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Supreme Court quashes Allahabad HC Judgment: States that Employees Of ‘Nagar Nigam Allahabad’ are liable for Statutory Contributions under ESI Act.

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CASE TITLE – The Employees State Insurance Corporation Ltd. v. Nagar Nigam Allahabad & ANR.

CASE NUMBER – Civil Appeal No. 1833 of 2024

DATED ON – 17.05.2024

QUORUM – Justice Sandeep Mehta & Justice J.B. Pardiwala

FACTS OF THE CASE

The instant appeal by special leave is directed against the impugned order dated 25th October, 2021 passed by the High Court of Judicature at Allahabad in Writ-C No. 14971 of 2009 whereby the writ petition filed by respondent No. 1-Nagar Nigam, Allahabad was allowed. The learned Single Judge of the High Court vide impugned order held that the employees of respondent, Nagar Nigam are not covered under the Employees’ State Insurance Act, 1948 (hereinafter being referred to as the ‘Act of 1948’) and as a consequence thereof, the notice dated 3rd February, 2009 (hereinafter being referred to as ‘recovery notice’) issued by the Authorised Officer of the appellant, Corporation was quashed and amount already realized was directed to be refunded to the respondent, Nagar Nigam (subsequently designated as the Municipal Corporation) within three months. The appellant Corporation herein has preferred the instant appeal with a pertinent plea that the respondent Nagar Nigam operates a Central Workshop (hereinafter, ‘the workshop’), where activities of repairing and maintaining different types of vehicles are carried out. Recovery certificates were issued from time to time by the appellant Corporation to the respondent, Nagar Nigam on account of nonpayment of mandatory contributions under Section 40 of the Act of 1948, whereunder the principal employer is obligated to pay both employer’s and employee’s contribution in respect of every employee working in the factory. The respondent-Nagar Nigam continued to make statutory contributions under the Act of 1948 till the year 1978, whereafter it stopped paying without any reason. Owing to the non-payment of the statutory contributions by the employer, the Authorized Officer of the appellant-Corporation issued a notice dated 20th November, 2003 to respondent Nagar Nigam under Section 45A of the Act of 1948 directing it to pay Rs. 4,72,186/-, assessed on ad hoc basis pertaining to the contributions for the period commencing from June, 2002 to September, 2003 and called upon the respondent-Nagar Nigam to appear before it on 19th December, 2003. The Authorised Officer of the appellant-Corporation, vide letter dated 30th January, 2009 directed the Recovery Officer to recover damages to the tune of Rs.3,52,670/- under Section 85B of the Act of 1948 from the respondent-Nagar Nigam. On the basis of above-mentioned letter, the Recovery Officer issued recovery notice dated 3rd February, 2009 to the respondent-Nagar Nigam for payment of the amount as determined under Section 85B of the Act of 1948. Being aggrieved by the recovery notice dated 3rd February 2009, the respondent-Nagar Nigam filed the captioned Writ Petition No. 14971 of 2009 before the Allahabad High Court challenging the said recovery notice and seeking a direction to restrain the appellant-Corporation from realising the amount. The learned Single Judge of the Allahabad High Court proceeded to allow the writ petition vide order dated 25th October, 2021 holding that the writ petitioner, Nagar Nigam(respondent herein) was not covered under the Act of 1948 and as a consequence, recovery notice dated 3rd February, 2009 was quashed and the amount already realized by the appellant dse3Corporation was directed to be refunded within three months.

ISSUES

Whether the workshop of respondent, Nagar Nigam indulged in the manufacturing process while carrying out repairs and maintenance of the tractors, trailers, and loaders belonging to the respondent, Nagar Nigam by employing more than 20 workmen?

Whether the workshop of the respondent, Nagar Nigam was covered under the definition of ‘factory’ within the meaning of Act of 1948?

 

CONTENTIONS BY THE APPELLANT

The Learned Counsel for the appellant had placed reliance on the judgment of The Hon’ble Supreme Court in the case of Employers’ State Insurance Corporation v. Kakinada Municipality and Others and urged that the controversy involved in the present appeal is fully covered by the said judgment wherein it has been clearly held that in respect of factory belonging to the local authority, unless power of exemption is exercised by the Government, it would be covered by the provisions of Section 1(4) of the Act of 1948 and thus, liable to pay contribution. It was further contended that if at all, respondent- Nagar Nigam was desirous of getting the exemption from the operation of the Act of 1948, then it had to apply to the appropriate Government and procure an order of exemption and only thereafter, could it seek exemption from making payment of the employer’s contribution under Section 40 of the Act of 1948. The Learned counsel further urged that though a ground was taken in the writ petition that the Act of 1948 does not apply to the respondent-Nagar Nigam because the workshop of the respondent-Nagar Nigam is not covered under the definition of ‘factory’ but the fact remains that in the proceedings for recovery of contribution, no such plea was taken that the workshop of the respondent-Nagar Nigam is not covered by the definition of ‘factory’ or that no manufacturing process is carried out in the workshop.

