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