the jurisdictional fact. B
Applicability of the Act would be a jurisdictional question. The Employer is
entitled to raise such a question before the appropriate authority. Such a
question can also be raised for the first time before a court exercising the
power of judicial review although ordinarily the same should be raised before
the concerned authority as a preliminary issue. [See Management of the C
Express Newspapers (P) Ltd, Madras v. Workers and Ors., AIR (1963) SC
569, para 15]

What would be a jurisdictional fact has recently been stated by this
Court in Arun Kumar & Ors. v. Union of India & Ors., JT (2006) 12 SC 121
in the following terms: D
" .... A "jurisdictional fact" is a fact which must exist before a Court,
Tribunal or an Authority assumes jurisdiction over a particular matter.
A jurisdictional fact is one on existence or non-existence of which
depends jurisdiction of a court, a tribunal or an authority. It is the fact
upon which an administrative agency's power to act depends. If the E
jurisdictional fact does not exist, the court, authority or officer cannot
act. If a Court or authority wrongly assumes the existence of such
fact, the order can be questioned by a writ of certiorari. The underlying
principle is that by erroneously assuming existence of such
jurisdictional fact, no authority can confer upon itself jurisdiction F
which it otherwise does not posses."

It is further stated:

" .. .it is clear that existence of 'jurisdictional fact' is sine qua non for
the exercise of power. If the jurisdictional fact exists, the authority can
proceed with the case and take an appropriate decision in accordance G
with law. Once the authority has jurisdiction in the matter on existence
of 'jurisdictional fact', it can decide the 'fact in issue' or 'adjudicatory
fact'. A wrong decision on 'fact in issue' or on 'adjudicatory fact'
would not make the decision of the authority without jurisdiction or
vulnerable provided essential or fundamental fact as to existence of H
966 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A jurisdiction is present."

The scheme of the Act does not suggest that all the employees would
come within the purview of the said Act. Those employees who draw wages
as is defined in Section 2(22) of the Act would be the employees who would
be covered thereunder. As noticed hereinbefore, inspection of the factories
B was carried out prior to the date of coming into force of the Act. Such
inspections, thus, could have been carried out only in terms of the provisions
contained in Section 45 of the Act, which could mean that the Inspector
would be appointed for the purpose of the Act. He is authorized under the
Act to enquire into the correctness of any of the particulars stated in any
C return referred to in Section 44 or for the purpose of ascertaining whether any
of the provisions has been complied with. It is, therefore, evident that any
action taken prior to or in furtherance of a report made on an inspection, prior
to coming into force of the Act, would be ultra vires Section 45(2) of the Act.
Once the inspection is held to be illegal, Respondent could not have taken
any statutory action for imposition of penalty.
D
The question may be considered from another angle. Appellants could
have been directed to file returns or make their contribution in terms of the
Act. Had such a notice been served, they could have shown that they have
appointed employees who do not draw wages within the meaning of the
provisions of the said Act and, thus, they do not come within the purview
E thereof.

In Employees' State Insurance Corporation v. MM Suri & Associates
(P) Ltd., [1998] 8 SCC I I I, keeping in view the provisions of the Act as also
the definition of '.'employee" as contained in Section 2(9) of the Act yis-a-vis
F the definition of "wages" as contained in Section 2(22) thereof, this Court
stated the law in the following terms:

"There is conflict of decisions of the High Courts. One view is that
for an Act to be applicable to an establishment, the total number of
employees should be 20 or more (now it is 10 or more) irrespective of
the fact whether all the employees fall within the definition of
G
"employee" as given in Section 2(9) meaning thereby that drawing of
any amount of wages is immaterial. The other view is that these 20
or more persons should 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.
H The second view commends to us. It was submitted that if there are
SRINIV ASA RICE MILL 1•. EMPLOYEES ST ATE INSURANCE CORPN. [S.B. SINHA, J.) %7

