- Bookmark
- Share
- CaseIQ
Regional Director, E.S.I, Corporation v. Kerala State Drugs & Pharmaceuticals Ltd. And Others
Factual and Procedural Background
The respondent-Company engaged certain workmen through a contractor to construct its Vitamin “A” plant. After completion of the construction work, both the contractor and these workmen ceased to have any connection with the Company. Subsequently, the Employees’ State Insurance Corporation (ESIC) demanded statutory contributions from the Company in respect of those workmen. The Insurance Court and, in appeal, the High Court held that no contribution was payable because the workmen had long since left the premises and were allegedly unidentifiable. ESIC appealed to the Supreme Court.
Legal Issues Presented
- Whether ESIC contributions are payable by a principal employer for contractor-engaged workmen who are no longer in employment at the time the demand is made.
- Whether the inability to identify the specific workmen defeats the statutory liability to pay contributions.
- Whether contractor-engaged workmen fall within the definition of “employee” under Section 2(9)(ii) of the Employees’ State Insurance Act, 1948, thereby rendering the principal employer liable.
Arguments of the Parties
Appellant (ESIC)
- The lower courts misconstrued the purpose of the ESI Act; contributions are for the benefit of the insurance fund at large and are not contingent on individual workmen receiving benefits.
- Once an establishment is covered, liability to contribute arises for every person employed, directly or through an immediate employer, regardless of subsequent employment status.
Respondent-Company
- Contributions cannot be levied because the relevant workmen had ceased to work on the premises and would derive no benefit.
- The workmen are unidentifiable, making assessment and payment of contributions impracticable.
- (Raised by counsel in the Supreme Court) The workmen were not employees of the Company, and therefore the Company bore no liability.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Employees' State Insurance Corporation v. Hotel Kalpaka International (1993) 2 SCC 9 | Statutory liability of a principal employer to pay ESI contributions for contractor-engaged workmen. | The Court relied on this decision to affirm that liability persists irrespective of current employment status and that contractor-engaged workers are covered employees. |
Court's Reasoning and Analysis
The Supreme Court held that the lower courts had misconceived both the object of the ESI Act and the nature of the insurance scheme:
- The statutory contribution is part of a social insurance scheme benefitting the collective pool of insured persons; it is not based on a quid pro quo with each individual employee.
- Section 2(14) defines an “insured person” to include anyone in respect of whom contributions are, or were, payable; therefore, present employment is unnecessary for liability to arise.
- The alleged inability to identify the workmen is irrelevant; once liability accrued during their employment, the contribution remains payable.
- Section 2(9)(ii) expressly includes persons employed “by or through an immediate employer” on the premises or under the supervision of the principal employer; contractor-engaged workers constructing the plant therefore qualify as employees of the principal employer for ESI purposes.
- In light of Hotel Kalpaka International, the questions raised were settled against the respondent; nonetheless, the Court addressed them and found no merit in the respondent’s contentions.
Holding and Implications
Appeal Allowed; orders of the Insurance Court and High Court set aside. The respondent-Company is liable to pay the demanded ESI contributions and costs.
Implications: The decision reinforces the principle that liability for ESI contributions attaches to the principal employer for all workers—direct or contractor-engaged—once the establishment is covered, even if those workers have since left employment or cannot be individually identified. No new precedent was set; the Court applied and reaffirmed existing authority.
Order
1. The employees involved in these proceedings were engaged, according to the respondents, through its contractor for constructing Vitamin ‘A’ Plant of the respondent-Company. After the construction of the plant, the contractor and his employees were no longer connected with the respondents. It is thereafter that the appellant-Corporation raised a demand on the respondent-Company for contribution in respect of the said employees towards insurance. Both the Insurance Court and the High Court held that since the contribution was demanded in respect of the employees who had since long ceased to be the employees working on the premises, no such contribution was leviable from the respondent-Company. To arrive at this conclusion, the courts gave two reasons. The first was that since the employees in respect of whom contribution was asked had ceased to work in the premises of the respondent-Company, there is no benefit which will now accrue to them by such contribution, and second, the workmen are unidentifiable.
2. We are afraid that the two courts misconceived both the object of the Act and the purpose of the insurance scheme under it. The contribution which is levied on the employer in respect of the employees engaged by him directly or through another agency is for the benefit of all workmen in general who are covered by the Act. The contribution is irrespective of the fact whether the employees get or do not get the said benefit. That is also evident from the definition of “insured person” given in Section 2(14) of the Act which reads as follows:
“2. Definitions.— In this Act, unless there is anything repugnant in the subject or context,—
(14) ‘insured person’ means a person who is or was an employee in respect of whom contributions are or were payable under this Act and who is, by reason thereof, entitled to any of the benefits provided by this Act.”
3. There is thus no quid pro quo between the persons insured and the benefit available under the Act. As regards the finding that the workmen were unidentifiable, what is forgotten is that under the Act, once an establishment comes to be covered by the Act, the employer becomes liable to pay the contribution in respect of the employees in his employment directly or indirectly. The contribution which had become payable for the relevant period has to be paid even if the employees concerned are no longer in employment. Whether the employees are unidentifiable today or not is, therefore, irrelevant so long as the contribution was liable to be paid on their behalf, when they were in employment.
4. Shri Sampath, learned counsel appearing for the appellant raised yet another point before us. He contended that the employees were not the employees of the respondent-Company and hence the respondent-Company was not liable to pay the contribution. We are afraid that this contention ignores the definition of the ‘employee’ given in Section 2(9)(ii) of the Act, which is as follows:
“2. Definitions.— In this Act, unless there is anything repugnant in the subject or context,—
(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—
(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;”.
5. Hence, we find no substance in any of the contentions. A similar point was decided by this Court in a decision in Employees' State Insurance Corpn. v. Hotel Kalpaka International (1993) 2 SCC 9. In view of the said decision, there was no scope for any further arguments in the present case. However, we have dealt with the contentions raised for whatever they were worth. The appeal is, therefore, allowed and the decisions of the courts below are set aside. The respondents will pay the costs.
Alert