CONTENTIONS BY THE RESPONDENT

The Learned counsel appearing for the respondent, Nagar Nigam, and the Municipal Corporation, Allahabad, urged that there is no material on record to show that any manufacturing activity was being undertaken in the Workshop of the respondent, Nagar Nigam. The employees of the respondent, Nagar Nigam who were already being provided all possible amenities and facilities including medical assistance etc., were being occasionally assigned the task of in-house repairs of the equipment and machinery of the respondent-Nagar Nigam and thus, by no stretch of the imagination, can it be concluded that the workshop was a ‘factory’ within the meaning of the Act of 1948 where any manufacturing process was being undertaken. He thus urged that the learned Single Judge of the High Court was justified in exercising the writ jurisdiction and quashing the impugned recovery notice dated 3rd February, 2009 which was ex-facie unsustainable in the eyes of the law. He contended that the impugned order does not suffer from any infirmity warranting interference of this Court and the appeal should be dismissed.

COURT ANALYSIS AND JUDGEMENT

After extensive consideration of the material available on record and detailed analysis of the statutory provisions, The Hon’ble Supreme Court concluded that the first respondent therein (Municipality/local body) was running a ‘factory’ as defined under the Act of 1948. It was also held that the Act of 1948 applies to all factories including factories belonging to the Government other than the seasonal factories. They had also referred to a previous judgement of the same court, J.P. Lights India v. Regional Director E.S.I. Corporation, Bangalore, where it had been laid down that the job of repairing the machinery is covered under the definition of “manufacturing process”. They also noticed that the appellant, Corporation had issued notices to respondent, Nagar Nigam to show cause as to why the recovery of statutory contribution under Section 40 of the Act of 1948 should not be effected from it. However, admittedly, no response was given by the respondent, Nagar Nigam to such notices. There is also no dispute that for the earlier periods, between 1964 to 1978, the respondent Nagar Nigam made regular contributions under the Act of 1948 thereby conceding to the position that its workshop was covered under the definition of ‘factory’ where manufacturing process was being carried on. They also held that the learned Single Judge of the High Court clearly erred in entertaining the writ petition and interfering with the recovery notice dated 3rd February, 2009 while exercising the extraordinary writ jurisdiction conferred under Article 226 of the Constitution of India. And concluded that the appeal is allowed, and the impugned order is hereby quashed and set aside.

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Judgement Reviewed by – Gnaneswarran Beemarao

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The Kerala High Court ruled that employer-issued circulars cannot restrict an employee’s ability to receive treatment from the hospital of their choice.

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Case Title: THE AREA MANAGER, FOOD CORPORATION OF INDIA Versus SHRI. P.T.RAJEEVAN

Case No: MFA (ECC) NO.52 OF 2018

Decided on: 30th April , 2024

Quorum: HON’BLE MR. JUSTICE G.GIRISH

Facts of the case

The respondent, Shri P.T. Rajeevan, worked as a head load worker for the appellant, Food Corporation of India (FCI). After an accident in 2014, he sustained injuries and had to pay ₹35,001 in hospital bills.

Issues

1. Can an employer’s circulars restrict an employee’s ability to receive medical care at a hospital of their choosing?

Legal Provisions

The issue concerned the interpretation of Employees’ Compensation Act, 1923, Section 4(2A), which addresses the payment of an employee’s actual medical expenses for treating injuries sustained while on the job.

Appellant’s Contentions

As mandated by Circular No. 10/2005, the respondent was not treated at one of the hospitals affiliated with FCI, hence the appellant, FCI, argued that the medical expenditures should not be paid.

Respondent’s Contentions

The respondent contended that rather than using the Employees’ Compensation Commissioner’s (ECC) figure of ₹20,000, the compensation ought to have been computed using his true monthly income of ₹29,500. In addition, he argued that, notwithstanding the employer’s guidelines, he was entitled to receive medical care from any facility of his choosing.

Court Analysis and Judgement

The Kerala High Court ruled that employer-issued circulars cannot restrict an employee’s ability to receive treatment from the hospital of their choice. The court noted that no circular could supersede the social welfare statute known as the Employees’ Compensation Act. The court determined that the appellant’s challenge to this award was without merit and affirmed the ECC’s decision to pay the medical expenditures.

