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Andhra Pradesh State... v. Employees' State Ins...
Factual and Procedural Background
The appeals arise from Employees' Insurance Court cases Nos. 4 and 5 of 1975 concerning the Meter Relay Transformer Establishment of the Andhra Pradesh State Electricity Board at Guduru. The central factual finding binding on this Court was that there are twenty persons working in the establishment if a junior engineer is counted; excluding him would reduce the number below twenty. The junior engineer's salary exceeds Rs. 500 per month. The principal legal dispute is whether the establishment qualifies as a "factory" under Section 2(12) of the Employees' State Insurance (Amendment) Act, 1975 (referred to in the opinion as "the Act"), and consequently whether employees' contributions and employers' special contributions may be levied by the Employees' State Insurance Corporation. The Andhra Pradesh State Electricity Board (the appellant) contended that the junior engineer should be excluded from the count because his salary exceeds Rs. 500 per month.
Legal Issues Presented
- Whether the Meter Relay Transformer Establishment at Guduru is a "factory" within the meaning of Section 2(12) of the Employees' State Insurance (Amendment) Act, 1975.
- Whether employees' contributions and employers' special contributions can be levied against the establishment by the Employees' State Insurance Corporation if the establishment is a "factory".
- Whether the expression "persons employed for wages" in Section 2(12) must be treated as coextensive with the term "employee" in Section 2(9), such that persons whose wages (excluding overtime) exceed Rs. 500 per month should be excluded from the headcount for determining whether there are twenty or more persons.
Arguments of the Parties
Appellant's Arguments
- The Andhra Pradesh State Electricity Board (appellant) submitted that the junior engineer, whose salary exceeds Rs. 500 per month, should not be counted when computing whether twenty persons are "employed for wages" under Section 2(12). The appellant's counsel (Sri Anantha Babu) argued that because the Act's definition of "wages" (and the definition of "employee" in Section 2(9)) excludes persons whose wages exceed Rs. 500, the phrase "persons employed for wages" in Section 2(12) should be read as meaning only those who qualify as "employees" under Section 2(9), thereby excluding the junior engineer from the count.
Respondent / Other Parties
The opinion does not contain a detailed account of the respondent's (Employees' State Insurance Corporation's) separate arguments in this text; the record shows the Employees' Insurance Court's factual findings and that the Corporation sought levying contributions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bank Silver Co. v. E.S.I. Corporation (Bombay High Court decision) | Section 2(12) defines "factory" by reference to "persons" working in the premises, not necessarily "employees"; the test is whether twenty or more persons are working and a manufacturing process is carried on with the aid of power. | The Court relied on this decision to support the view that the persons counted need not fall within the definition of "employee" in Section 2(9). The Court noted the amendment changing wording but concluded the amendment did not alter the substance for the present question. |
| Employees' State Insurance Corporation v. M.A.H. Siddique, 1965 I.L.L.J. 573 : A.I.R. 1965 Mys. 71 | Section 2(12) does not limit the definition of "factory" to persons working for wages; if twenty or more persons are working on the premises, the premises is a "factory" irrespective of whether those persons are paid wages. | The Court cited this decision as support for the proposition that the headcount requirement under Section 2(12) focuses on the number of persons working and that remuneration status does not automatically exclude persons from that count. |
| Chanan Singh and Sons v. Employees' State Insurance Corporation | The expression "persons" in Section 2(12) was deliberately used instead of "employees"; persons who actively work on the premises (including a principal employer working there) must be included in the count of twenty. | The Court relied on this decision to bolster the view that non-employees who work on the premises may be included in the twenty-person test under Section 2(12). |
| E.S.I.C. v. Pioneer Laundry, 1966 II L.L.J. 425 | Approved the principle that the sole test under Section 2(12) is whether twenty or more persons were working at the establishment. | The Court noted the decision's approval of the Bank Silver principle and used it to support the conclusion that the headcount is decisive irrespective of whether all persons are "employees" under Section 2(9). |
Court's Reasoning and Analysis
The Court began by identifying the relevant statutory provisions: Section 2(12) (definition of "factory"), Section 2(9) (definition of "employee" including the exclusion of persons whose wages exceed Rs. 500 per month) and Section 2(22) (definition of "wages"). The appellant's argument depended on treating the phrase "persons employed for wages" in Section 2(12) as equivalent to "employee" under Section 2(9). The Court rejected that argument for the following principal reasons, explained in the opinion:
- Interpretation clause limitations: The Court explained that it is not correct to substitute one statutory definition wholesale into another provision merely because an interpretation clause exists. An interpretation provision does not rigidly require that every occurrence of a defined term throughout the statute be given the same limited meaning in all contexts; application of the interpretation clause to a particular instance may depend on the context and the purpose of the specific provision.
- Wider understanding of "wages" in Section 2(12): The Court held that "wages" in the context of Section 2(12) should be understood in a broader sense — meaning any remuneration paid to any person employed in the "factory" — and cannot be restricted to remuneration paid only to those who fall within Section 2(9)'s definition of "employee."