18 employees drawing the amount of wages prescribed and only two A
or more are drawing more than that, the Act shouid 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 A.P.
SEB v. ES/ Corpn. I where the High Court said that the expression
"wages" used under Section 2(12) must be understood in a wider B
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 employed for wages". Stress was, therefore, on the word "persons"
and it is submitted that for the Act to be applicable, the only criterion C
is to see ifthe 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 1968 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 "factory" was changed and D
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 E
Andhra Pradesh High Court. In our view, therefore, the Act would
apply to an establishment only when the number of employees is 20
or more and all those employees answer the description of employee
contained
. in Section 2(9) of the
. Act."
Section 44 of the Act embraces within its fold the principles of natural F
justice. Sub-section (2) of Section 44 is explicit. A notice was required to
be issued directly in terms of Sub-section (2) of Section 44. However, from
a perusal of the notice dated 20th October, 2000, it is evident that Appellants
were not directed to comply with the provisions of the Act but were asked
as to why the criminal cases should not be instituted against them purported G
to be in terms of Section 85(g) of the Act.

Mr. V.J. Francis, learned counsel appearing on behalf of Respondent,
has drawn our attention to the fact that letters have been issued on 8.9.2000
and 2.9.2000, as would appear from the aforementioned notice dated 20th
October, 2000. However, from a pe~sal of the judgments rendered by the H
968 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A Employees' Insurance Court as also the High Court it does not appear that
the records were produced to show that Appellants had been given an
opportunity to comply with the provisions of the Act.

What would mean by the terms "the preceding 12 months" has been
considered by this Court in the The Employees' State Insurance Corporation
B v. Balaji Weaving Mills and Ors., [1997] 11SCC96 wherein this Court opined:

"Section 2(12) defines a "factory" to mean any premises whereupon
10 or more persons are employed or were employed for wages on any
day "of the preceding 12 months". In the present case, the finding of
the inspector was not that l 0 or more persons were employed on the
c day on which he inspected it, but that on an earlier day, namely, 9-
4-1966, 20. persons had been employed. It was therefore that the words
"on any day of the preceding 12 months" assumed importance. There
is no provision in the Act to which our attention is drawn relating to
the date upon the basis of which "the preceding 12 months" have to
D be calculated. It seems to us that the only possible answer to the
question why this phrase was used is that it was intended to apply
upon the date upon which the Act came into force. The Act when it
came irito force was intended to apply to those factories in which 10
or more persons were employed on that day or had been employed
on any day in the preceding 12 months. By making such provision,
E the legislature meant to prevent escapement from the provisions of
the Act. But this does not answer the question that is before us. The
counsel has not been able to point out what the provision is in regard
to the application of the statute to factories which are found, after the
commencement of the Act, to have employed more than 10 workers
F on any day or days prior to the date of inspection or advance any
submission in that behalf."

It may be true that Appeliants would be bound to comply with the
provisions of the Act, as noticed herein before, for the period 1st August,
1999 to 31st July, 2000, but indisputably they were entitled to show that even
G for the said period, the provisions of the Act had no application.

The question came up for consideration before the Allahabad High
Court in Employees' State Insurance Corporation v. Mis. U.P. Hotel and
Restaurants Ltd. and Anr., (1975) Lab. I.C. l 025, wherein a Division Bench of
the High Court opined:
H
SRINIV ASA RICE MILL 1•. EMPLOYEES STA TE INSURANCE CORPN. [S.B. SINHA, J.J 969
"It was contended by learned counsel for the appellant that since the A
Act sets up an Employees' Insurance Court for decision of certain
disputes where the employer can get a hearing, it is not necessary to
give a hearing at the stage of the decision by the Corporation. We
are unable to agree with this contention. Whether the function of the
Corporation in deciding the question whether the Act applies or not B
to a particular employer is quasi-judicial or not, does not depend upon
whether there is any further remedy open to the employer or not.
Learned counsel for the appellant relied upon a decision of the Supreme
Court in Chandra Bhawan Boarding and Lodging, Bangalore v. State
of Mysore, AIR (1970) sc 2042. In our opinion, the case supports the
view that we have taken other than the view which the learned C
counsel has contended for. It was held in this case that the dividing
line between administration power and quasi-judicial power is quite
thin and is being gradually obliterated, that the principles of natural
justice would apply to the exercise of the administrative power as well.
It would follow from this decision that the principles ofnaturaljustice
would apply even if it were held that the Corporation was only D
exercising an administrative power in deciding whether the Act applied
or not to a particular employer."