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Empowerment of Private School Employees is a Constitutional Right- Justice Manmeet Singh Arora

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Case Name: Social Jurist v. Government of NCT of Delhi & Ors 

Case No.: W.P.(C) 888/2024 

Dated: April 29, 2024 

Quorum: Justice Manmeet Pritam Singh Arora 

 

FACTS OF THE CASE: 

The facts of the case revolve around The Right of Children to Free and Compulsory Education Act, 2009 (the “RTE Act”), read with the Delhi School Education Act, 1973 and the Delhi Right of Children to Free and Compulsory Education Rules, 2011 (the “RTE Rules”), has been filed as a public interest lawsuit (PIL) to draw attention to the fact that 2,69,488 students enrolled in schools run by the Directorate of Education, GNCTD, and 3,83,203 students enrolled in schools run by the Municipal Corporation of Delhi (MCD) are being denied access to the statutory benefits like uniform, writing materials, books, stationery items, school bags, scholarships, etc.  

The Fundamental Right to Education, which is protected to pupils under Article 21-A of the Constitution, is violated when GNCTD and MCD fail to provide the students with the aforementioned statutory advantages in a timely manner. This failure is arbitrary and unethical.  

It is mentioned that all students attending GNCTD and MCD-run schools have the right to free textbooks, writing supplies, and uniforms under Rule 8 of the RTE Rules. Nevertheless, it is claimed that instead of giving away free text books, writing supplies, and uniforms, GNCTD and MCD are paying students directly from their bank accounts.  

3,83,203 pupils enrolled in MCD-run schools have been denied these statutory benefits due to a lack of bank accounts from the 2016–17 academic year to the 2022–23 academic year, according to the Chief Auditor, MCD, in his Audit Memo of November 14, 2023. In a similar vein, the Directorate of Education, GNCTD (the “DoE”) letter dated December 29, 2023 notes that 2,69,488 kids enrolled in schools managed by the GNCTD have likewise been denied statutory financial advantages due to the lack of active bank accounts.  

When GNCTD and MCD neglect to promptly supply the students with the aforementioned statutory advantages, they are infringing upon their constitutionally guaranteed Fundamental Right to Education (Article 21-A). This is an inequitable and arbitrary failure. 

A civil rights organisation is the petitioner, Social Jurist. Nearly 10,000 unregistered and unrecognised schools in various Delhi neighbourhoods are at issue in this case. NGOs, institutions, and private persons manage these schools. These schools educate about 600,000 students in a range of classes from LKG to 12th grade, who are between the ages of 2 and 18.  

CONTENTIONS OF THE PETITIONER: 

The petitioners strongly contended that the reply to affidavit of the DoE dated March 23, 2023, filed in has been cited by Mr. Ashok Aggarwal, the petitioner’s learned counsel. He said that the GNCTD has testified in this affidavit before this Court that all students in government-run schools in classes “preschool” through “VIII” receive a full set of textbooks at no cost to them after having them printed by the Delhi Bureau of Textbooks, along with workbooks and other supplementary materials were provided. 

The petitioners further contend that GNCTD has represented that writing supplies (notebooks and stationery) will be given “in kind” to students starting with the academic year 2023–2024. In this regard, the heads of the school(s) in question have been given permission to buy writing supplies and give them to the students enrolled in the aforementioned schools starting in the academic year 2023–2024. In addition, the GNCTD has announced that starting with the academic year 2024–2025, the Head of School(s) will have the authority to purchase uniforms and provide them to the students; in the interim, pupils will get payment in cash for the academic year 2023–2024. 

Therefore, thye conteded, it is essential that the MCD immediately provide its students with the statutory benefits “in kind” in lieu of cash, pending the resolution of the bank account opening issue. This will ensure that the students’ Fundamental Rights are protected and they receive the statutory guaranteed uniforms, note books, stationery items, school bags, etc. for the current academic session of 2024–2025. 

He said that the current petitioner has also brought attention to the issue of the lack of infrastructure in the form of dilapidated buildings, classrooms, etc. in the schools of GNCTD and MCD, and this Court is taking it into consideration. He said that there are schools that are set up and operated fully in a tin shed, and that the summer months are difficult for the pupils and teachers who work there, respectively. According to him, there are schools where there is no furniture and students attend classes while sitting on the floor. He declared that the problem of damaged chairs and desks in classrooms is an urgent one that affects every school.  

