Holding

The units are to be treated as a single establishment, and the corporation's clubbing for ESI coverage is justified.

Summary

The Supreme Court considered appeals by three textile-related entities challenging the Employees' State Insurance Corporation's decision to club them with other establishments for ESI coverage. The lower courts had found that the units shared a common entrance, staircase, office space, electricity, financial ledger, and management, indicating unity in management, supervision, control, geographical proximity, financial affairs, purpose, and functional integrality. The Court held that such factual findings demonstrate that the units constitute a single establishment under the Employees' State Insurance Act, 1948, and that the Corporation is entitled to read between the lines to ascertain the true intent. Citing precedents that emphasize a fact‑based, holistic approach to determining a single establishment, the Court upheld the ESI Court and High Court decisions. Consequently, the appeals were dismissed, confirming the clubbing of the establishments for ESI coverage.

Issues considered

Whether the proprietary concerns and partnership firms, though separately registered, constitute a single establishment for the purpose of Employees' State Insurance coverage.
Whether the factors of common premises, management, financial unity, and functional integrality justify the corporation's clubbing of the units.
Whether the factual findings of the ESI Court and the High Court can be upheld by the Supreme Court.

Legislation cited

Employees' State Insurance Act, 1948

Subjects

Employees' State Insurancesingle establishmentclubbing of establishmentsfunctional integralitymanagement unityESI coverageinterpretation of statutory intent

Judgment

[2008) 10 S.C.R. 1129

M/S. SUMANGALI A
v.
REGIONAL DIRECTOR, E.S.I. CORPORATION
(Civil Appeal No. 1914 of 2002)
JULY 17, 2008
,B
[DR. ARIJIT PASAYAT AND P. SATHASIVAM, JJ.]

Employees' State Insurance Act, 1948- Employees' State
Insurance Scheme (ES/ Scheme) - Employees' State Insur-
ance Corporation clubbing applicant with other establishments c
for ES/ coverage - Challenge to - Upheld by ES! Court and
High Court as there was unity in management, geographical
proximity, financial unity, general unity of purpose and tune-
tional integrafity between the different units, thus was single
establishment for ES/ coverage - On appeal, held: Role of
j. D
the Corporation is to read between the lines fo find out the true
intent - Concurrent conclusions are factual and legitimate in-
ferences - Thus, order of High Court upheld.
The question which arose for consideration in these
appeals was whether Employees' State Insurance Cor- E
poration was justified in clubbing the applicant-propri-
etary concern and partnership firm with other establish-
ments for the purpose of coverage under the Employees'
State Insurance Scheme (ESI Scheme) framed under the
Employees' State Insurance Act, 1948. .F
With regard to applicant in IC 21 of 1991, the Corpo-
ration clubbed the two proprietary concerns of two broth-
ers. On inspection it was found that both the units were
functioning in the same building and there were 20 (12+8)
employees. These units had a common entrance, com- G
mon staircase, no separate office, one rented building of
,--'\; which the rent was paid by their father, common electric
connection and there was single general Ledger for fi-
"' nancial dealings of both the units.
1129 H
1130 SUPREME COURT REPORTS [2008] 10 S.C.R.
·1

A With regard to applicant in IC 44 of 1991, the Corpo-
ration clubbed applicant-partnership firm and two other
establishments. On inspection, it was found that the part-
ners and proprietors were related to each other. Unit JA
was functioning on the 5th floor of the same building where
as other two units were functioning in the same premises i-
B
in the ground floor and had 34 (12+13+9) employees. The
employees of one unit were working in other unit and
there was only one office for all the three units.
With regard to applicant in IC 69 of 1991, the Corpo-
c ration clubbed applicant-partnership firm and four other
establishments. On inspection it was found that the part-
ners and proprietors were related to each other. All these
establishments had 31 employees.
All these establishments were having separate reg-
D istration under the Sales Tax Act, Shops and Establish- -A
ments Act and the Income-Tax Act.
The notice was issued clubbing the establishments.
T~e applicant in IC· 21 of 1991, IC 44 of 1991 and IC 69 of
1991 filed applications and the same were dismissed.
E Applicants then filed MFA 964/95, 886/95 and 884/95 re-
spectively. High Court dismissed the appeals. Hence the
present appeal.
Dismissing the appeals, the Court
F HELD: 1.1 In the instant case, factual findings as re-
corded by the ESI Court and the High Court go to show that
there was unity in management, supervision and control,
geographical proximity, financial unity, general unity of pur-
pose and functional integrality between the different units
G and for the sake of ESI coverage, the different units could
be treated as 'one establishment'. [Para 18] [1140 A-8]
1.2 In the given case role of the Corporation is to read
between the lines to find out the true intent. The concur-
"'--
,..
rent conclusions are essentially factual and are legitimate
H inferences. [Para 19] [1140 8-C]
MIS. SUMANGALl v. REGIONAL DIRECTOR 1131
E.S.I. CORP. [DR. ARIJIT PASAYAT, J.]

