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Section 1(5)
The appropriate Government may, in consultation with the corporation and 5 [where the
appropriate Government is a State Government, with the approval of the Central
Government], after giving 6 [one month's] notice of its intention of so doing by notification in
the Official Gazette, extend the provisions of this Act or anyof them, to any other
establishment or class of establishments,industrial, commercial, agricultural or otherwise: 7
[Provided that where the provisions of this Act have been brought into force in any part of a
State, the said provisions shall stand extended to any such establishment or class of
establishments within that part if the provisions have already been extended to similar
establishment or class of establishments in another part of that State.]
• Visva Bharati v. Regional Provident Fund Commissioner, W.B., 1982 if the University as an
establishment does not come under the provisions and or the purview of the Act, the different
branches or departments of the University which the University is empowered and or entitled
to maintain under the provision of the Visva Bharati Act cannot be brought within the mischief
of the Act.
The object of the Employees' State Insurance Act, 1948 (Central Act 34 of 1948) reads as
follows:
"An Act to provide for certain benefits to employees in case of sickness, maternity and
employment injury and to make provision for certain other matters in relation thereto."
Welfare legislation.
The term "otherwise" found in Section 1(5) came to be considered by the Allahabad High
Court in Maharishi Shiksha Sansthan and another Vs. State of Uttar Pradesh and another
reported in 2009 (1) LLN 381. In paragraphs 9 and 10, it was observed as follows:
"9.Learned counsel for the petitioner has argued that the word "establishment" must have
some relation with factory and educational institution is not even remotely connected with
the activity, which is carried out in factories. This argument is not tenable for the reason that
under S.1(5), there is no such restriction. Thereafter, learned counsel for the petitioner has
argued that the aforesaid sub-section suffers from the vice of excessive delegation as the
power to bring any establishment under the Act has been conferred upon the Government
without providing any guidelines.
10.This argument is also not acceptable. The purpose of the Act is to confer certain benefits
upon the employees and employees of any establishment may deserve such benefits. This
question has also been considered in the Supreme Court authority in Hindu Jea Band, Jaipur
V. Regional Director, Employees' State Insurance Corporation, and others [1987 (1) L.L.N.
778],..."
27.The very same question also came to be considered by a division bench of the Kerala High
Court in CBSE School Management's Association Vs. State of Kerala reported in 2010 (II) LLJ
240 (Ker). In paragraphs 17 and 18, the Kerala High Court observed as follows:
"17.We hold that the notification under Section 1(5) of the ESI Act can cover an educational
institution for two reasons:- Our first reason is that, the educational institutions like schools
are industrial establishments, in view of the decision of the Apex Court in Bangalore Water
Supply and Sewerage Board's case, (supra). Though a few Benches of lesser strength have
expressed the necessity for reconsidering the dictum in Bangalore Water Supply and
Sewerage Board's case, (supra), until such a reconsideration is done by a larger Bench, we are
absolutely bound by the decision of the Apex Court in Bangalore Water Supply and Sewerage
Board's case, (supra). If that be so, the only possible view that could be taken in the face of
the words contained in Section 1(5) of the ESI Act is that educational institutions are also
covered by the expression 'industrial establishment'. The main thrust of the argument of the
writ petitioners was that educational institution is not an industry. In view of the binding
precedent mentioned above, we cannot accept that contention. Further, the interpretation
of the definition of "industry" in Section 2(j) of the Industrial Disputes Act is applicable to the
interpretation of the word "industrial" in Section 1(5) of the E.S.I. Act, in view of Section 2(24)
of the latter Act which reads as follows:
"2. Definitions:-
xxx xxx xxx (24)all other words and expressions used but not defined in this Act and defined
in the Industrial Disputes Act, 1947 (14 of 1947), shall have the meanings respectively
assigned to them in that Act.".