 

CONTENTIONS OF THE RESPONDENTS: 

The respondent’s counsel acknowledged that they are required to give statutory benefits, such as school bags, note books, stationery, uniforms, etc., to the students “in kind” rather than in cash. For the 2022–2023 academic year, these statutory benefits were given “in kind” to the students enrolled in MCD schools. It is said that, however, due to procurement difficulties, these statutory advantages could not be given to students “in kind” for the academic year 2023–2024. As a result, students with bank accounts received payment for these benefits in cash.  

 

The absence of bank accounts is acknowledged as the reason 2,73,346 students were not able to receive the required benefits under the RTE Rules during the 2023–2024 academic year. 

The respondent, who joined the proceedings via video conference on April 23, 2024, informed this court that the Standing Committee of MCD, which does have the necessary financial power, is non-functional, and that it is not possible for him to provide the students with “in kind” benefits for the academic year 2023–2024 because neither he nor the Commissioner have the necessary financial power to award contracts for the procurement of these statutory items. 

The respondents further acknowledged that, in a similar vein, MCD has not been able to award contracts for the procurement of the aforementioned items because it lacks the necessary financial power, and as a result, has not been able to obtain the statutory benefits for the current academic session of 2024–2025, such as uniforms, note books and stationery items, school bags, etc. for distribution “in kind” to the students. According to the Commissioner, contracts over the financial limit of INR Five crores can only be awarded by the Standing Committee, which also has the authority to do so. As a result, he acknowledged that he was unable to fulfil his legal duties to the students.  

 

LEGAL PROVISIONS: 

Section 10(1) of the Delhi School Education Act, 1973 (DSE Act): The petitioner requested that the recommendations of the 7th Pay Commission be applied to the salaries of teaching and non-teaching staff at Delhi’s independent private schools. The argument was founded on DSE Act Section 10(1), which deals with the salary, perks, and allowances of staff members working in private schools. 

7th Pay Commission Recommendations: Employees of private schools that operate independently should be covered by these guidelines, according to the petitioner. Whether the DSE Act required these suggestions to be implemented was a question the court addressed. 

Article 21 of the Constitution of India: The petitioner claimed that it was a violation of their fundamental rights to deny access to specific medical facilities to individuals who were not Delhi residents. The right to personal liberty and life is guaranteed by Article 21. 

 

COURT’S ANALYSIS AND JUDGMENT: 

The non-constitution of the Standing Committee of the MCD since 2023 is a matter of record, and this court would like to note that the non-procurement and its effect of not providing the statutory benefits of uniforms, note books and stationery items, school bags, etc. to the students studying in the MCD schools, first for the academic session of 2023–24 and now 2024–2025, is an undesirable and regrettable state of affairs. 

The MCD Commissioner further acknowledged that as GNCTD is still in the process of producing and acquiring the textbooks, kids in MCD schools have not yet gotten any from the organisation. School will be closed for summer vacation starting on May 10, 2024, and the current academic session began on April 1, 2024. For this reason, the first session has practically ended without the students’ use of textbooks, notepads, writing supplies, stationery, etc. Taking into account the previously mentioned details, this Court finds it difficult to envision the inadequate level of instruction provided to the pupils during this inaugural session without these essential resources, to which they are legally and constitutionally entitled.  

In order to fill the void left by the Standing Committee’s unconstitutionality, the Court expressed a preliminary opinion that the Commissioner, MCD, should be given more financial authority by a suitable GNCTD authority. This will allow the Commissioner to grant contracts for the purchase of these statutory benefits for the MCD schools’ students.  

The court noted that there was potential for regulation of the right to establish an educational institution. However, these regulations did not go so far as to impose a strict tuition schedule, prescribe the structure and makeup of the governing body, or require private school employees and instructors to be nominated. 

 

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Judgment reviewed by Riddhi S Bhora. 

 

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JUDICIAL OFFICERS ARE NOT ON PAR WITH GOVERNMENT EMPLOYEES: SUPREME COURT

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Case title: All India Judges Association V. Union of India & Ors.

Case no.: Writ Petition Civil no. 643 of 2015

Decided on: 04.01.2024

Quorum: Hon’ble Chief Justice of India Dr. D.Y Chandrachud, Hon’ble Justice J.B Pardiwala, Hon’ble Justice Manoj Misra.

FACTS OF THE CASE:

The present writ petitions are concerning the allowances which have been granted to judicial officers and retired judicial officers by Second National judicial pay commission.

This Court adopted the Second National Judicial Pay Commission’s recommendations on the revision of judicial officers’ salary and pension by orders dated July 27, 2022, April 5, 2023, and May 19, 2023. Justice P V Reddy, a former judge of this Court of India, chaired the commission.