Associated Cement Cos. v. Their Workmen AIR 1960 A
SC 56; Rajasthan Prem Krishan Goods Transport Co. v. Re-
gional Provident Fund Commissioner, New Delhi and Ors.
1996 (9) sec 454 - referred to.
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 1914
of 2002 B

From the final Judgment and Order datd 24/8/2001 of the
High Court of Kerala at Ernakulam in MFA No. 884 of 1995
WITH
c
C.A. Nos. 1915 of 2002 and 4492 of 2008
Romy Chacko for the Appellant.
C.S. Rajan, Anupam Mishra and V.J. Francis for the Re-
spondent.
D
The Judgment of the Court was delivered by
Dr. ARIJIT PASAYAT, J. 1. Leave granted in SLP (C)
No.17173 of 2008.
2. Challenge in these appeals is to the judgment of a Divi- E
sion Bench of the Kerala High Court dealing with three Misc.
First Appeal Nos. MFA No. 884/95, MFA No. 886 of 1995 and
964 of 1995. By the impugned judgment all the three Misc. First
Appeals were dismissed. The applicants in I.A. Nos.21, 44 and
69 before the Employees' Insurance Court, Alleppey (in short F
the 'E.I. Court') were the appellant before the High Court. Be-
fore the E.I. Court the order of the Regional Director of the Em-
ployees State Insurance Corporation (in short the 'Corporation')
Trichur clubbing the applicant with other establishments for the
purpose of coverage under the Employees State Insurance G
Scheme (in short the 'ESI Scheme') framed under the Employ-
.--'; ees State Insurance Act, 1948 (in short the 'Act') were chal-
lenged. All the applications were dismissed by the E.I. Court
•' by common order dated 30.3.1995. Aggrieved by the said or-
der applicants filed the Misc. First Appeal before the High Court.
. H
1132 SUPREME COURT REPORTS [2008] 10 S.C.R.
i
A 3. The Corporation clubbed Jos Textiles and Jos Cut Piece
Centre, two proprietary concerns of two brothers both function-
ing in the same building at Broadway, Ernakulam, for the pur-
pose of ESI coverage and issued notice as there were 20 or
more employees at a time when the inspection was conducted.
B Notice was issued clubbing the above establishments. The or-
der was challenged, as noted above, before the E.I. Court.
4. The Corporation also clubbed Mis. Rose Fabrics, Jos
Brothers Silk and Sarees and M/s. Jos Associates and issued
notice claiming coverage. All these three establishments were
c functioning in Jos Annex Building, Ernakulam. Mis. Jos Asso-
ciates was functioning on the 5th floor of the same building
whereas the other two establishments were functioning in the
same premises. The inspection conducted in November 1990
revealed that there were 12 employees working in M/s. Rose
0 Fabrics, 13 employees in Jos Brothers Silk and Sarees and 9
employees in M/s. Jos Associates. The above order clubbing
the three establishments were challenged by M/s. Rose Fab-
rics in l.C.44/91 before the E.I. Court, Alleppey.
5. The applicant in l.C.69/91 was M/s. Sumangali. It was
E clubbed with four other establishments viz. M/s. Jos Silk and
Sarees, Mis. Gents Fabrics, Mis. Jacobs and M/s. Jos Broth-
ers Trades and Investments. The clubbing of the above estab-
lishments was on the basis. of an inspection conducted on
14.11.90. The inspection revealed that there were more than
F 30 employees in the month of April, 1990. The notice of club- -(
bing of the establishments was challenged by Mis. Sumangali
in l.C.69/91. All the above three applications were heard and
dismissed by the common judgment passed by the E.I. Court,
Alleppey.
G
6. Jos Textiles and Jos Cut Piece Centre, two proprietary
concerns were owned by two brothers, namely K.A.Sebastian
and K.A.Joshy. Jos Textiles was engaged in the business of ~-

textile goods and was carrying on the business in a rented build-
.,
ing. Jos Cut Piece Centre was functioning in a portion of the
H i=_