18.Our second reason is that, the words employed 'or otherwise' should be given the widest
possible meaning and therefore, they will cover the educational institutions also. The
petitioners contend that the words 'or otherwise' should be given a restricted meaning,
following the principle of ejusdem generis. Whether the words should be given a restricted
meaning will depend upon the context in which they are used. There cannot be any principle
of universal application concerning this. The learned author, Sri.G.P.Singh, in his book,
Principles of Statutory Interpretation, 10th Edition, 2006, points out that the words "or
otherwise" are not usually considered ejusdem generis. The learned author has stated as
follows:
"It also appears that the words 'or otherwise' have not been usually considered ejusdem
generis. They are words of wide import, but context may limit their scope...".
.Therefore, as correctly held by the Allahabad and Kerala High Courts, the term
"establishment" under Section 1(5) will include every establishment which need not have the
characteristics of industrial, commercial or agricultural establishments. Any Establishments
can be validly notified by the appropriate Government to be covered by the provisions of the
Act.
Even assuming that, as held in T.M.A. Pai's case, carrying on educational institution was an
‘occupation' covered by Article 19 (1) (g) of the Constitution.
Article 19 (6) did not prevent the State from making any law in the interest of general public
and impose reasonable restrictions on the exercise of the right conferred by the sub-clause.
Providing health care and disablement benefits to employees engaged by private
entrepreneur was the concern of the government. It could not be said to be an unreasonable
restriction on the right of the employer to carry on his trade or occupation.
A contract of service is different from a contract for service. In a contract of service the
employer normally enjoys the power of control over the work of the servant and the servant
is bound to obey the orders/instructions of the master. An independent contractor, on the
other hand, undertakes to produce the required result, but in the actual execution of the job to
produce the result, he is not under the order or control of the person for whom he executes
that work. He is free to use his discretion. The line of demarcation between an independent
contractor and an employee is very thin and the two concepts sometimes overlap. In such a
situation, the question about the relationship of employer and employee needs to be
determined with reference to the facts and circumstances of each case as to who are the
parties to the contract, who pays the wages, who has the power to dismiss, what is the nature
of the job, and the place of executing the job, all have to be kept in mind. Out of so many
tests, the vastly important test which till now held ground was the element of control and
supervision of work.
In Chintaman Rao v. State of M.P.2, the Supreme Court gave restricted meaning to the words
directly or through an agency in the Factories Act and held that worker was a person
employed by the management and that there must be a contract of service and a relationship
of master and servant between them.
UNIVESITY UNDER ESIC
CONTRACT OF SERVICE
• Section 2 (9)
• employee means any person employed for wages in or in connection with the work
of a factory or establishment to which this 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
• (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 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;
• Section 78(1)
• (1) The provisions of this Chapter shall not operate to the prejudice of any right to
which a worker may be entitled under any other law or under the terms of any
award, [agreement (including settlement)] or contract of service:
• [Provided that if such award, agreement (including settlement) or contract of service
provides for a longer annual leave with wages than provided in this Chapter, the
quantum of leave, which the worker shall be entitled to, shall be in accordance with
such award, agreement or contract of service, but in relation to matters not
provided for in such award, agreement or contract of service or matters which are
provided for less favourably therein, the provisions of sections 79 to 82, so far as
may be, shall apply.]
• SC
• The Appellant has strenuously contended that the saving provision of s. 78(1) applies
only to existing law and existing awards, agreements or contracts of service; in other
words, his argument is that the Legislature has deliberately decided to except pre-
existing arrangements and in that sense it is a departure from the usual concept of
standardisation.
• The assumption that s. 78(1) is confined to existing arrangements is plainly
inconsistent with a fair and reasonable construction of the said provision.
• When s.78(1) refers to any other law it could not have been intended that it is only
to existing laws that the reference is made and that the idea underlying the
provision was that no law can be passed in future which would grant more generous
leave to the employees.
• Such a restriction on the legislative activities of the appropriate Legislatures cannot
obviously have been intended. If the reference to law is not confined only to existing
law there is no reason why reference to any award, agreement or contract of service
should be similarly circumscribed or limited.
• What s. 78(1) protects are laws, awards, agreements or contracts of service which
were then existing or which would come into existence later; that is to say s.