The court noted that, with the exception of three allowances that were modified, the allowances recommended by the First National Judicial Pay Commission, also known as the Shetty Commission, were upheld by this Court in All India Judges Association v Union of India in 2002. Following that, this Court accepted all allowances recommended by the subsequent pay commission, the Judicial Pay Commission, also known as the Justice Padmanabhan Committee, in its decision All India Judges Association v Union of India 2010.

In the report, the SNJPC took twenty-one allowances into account. Two new allowances are suggested among the SNJPC’s recommended allowances, and one allowance has two more components added to it.

The SNJPC has given state governments and union territories the opportunity to object to the allowances proposed. This Court’s record contains objections.

PETITIONERS OBJECTIONS:

The objections said by governments are that there will be a greater financial burden and expense as a result of the rate revision or, if applicable, the new allowances. It is necessary to abide by the allowance payment regulations set forth by each State for its own administrative establishment. Judicial officers must receive benefits that are commensurate with those of other government employees.

COURT ANALYSIS AND JUDGMENT:

The court on same benefits as govt. employees held that Judicial service is an integral and significant component of the state’s functions, contributing to the constitutional obligation to uphold the rule of law. Judicial service is distinct in its characteristics and in the responsibilities entrusted to District Judiciary officers to provide objective justice to citizens. The State is responsible for ensuring that the conditions of service, both during and after office tenure, as well as the post-retirement emoluments made available to former members of the judicial service.

The court on one of the objections raised by government that a financial burden cannot be used as an excuse to avoid the state’s mandatory duties. One such duty is to provide necessary service conditions for the effective discharge of judicial functions. There is also a need to maintain consistency in the service conditions of judicial officers across the country. Thus, the argument that each state’s rules must govern pay and allowances lacks substance. It would be completely inappropriate to compare judicial service to that of other state officers. Members of the judicial service have distinct functions, duties, restrictions, and restraints that apply both during and after service.

The court accepted the 21 recommendations of SNJPC and directed the formation of a Committee in each High Court to oversee the implementation of the SNJPC’s recommendations as approved by this Court. The Committee shall be known as the “Committee for Service Conditions of the District Judiciary.” All states and union territories must now act promptly in accordance with the aforementioned directives. Disbursements for arrears of salary, pension, and allowances due and payable to judicial officers, retired judicial officers, and family pensioners shall be computed and paid on or before February 29, 2024. The CSCDJs established in accordance with the previously issued directives must monitor compliance.

By no later than April 7, 2024, each Committee operating under the High Court’s auspices must submit its report to this Court through the High Court’s Registrar General.

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The Bombay High Court held that Municipal Corporation Employees in the Octroi Department Do Not Have a Vested Right to Commission on Fees Paid to Evaders

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Title: Municipal Commissioner Pune Municipal Corporation and Anr. v. Ashish Laxman Chavan

Decided on: 03 November, 2023

+ Writ Petition No. 8953 of 2018

CORAM: Hon’ble Justice Mr. Sandeep V. Marne

Introduction

The Hon’ble Bombay High Court held that the workers employed by a Municipal Corporation’s Octroi department are not entitled to commission (Mushahira) on compromise fees that the department collects from those who avoid Octroi.

Facts of the Case

Pune Municipal Corporation has filed the current petitions in an effort to overturn the orders that the Industrial Court made in response to several complaints submitted by respondent employees. The Petitioner-Corporation has been required by the Industrial Court to pay the Respondent-Employees’ part of the “Mushahira” within a three-month term after the court accepted the concerns of the Respondent employees. A 20% incentive known as “mushahira” is given to staff members based on the compromise fees that are recovered from tax evaders. The Industrial Court has additionally mandated that if the amount owed is not paid within three months, interest at the rate of 6% per annum would be levied.

Courts analysis and decision

The court ruled that although Mushahira is not a part of salary, it is a special payment or allowance that needs the state government’s prior approval. According to the court, the 1984 Resolution might be viewed as having an enabling clause that gave PMC the authority to punish Mushahira for apprehending specific cars that were avoiding Octroi. However, the court determined that the employees had no legal basis for demanding Mushahira.

The court noted that granting certain workers more compensation would result in prejudice and unhappiness among other workers. “Such a method of payment of any amount above and above salary and allowances would result in employee discrimination and give other employees who are not stationed in the Octroi Department indigestion. The court stated that such a system would also lead to needless demands from the staff for postings in the Octroi Department. The court emphasized the exorbitant claims made by certain employees for Mushahira, noting an unacceptable demand of Rs. 12,00,000 as an example. As a result, the court overturned the Industrial Court’s ruling.

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Written by- Hargunn Kaur Makhija

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