1
M/S. SUMANGALI v. REGIONAL DIRECTOR 1133
E.S.I. CORP. [DR. ARIJIT PASAYAT, J.]

first floor of the same building and Jos Textiles was functioning A
in the remaining portion of the same floor as well as in the sec-
ond floor of the same building. There was temporary wooden
partition separating the above two establishments. The Inspec-
tor of the ESI Corporation conducted inspection on 6.1.1988
and 11.1.1988 and reported that the total employment strength B
in both the units together was 20 (12+8) in April 1984 and from
June 1985 onwards. Again the Inspector inspected on 9.8.1990.
The building was taken on rent by Sri K.J. Abraham, the father
of Sri K.A. Sebastian and Sri K.A. Joshy. The father permitted
his son Sri K.A. Sebastian and his daughter Dorothy Edeth Louiz c
initially to run the business and Sri K.A. Joshy obtained a trans-
fer of the business from his sitar. The father Sri K.J. Abraham
was paying the rent to the landlord and Sri Sebastian was pay-
ing the entire rent to his father though he was collecting a por-
tion of the rent from his brother who was running the cut piece
0
centre. The establishments were having separate registration
under the Shops and Commercial Establishments Act, Kerala
Sales-tax Act and the Income-tax Act. On inspection it was found
that there were 20 (12+8) employees and both these units had
a common entrance, a common staircase and no separate of-
fice was seen working for Jos Cut Piece Centre . .The electric E
connection was common for both the units and electricity
charges were paid by Jos Textiles and Jos Textiles alone had
telephone connection. There was no sufficient space for open-
ing cloth bails or bundles and stitching the same in Jos Cut
y
Piece Centre whereas all such works were done in Mis. Jos F
Textiles. The General Ledger showed financial dealings· be-
tween the two units. On a consideration of all the above circum-
stances viz. the unity of management, geographical unity, func-
tional integrality, financial unity and the general unity in purpose
between the two units, the ESI Corporation decided to club both G
the units for coverage under the ESI Scheme.
7. Mis. Ros Fabrics was a partnership firm of two part-
ners - Joseph Francis.and his mother Rosakutty Francis. The
wife of the above Joseph Francis was the sole proprietor of M/
H
1134 SUPREME COURT REPORTS [2008] 10 S.C.R. ~

-~

A s. Jos Brothers Silks and Sarees. Mis. Jos Associates was a
proprietary concern of the above Joseph Francis. Thus two es-
tablishments were owned separately by the husband and wife
and the other owned by the mother as well as the son as a part-
nership firm. The Inspector of the ESI Corporation conducted
inspections on 6.11.90 and 13.11.90 and prepared the reports.
*•
B
Mis. Jos Brothers Silks and Sarees and Mis. Ros Fabrics were
functioning in the same premises in the ground floor and Mis.
JosAssociates was functioning in the 5th floor of the same build-
ing. The Inspector of the ESI Corporation found the employees
c of Mis. Jos Associates working in Mis. Jos Fabrics and there
was only one office for all the three units. According to the ESI
Corporation the activities of these three units were interlinked
and one was directly promoting the business of the others and
all the three units were supplementary and complementary to
each other. -t
D
8. Aggrieved by the above judgment, the applicants in
l.C.21191, l.C.44191 and l.C.69191 filed MFA 964195, MFA 8861
95 and MFA 884195 respectively. As the question involved in all
the three appeals was common, all the three appeals were heard
E jointly and ~ere disposed of this common judgment.
9. The main stand before the High Court was that Mis
Sumangali is a partnership firm registered under various stat-
utes. There were three partners who were related to each other.
Merely because the partners or proprietors were related to each
F 'f
other that cannot be a ground for clubbing the employees for
the purpose of coverage. On the other hand the Corporation
referred to several factors to establish functional integrality and
general unity of purpose. High Court found that Corporation's
view was correct and accordingly as noted above dismissed
G the appeals.
10. In support of the appeal learned counsel for the appel- t--
lants submitted that the ownership of the composition of vari-
ous concerns is as follows: ~

H
M/S. SUMANGALI v. REGIONAL DIRECTOR 1135
E.S.I. CORP. [DR. ARIJIT PASAYAT, J.]