78(1) does not affect pre-existing arrangements and does not also prohibit future
arrangements which would be more generous than s. 79(1).
OCCUPIER
• Section 2(17)
• (17) ”principal employer means”(i) in a factory, the owner or occupier of the
factory and includes the managing agent of such owner or occupier, the legal
representative of a deceased owner or occupier, and where a person has been
named as the manager of the factory under 31 [the Factories Act, 1948 (63 of 1948)],
the person so named;
• (ii) in any establishment under the control of any department of any Government in
India, the authority appointed by such Government in this behalf or where no
authority is so appointed, the head of the Department;
• (iii) in any other establishment, any person responsible for the supervision and
control of the establishment;
• SC
• Section 2(17) defines the "principal employer" in a factory as the owner or occupier
of the factory. "Occupier" of a factory is defined in Section 2(15) as having the same
meaning assigned to it in the Factories Act, 1948. Section 2(n) of the Factories Act,
1948 as it stood at the relevant times, defined an "Occupier" to mean the person
who has ultimate control over the affairs of the factory. Section 100 of the Factories
Act dealt with the determination of occupier in certain cases. Under sub-section (2)
where the occupier was a company, any directors thereof could be prosecuted and
punished for any offence for which the occupier was liable.
• Section 2(17) of the Employees' State Insurance Act, however, defines the principal
employer as either owner or occupier - taking care of all eventualities. when the
owner of the factory is the principal employer, there is no need to examine who is
occupier. The owner will be the principal employer under Section 40.
• The Employees' State Insurance Act does not define the term "employer" although
under Sections 85Band 850 of that Act the term "employer" is used.
• When the definition of principal employer in Section 2(17) refers to the "owner" or
"occupier" of a factory, the principal employer can be either the owner or the
occupier depending upon the facts of each case. when there is an owner of the
factory that owner must be considered as the principal employer liable for
contribution.
• Under Section 40 the words "owner" and "occupier" have been used disjunctively.
The Court also referred to Section 100 of the Factories Act and said that even under
the Factories Act, 1948, the Legislature has clearly contemplated that in the case of a
factory, a company can be the "occupier". Therefore, when the owner of a factory is
a company it is the company which is the principal employer and not its director.
• Therefore, even if we read the definition of "principal employer" under the
employees' State Insurance Act, 1948 in Explanation 2 to section 405 of the Indian
Penal Code, the directors of the company, in the present case, would not be covered
by the definition of "principal employer" when the company itself owns the factory
and is also the employer of its employees at the head office.
• In any event, in the absence of any express provision in the Indian Penal code
incorporating the definition of "principal employer" in Explanation 2 to Section 405,
this definition cannot be held to apply to the term "employer" in Explanation 2. As
the High Court has observed, the term "employer" in Explanation 2 must be
understood as in ordinary parlance. In ordinary parlance it is the company which is
the employer and not its directors either singly or collectively.
EMPLOYEE
FACTORIES ACT
CONTRACT OF SERVICE/ CONTRACT FOR SERVICE
Judgement: Then we come to the case of Shri Birdhichand Sharma v. First Civil Judge Nagpur(2). That
was also a case of bidi manufacture. The facts found were that the workmen who rolled the bidis had
to work at the factory and were not at liberty to work at their houses; their attendance was noted in the
factory and they had to work within the factory hours, though they were not bound to work for the entire
period and could come and go away when they liked; but if they came after midday they were not
supplied with tobacco and thus not allowed to work even though the factory closed at 7 p.m. Further
they could be removed from service if absent for eight days. Paymentwas made on piece rates
according to the amount of work done, and the bidis which did not come upto the proper standard could
be rejected. On these facts it was held that the workers were workmen under the Factories Act and
were not independent contractors.
This Court pointed out that the nature and extent of control varied in different
industries and could not by its very nature be precisely defined. When the operation
was of a simple nature and did not require supervision all the time, control could be
exercised at the end of day by the method of rejecting bidis which did not come upto
proper standard, such supervision by the employer was sufficient to make the workers, employees
of the employer and not independent contractors. The nature of the control required to make a person
a servant of the master would depend upon the facts of each case.