We generally agree with the observations made therein.

Our attention has, however, been drawn to a decision of the Kamataka E
High Court in Employees' State Insurance Corporation v. Karnataka Asbestos
Cement Products, [ 1991] 63 FLR 63 8. In that case the High Court referred to
its earlier decision in E.S.I. Corporation v. Subbaraya Adiga [1988 (57) FLR
612] wherein it was stated:

"A list of employees prepared by the E.S.I. Inspector in the course of F
his visit to an establishment, in order to find out whether the provisions
of the E.S.I. Act are attracted to it, must contain the name, father's
name, place from which the employee hails, the designation, the length
of service, emoluments and the signature or thumb impression of the
employee, as the case may be, if at that time other persons other than G
the employees are present, the names and addresses of at least two
of them with their signatures and also the signatures of the proprietor
or manager or the person-in-charge of the establishment should be
obtained at the end of the list and a copy of which be furnished to
the establishment."
H
970 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A On the basis thereof, in Karnataka Asbestos Cement Products (supra),
it was directed:

"Learned counsel for the Corporation, Sri R. Gururajan, submitted that
the Employees' Insurance Court erred in setting aside the demand of
contribution for the period 1st January 1986 to 31st May, 1986, relying
B on the evidence relating to earlier period. That argument overlooks
the fact that the entire proceedings initiated was on the basis of the
report of the inspector in regard to the previous periods. If that report
had to go, all that followed on account of the report should also go."

Indisputably, it is the statutory obligation of the employers to furnish
C the name, father's name, place from which the employee hails, the designation,
the length of service, emoluments and the signature or thumb impression of
the employee, as the case may be, but the same would not mean that while
issuing a notice, the authorities of the Act are bound to disclose the same.
They in fact without the names and other details of the employees furnished
D by the employer would not know thereabout. However, Section 45 of the Act
empowers the Inspector to take down the details of such employees.
Presumably, only in a case where discrepancy arises between the information
furnished by the employer and the report that the Inspector may make pursuant
to or in furtherance of these inspections and in such cases such details may
have to be furnished.
E
It is, however, not necessary for us to delve deep into the matter as
such a question does not arise in this case.

We have noticed hereinbefore the findings of the learned Employees'
Insurance Court. It has proceeded on the basis that the rice mill is a factory.
F We will also presume that it was not a seasonal factory. Even otherwise,
when the provisions of the Act are extended by issuance of notification, re-
course cannot be taken to sub-section (4) of Section 1 of the Act.

We, therefore, are of the opinion that having regard to the facts and
circumstances of this case the interest of justice would be subserved if
G Appellants are given an opportunity of hearing. Keeping in view the fact that
Appellants now know the allegations made against them, no fresh notice need
be served. Appellants may file their returns and also all other books of
accounts before .the authorities under the Act within six weeks from date. The
authorities shall give an opportunity of hearing to them and determine the
H
•,
SRINIVASA RICE MILL 1•. EMPLOYEES STA TE INSURANCE CORPN. [S.B. SINHA, J.) 97]

question as to whether a jurisdictional fact existed for application of the A
provisions of the Act in cases of the respective employers. In the event, it
is found, upon perusal of all the documents whereupon the employers may
rely upon and on the basis of such information as may be sought for or
directed to be furnished by the authority to the employer and upon hearing
them that the provisions of the Act apply or not the authorities may proceed B
as against them as is permissible in law.

The appeals are allowed to the aforementioned extent. The impugned
judgment is set aside. No costs.

B.S. Appeals partly allowed.