- Legislative choice of words: The Court observed that the Legislature deliberately used the expression "twenty or more persons are employed or were employed for wages" in Section 2(12) rather than the phrase "twenty or more employees." If the Legislature had intended to confine the headcount to persons who are "employees" under Section 2(9), it could easily have used that language. Therefore, the plain reading of Section 2(12) supports including all persons employed for wages in the count, not only those within the Section 2(9) definition.
- Separation of establishment coverage and individual entitlement: The Court explained that while the Act is intended to confer benefits on employees, the statutory definition of "factory" can legitimately be framed with reference to persons other than employees. Even if premises qualify as a "factory" because twenty or more persons are employed there, entitlement to the benefits under the Act for any particular individual still depends on whether that person is an "employee" as defined by Section 2(9).
- Reliance on precedent: The Court cited multiple High Court decisions (Bank Silver Co. v. E.S.I. Corporation; Employees' State Insurance Corporation v. M.A.H. Siddique; Chanan Singh and Sons v. E.S.I.C.; E.S.I.C. v. Pioneer Laundry) that supported the conclusion that the headcount requirement turns on the number of persons working or employed for wages rather than strictly on whether each person qualifies as an "employee" under Section 2(9). The Court found these authorities supportive and concluded that the statutory amendment that replaced "working" with "employed for wages" did not alter the essential conclusion for the question before it.
Based on the foregoing statutory construction and authorities, the Court agreed with the lower Court's conclusion that the establishment met the definition of "factory" under Section 2(12) when the junior engineer was included in the count.
Holding and Implications
Holding: The Court concluded that the Meter Relay Transformer Establishment of the Andhra Pradesh State Electricity Board at Guduru is a "factory" within the meaning of Section 2(12) of the Act, and therefore the Employees' State Insurance Corporation was rightly entitled to require payment of the employees' contributions and the employers' special contribution. The opinion states the outcome succinctly: The appeals are dismissed, but in the circumstances without costs.
Implications: The direct effect of the decision is that the establishment must be treated as a "factory" for the purposes of the Act and is liable for the ESI contributions assessed. The opinion does not elaborate broader legal or policy consequences beyond applying established constructions and authorities; it relies on prior High Court decisions and the statutory text rather than announcing a novel legal principle.
1. The common question for consideration in these two appeals is whether the Meter Relay Transformer Establishment of the Andhra Pradesh State Electricity Board at Guduru is a "factory" within the meaning of Section 2(12) of the Employees' State Insurance (Amendment) Act, 1975, referred to in this judgment as "the Act" and whether the employees' contribution and employers' special contribution can be levied against them by the Employees' State Insurance Corporation.
2. The facts found by the Employees' Insurance Court in cases Nos. 4 and 5 of 1975, out of which these appeals arise, which are binding on this Court in the appeals before us are as follows:
There are twenty persons working in the establishment including one junior engineer. If the junior engineer is also taken into consideration, the establishment would be a "factory" within the meaning of Section 2(12) of the Act. But if he is excluded, the establishment would not be a "factory". It is admitted that the salary paid to the junior engineer exceeds Rs. 500 per month. It is the contention of the appellant, the Andhra Pradesh State Electricity Board, that as his salary exceeds Rs. 500 he should not be taken into account in computing the twenty persons employed for wages referred to in Section 2(12),
3. In order to appreciate this it is necessary to set out the relevant provisions of the Act. Section 2(12) defines
"factory"in the following terms:
""factory"" means any premises including the precincts thereof 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 with 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 (XXXV of 1952) or a railway running shed.
"Employee" is defined under Section 2(9) of the Act and the relevant portion of the sub-section may be set out:
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)...
(ii)...
(iii)...
but does not include...
(a)...
(b) any person so employed whose wages (excluding remuneration for overtime work) exceed five hundred rupees a month.
The expression "wages" is defined under Section 2(22) as meaning the "remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied were fulfilled", etc.
4. It is seen from the definition of ""factory"" under Section 2(12) that what is required is that twenty or more persons are employed or were employed for wages on any day of the preceding twelve months. It is submitted by Sri Anantha Babu that as the expression "wages" is defined in Section 2(22) as remuneration paid or payable in cash to an employee, it would follow that the "persons employed for wages " referred to in Section 2(12) should be "employees" within the meaning of Section 2(9). As the junior engineer cannot be an employee within the meaning of that sub-section as his salary is more than Rs. 500 he should be excluded while determining the number of persons "employed for wages". In other words, the substance of his argument is that the expression "person employed for wages" occurring in Section 2(12) has the same meaning as "employee" in Section 2(9). We are unable to agree with this contention. In our view it is not proper to substitute the entire definition clause in regard to wages in Sub-section 2(12) and then say that wages are only those which are paid to an employee and, therefore, the persons employed in the precincts must be employees. The expression "wages" under Section 2(12) must be understood in a wider sense as meaning any remuneration paid to any person, who is employed in the "factory" and cannot be restricted only to the remuneration paid to the employees who come within the definition of Section 2(9). Though whenever there is an interpretation clause the meaning of any word occurring in a statute would normally be construed, according to that clause, it is not necessary that the meaning of every word should in every case be defined or restricted only to the meaning given to it by the interpretation clause. As pointed out in Craies on Statute Law Seventh Edition, at page 216 the interpretation clause is not to be taken as substituting one set of words for another or as strictly defining what the meaning of a term must be under all circumstances, but rather as declaring what may be comprehended within the term where the circumstances required that it should be so comprehended. If, therefore, an interpretation clause gives an extended meaning to a word, it does not follow as a matter of course that, if that word is used more than once in the Act, it is on each occasion used in the extended meaning, and it may be always a matter for argument whether or not the interpretation clause is to apply to the word as used in the particular clause of the Act which is under consideration. We are of the view that the expression "wages" under Section 1(12) of the Act cannot be construed literally, as meaning only wages as defined under Section 2(12), viz., remuneration paid to employees but would mean wages to any person employed in the precincts of the establishment. There is no warrant for holding that twenty persons employed in the "factory" referred to in Section 2(12) should be employees within the meaning of Section 2(9) of the Act.