Name of the shop Owners/Partners No. of Floor A
employ- No.
ees
1. M/s. Sumangali 1. M/s. K.J. Abraham 12 Ground
(Partnership) 2. M/s. Dothy Henry Floor
(Saree and cut pieces) w/o. K.A. Henry B
3. M/s. Betsy Sabu
w/o. KA Sebastian
2. M/s. Gents Fab- 1. Sri K.A. Henry 10 Ground
rics s/o K.J. Abraham Floor
(Partnership) 2. Mrs. Marykutty c
(Shirtings and Abraham
(Suitings) w/o K.J. Abraham
3. Mrs. Jessintha
Edward,
w/o K.A. Edward D
3. M/s. Jose Silk & 1. Sri K.A. Edward 5 -
Sarees Proprietary 2. s/o K.J. Abraham
(Wedding Sarees)
4. Mis. Jacobs Sri K.A. Jacob, 2 3rd
(Proprietory) s/o K.J. Abraham Floor E

5. M/s. Jose broth- 1. Sri K.J. Abraham 2 4th
ers Trades & In- 2. Sri K.A. Edward Floor
vestments (Part- s/o. Sri K.J.Abraham
nership Purchase 3. Sri K.A. Henry
F
of all) s/o. Sri K.J.Abraham
4. Shri KA Sebastian,
s/o. Sri K.J.Abraham
5. Sri K.A. Jacob,
s/o. Sri K.J.Abraham
G
5. Shri K.A. Josey,
s/o. Sri K.J.Abraham
6. M/s. Rose Fab- 1. Joseph Francis
rics (Partnership) 2. Rosakutty Francis 12
(mother of Joseph
Francis) H
1136 SUPREME COURT REPORTS [2008] 10 S.C.R.

A 7. M/s. Jose Broth- w/o. Joseph Francis 13
ers Silk & Sarees
(Proprietorship)
8. M/s. Jose Associ- Joseph Francis 9
ates (Proprietor-
B
ship)
TOTAL 34

11. According to him there was no functional integrality.

C 12. Learned counsel for the Corporation on the other hand
submitted that because of the findings recorded by the ESI Court
and the High Court the impugned judgment do not suffer from
any infirmity to warrant interference. According to him the names
of the Unit and numbers of the employees and numbers of the
o applicants before the ESI Court are to the following effect:

No. of Application Name of the Unit No. of employees

l.C. 21 of 1991 1. Jos Textiles 10
2. Jos Cutpiece 10
E Centre 21
l.C. 44 of 1991 1 . Rose Fabrics 12
2. Jose Brothers
Silk & Sarees 13
3. Jose Associates 09
F 34
1.C. 69 of 1991 1. Sumangali 12
2. Jose Silk & Sarees 05
3. Gents fabrics 10
4. Jacobs 02
G 5.Jose Brothers
Traders & Invest
men ts
31

H 13. In the counter affidavit before this Court the Corpora-
MIS. SUMANGALI v. REGIONAL DIRECTOR 1137
~ E.S.I. CORP. [DR ARIJIT PASAYAT, J.]

tion gave the following reasons which were indicated in details A
before the El Court and High Court for clubbing were:
(a) there was one common entrance between the two units;
(b) there was one common staircase;
(c) they had no separate office; B

(d) they had one rented building;

(e) the rent was paid by the father of the two proprietors
who were brothers and sons of the .father who paid
the rent; c
(f) there was a common electric connection/phone
connection;
(g) there was single general Ledger for financial dealings
>- of both the units. D