Judgement: That was a case of bidi manufacture, and the question that arose for determination was
whether certain persons known as sattedars and those who worked under the sattedars were
workmen or not. It was found that the sattedars undertook to supply bidis by manufacturing them in
their own factories or by entrusting the work to third parties at a price to be paid by the management
after delivery and approval. Reference was made to the principles laid down in Dharangadhara
Chemical Works Limited's case(1) to determine whether the persons employed were workmen or not,
and it was found that the sattedars were not under the control of the factory management and could
manufacture the bidis wherever they pleased. It was therefore held that the coolies were neither
employed by the management directly nor by the management through the sattedars. A special
feature of that case was that none of the workmen under the sattedars worked in factories. The bidis
could be manufactured anywhere and there was no obligation on the sattedars to work in the factory
of the management. The sattedars were even entitled to distribute tobacco to the workers for making
bidis in the workers' respective homes. It was in these circumstances that this Court held that the
sattedars were independent contractors and the workers employed by them were not the workers of
the management
Judgement:
The last case to which reference has been made is again a bidi manufacturing case, namely, Bhikusa
Yamasa Kashtriya (P) Limited v. Union of India(4). In that case the main question raised was about the
constitutionality of s. 85 of the Factories Act and the notification issued by the State of Maharashtra
thereunder. The Constitutionality of s. 85 and the notification made thereunder was upheld. The
question there involved was about the application of s. 79 of the, Factories Act with reference to leave
and the difficulty felt in Shankar Balaji Waje's case(1) as to how leave could be calculated in the
circumstances was explained with reference% to the decision in Shri Birdhichand Sharma's case(2).
It is in the light of these decisions that we have to decide whether the workmen who work under the so-
called independent contractors in these cases are the workmen of the appellants. It has been found by
the tribunal and this view has been confirmed by the appeal court that so-called independent contractors
were mere agents or branch managers of the appellants. We see no reason to disagree with this view
taken by the tribunal and confirmed by the appeal court on the facts of these cases. We are not
unmindful in this connection of the view taken by the learned Single Judge when he held that on the
agreements and the facts found the so-called intermediaries were independent contractors. We are
however of opinion that the view taken by the appeal court in this connection is the right one. As the
appeal court has rightly pointed out the so-called independent contractors were indigent persons who
were in all respects under the control of the appellants.
The concept of an “occupier”, in the context of labour laws, is of significant importance and
over the years has been the subject of much judicial scrutiny and legislative attention. The
reason for this is that an occupier of a factory assumes statutory liability for non-compliance
by the factory establishment under most labour-related statutes in India. It is the designated
“occupier” who is responsible, right from the basic compliance such as maintenance of health
standards, safety standards, amenities, etc., to all statutory payments such as bonus, gratuity,
provident fund, etc.
Under the Factories Act, 1948, an occupier has been defined as a person who has ultimate
control over the affairs of the factory. A notice is required to be given to the chief inspector
of factories, disclosing the name of the occupier, at least 15 days prior to the commencement
of the operations of the factory.
JK Industries Ltd and others v. Chief Inspector of Factories and Boilers and others (Supreme
Court, 1996). In this case, the Supreme Court noted that where a company owns or runs a
factory, it is the company that has ultimate control over the affairs of the factory and would
therefore be the occupier.
While examining the concept of an occupier, it is important to take note of section 92 of the
Act, which provides for strict liability on the occupier for non-compliance under the Act.
Section 92 provides for joint liability of the occupier and the manager for offences under the
Act. The fact that the director designated as the occupier is ignorant about the management
of the factory which has been entrusted to a manager or some other employee and is himself
not responsible for the contravention does not absolve him of his liability.
Absence of criminal intent of the occupier is irrelevant in determining liability of the occupier.
However, one defence available to the occupier (under section 101) is to bring the real
offender before the court and prove that the occupier has been diligent in his actions and
that the offender committed the offence in question without the knowledge or consent of
the occupier.