5. If really the Legislature desired that in computing the number twenty referred to in Section 2(12) only employees should be taken into consideration it could have easily used the expression "where twenty or more employees are working in the precincts. "But it has deliberately used the expression "whereon twenty or more persons are employed or were employed for wages." It is therefore, clear to us on a plain reading of Section 2(12) of the Act that in computing the number twenty all persons employed for wages should be taken into consideration and not merely those who strictly fall within the definition of employees under Section 2(9) of the Act.
6. It was argued that the Act is merely intended to benefit employees and it would not have been the intention of the Legislature to take into account persons other than employees while determining that a particular "factory" is an establishment or not. We are not impressed with this argument. It is true that the Act is intended to confer benefits on employees of a particular establishment. But there is nothing preventing the Legislature from defining the "factory" with reference to persons other than employees. By doing so no benefit is conferred on persons other than employees. Even if the premises is a "factory", the further question would still remain whether the benefits conferred by the Act can be availed of by the persons who work in the premises. In order to determine that question it would be necessary to decide whether those persons are employees or not. The mere circumstances that the Act applies to an establishment would not necessarily mean that all the benefits conferred by the Act would be given to each and every person who is employed for wages in that establishment. The Act would apply to the establishment because twenty or more persons are working, yet the benefits conferred are available only to such of those who are employees within the meaning of the Act.
7. This view of ours derives support from the decision of various High Courts. In Bank Silver Co. v. E.S.I. Corporation , it was held that Section 2(12) of the Act defines a ""factory"" not by reference to the number of "employees' who work in the "factory" but by reference to "persons" who work in the "factory" and the language used in the said clause shows that the sole test which must be applied for determining whether an establishment is a "factory" or not, is whether twenty or more "persons" are working in the "factory" and whether a manufacturing process is being carried on with the aid of power in any part of the establishment. It may be stated here that at the time when that decision was rendered Section 2(12) defined the "factory" as meaning any premises including the precincts thereof whereon twenty or more persons are working or were working. These words were substituted by Act XLIV of 1966 by the words "are employed or were employed for wages". It was held in the decision of the Bombay High Court referred to above that the persons working in "factory" need not be employees within the meaning of Section 2(9) of the Act. Though the Act is meant for the benefit of the employees, the language of Section 2(12) would indicate that in order to satisfy the definition of ""factory"" it is sufficient if twenty or more persons are working in the "factory" and it is not necessary that all the twenty persons should be employees. Sri Anantha Babu distinguishes this decision on the ground that the expression used under Section 2(12) before the amendment was "number of persons working" whereas after the amendment the expression used is "whereon twenty or more persons are employed or were employed for wages". It may be by reason of the amendment the Legislature intended only to take into account those who were employed for wages and not merely those who worked without any wages or remuneration. But as far as the question before us is concerned, we do not think that the amendment makes any difference.
8 In Employees' State Insurance Corporation v. M.A.H. Siddique 1965--I L.L.J 573 : A.I.R. 1965 Mys. 71, it was held that Section 2(12) does not speak of persons working for wages as such. So long as the number of persons working on the premises is 20 or more, the premises is ""factory"" falling within the definition, it being immaterial whether these persons so working are paid wages or not.
9. In Chanan Singh and Sons v. Employees' State Insurance Corporation , it was held that a principal employer being a person who actively works on the premises must be included in the figure of twenty referred to in Section 2(12) of the Act. It was pointed out that the expression "persons" was deliberately used instead of "employees" in the definition of "factory" and hence even persons who are not employees can be taken into consideration as long as they were working in the premises.
10. In E.S.I.C. v. Pioneer Laundary 1966--II L.L.J. 425, the decision of the Bombay High Court in Bank Silvar and Co. v. E.S.I. Corporation , was referred to with approval and it was stated that the sole test as to whether the establishment is a "factory" or not is whether twenty or more persons were working there.
11. In the result, we agree with the Court below that the establishment concerned, viz., Meter Relay Transformer Establishment of the Appellant Board at Gudur is a "factory" within the meaning of Section 2(12) of the Act and was rightly required to pay the employees' contributions and employers' special contribution. The appeals are dismissed, but in the circumstances, without costs.
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