14. The High Court noted that the ESI Corporation was
justified in clubbing Jose Cut Piece Centre with Jos Textiles,
Jose Brothers Silks and Sarees and Mis. Jos Associates with
M/s. Rose Fabrics a11d M/s. Jos Silks and Sarees, M/s. Gents
E
Fabrics, M/s. Jacobs and Mis. Jos Brothers Trades and Invest-
ments with M/s. Sumangali and treating Jos Textiles, M/s. Rose
Fabrics and Mis. Sumangali as "single establishments" for the
purpose of coverage under the ESI Scheme as there was func-
.,. tional integrality, unity in management, financial unity, geographi-
cal proximity, unity in supervision and control and general unity F
of purpose. Even if each unit was an establishment having sepa-
rate registration under the Sales Tax Act, Shops and Establish-
ments Act and the Income-Tax Act, all the units were interde-
pendent and were supplementary and complementary to each
other for the sake of their textile business. G
__,); 15. So far as the factual aspects are concerned the High
Court noted as follows:
"On verification of the records it was further found that there
were 34 employees working in the three units as on H
~
1138 SUPREME COURT REPORTS [2008] 10 S.C.R.
,.
A 2.4.1990. Mis. Ros Fabrics and Mis. Jos brothers Silks
and sarees were functioning in the ground floor of Mis. Jos
Annexe. Building and they were having a common
signboard and a common entrance. The activities of all the
three units were administered by Sri. K. Joseph Francis.
B The billing counter, cash counter and delivery counter were +-
common for all the three units. Mis. Jos Brothers Silks and
Sarees was an exclusive showroom for sarees whereas
Mis. Ros Fabrics w~s dealing with items other than sarees.
Mis. Jos Associates was dealing with the sale of furnishing
c clothes. According to the ESI Corporation all the three units
were different sections of a composite textile shop and the
customers were at liberty to purchase whatever they wanted
from the three units and they need to make payment at the
common cash counter. It was further found that there was t=
<=
only one electric connection and the electricity charges were
D
paid by Mis. Ros Fabrics. The standby generator was also
L
""" I
common to all the units. Ac~ording to the ESI Corporation I
there was unity in ownership, geographical unity, unity in
administration, functional unity, financial unity and inter-
chargeability of employees in all the three units and hence
E the ESI Corporation decided to club all the three units for
the purpose of ESI coverage under the ESI Scheme."
16. In Associated Cement Cos. II. Their Workmen (AIR
1960 SC 56) it was inter alia observed as follows:
F "The Act not having prescribed any specific tests for i
determining what is one establishment. In considering the
question whether a cement factory and the adjacent lime j
'
stone quarry supplying lime stone to it, are one
establishment, one must fall back on such considerations
G as in the ordinary industrial or business sense determine
the unity of an industrial establishment, having regard no
....__
doubt to the scheme and object of the Industrial Disputes
Act and other relevant provisions of the Mines Act, 1952,
or the Factories Act, 1948. It is perhaps impossible to lay
H down any one test ac; an absolute and invariable test for
M/S. SUMANGALI v. REGIONAL DIRECTOR 1139
E.S.I. CORP. [DR ARIJIT PASAYAT, J.]

all cases. The real purpose of these tests is to find out the A
true relation between the parts, branches, units etc. if in
their true relation they constitute one integrated whole the
establishment is one, if one the contrary they do not
constitute one integrated whole, each unit is then a
separate unit. How the relation between the units will be B
judged must depend on the facts proved, having regard to
the scheme and object of the statute which gives the right
of unemployment compensation and also prescribes a
disqualification therefore. Thus, in one case the unity of
ownership, management and control may be the important c
or general unity may be the important test; and in still another
. case the important test may be the unity of employment."
17. In Rajasthan Prem Krishan Goods Transport Co. v.
Regional Provident Fund Commissioner, New Delhi & Ors.
(1996 (9) SCC 454) it was observed as follows: D
"The finding recorded by the Regional Provident Fund
Commissioner is that there is unity of purpose on each
count inasmuch as the place of business is common, the
management is common, the letterheads bear the same
telephone numbers and 10 partners of the appellant are E
common out of the 13 partners of the third respondent.
The trucks plied by the two entities are owned by the
partners and are being hired through both the units. The
respective employees engaged by the two entities when
added together, bring the integrated entities within the F
grip of the Act; so is the finding. Now, this finding is
essentially one of fact or on legitimate inferences drawn
from facts. Nothing could be suggested on behalf of the
appellant as to why could the Regional Provident Fund
Commissioner not pierce the veil and read betvveen the G
lines within the outwardliness of the two apparents. No
legal bar could be pointed out by the learned counsel as
to why the views of the Regional Provident Fund
Commissioner, as affirmed by the Central Government,
be overturned." H
_I
I
1140 SUPREME COURT REPORTS [2008) 10 S.C.R.

A 18. In the instant case factual findings as recorded by the
ESI Court and the High Court go to show that there was unity in
management, supervision and control, geographical proximity,
financial unity, general unity of purpose and functional integral-
ity between the different units and for the sake of ESI coverage,
B the different units could be treated as "one establishment". +--

19. In the given case role of the Corporation is to read
between the lines to find out the true intent. The concurrent con-
clusions are essentially factual and are legitimate inferences.
That being so, there is no meritin these appeals, which de-
e serve dismissal which we direct. No costs.
N.J. Appeals dismissed.