Fertilizers And Chem... v. Regional Director, E..., Supreme Court Of India, Judgment, Law, casemine.com

Factual and Procedural Background

The Employees' State Insurance Corporation (ESIC) issued a demand notice to the appellant company under Section 45-A of the Employees' State Insurance Act, 1948 for recovery of employer’s contribution. The appellant challenged that notice by filing an application under Section 75 of the Act before the Employees’ Insurance Court, Alleppey.

On 4 February 1993, the Employees’ Insurance Court disposed of the matter with directions that ESIC should devise a method to identify and register head-load workers who performed loading and unloading work at the appellant’s depots and thereafter collect contributions from the appellant with effect from 15-6-1989.

Both the appellant and ESIC appealed to the High Court of Kerala under Section 82 of the Act. By a common judgment dated 30-10-2002, the High Court allowed ESIC’s appeal and dismissed the appellant’s appeal. The appellant then approached the Supreme Court by way of special-leave petitions, which culminated in the present order.

Legal Issues Presented

Whether, in proceedings under Section 75 of the Employees’ State Insurance Act, the employer is required to implead at least some of the affected workmen (or their trade union) as necessary parties.

Whether the Employees’ Insurance Court can determine the existence of an employer–employee relationship, and the consequent liability to pay contributions, without affording the workmen concerned an opportunity of being heard.

Whether the orders of the Employees’ Insurance Court and the High Court were sustainable in the absence of such impleadment and proper factual investigation.

Arguments of the Parties

Appellant’s Arguments

The persons engaged for loading and unloading were not the appellant’s employees, making it difficult or impossible to identify them individually.

ESIC’s Arguments

ESIC had issued a lawful demand notice under Section 45-A for employer’s contribution, which the appellant was bound to pay.

Court's Reasoning and Analysis

The Supreme Court emphasized that labour statutes exist primarily for the benefit of workmen, not for the administration agency (ESIC). Accordingly:

Necessity of Impleadment: The rules of natural justice mandate that any party likely to be adversely affected by a judicial or quasi-judicial determination must be heard. Therefore, in Section 75 proceedings, workmen (or their representative union) are necessary parties alongside ESIC.

Quasi-Judicial Nature of Section 75 Proceedings: Because the Employees’ Insurance Court decides disputes about the very existence of an employer–employee relationship, its determinations have civil consequences for the workers. Rendering such a decision without hearing them is impermissible.

Deficiency in the Employees’ Insurance Court’s Order: The Insurance Court made no substantive finding on whether the head-load workers were employees of the appellant. Instead, it shifted the burden to ESIC to identify and register workers, which the Supreme Court found inadequate and procedurally flawed.

High Court’s Error: By upholding the Insurance Court’s order without correcting these deficiencies, the High Court likewise erred.

Holding and Implications

Holding: The Supreme Court allowed the appeals, set aside both the High Court’s judgment dated 30-10-2002 and the Employees’ Insurance Court’s order dated 4-2-1993, and remanded the matter to the Employees’ Insurance Court for fresh adjudication after impleading the workmen or their union and allowing all parties to lead evidence.

Implications: The decision underscores that in proceedings under Section 75 of the Employees’ State Insurance Act, failure to implead affected workmen violates natural justice and vitiates the adjudication. The remand directs lower courts to ensure proper party representation and factual inquiry before deciding employer liability, but it sets no new substantive precedent beyond reinforcing natural-justice requirements.

Fertilizers And Chemicals Travancore Limited v. Regional Director, Employees' State Insurance Corporation And Others

Order

1. Heard learned counsel for the parties. These appeals have been filed against the common impugned judgment and order dated 30-10-2002 of the High Court of Kerala at Ernakulam whereby the appeal filed by the respondent Employees' State Insurance Corporation (hereinafter for short “ESIC”) under Section 82(2) of the Employees' State Insurance Act, 1948 (hereinafter for short “the Act”) has been allowed and the appeal filed by the appellant herein has been dismissed.

2. It appears that a demand notice was sent against the appellant Company under Section 45-A of the Act in respect of the employer's contribution under the Act. The appellant challenged the said demand notice by filing a petition under Section 75 of the Act before the Employees' Insurance Court, Alleppey.

3. The Employees' Insurance Court in its order dated 4-2-1993 made the following observations:

“12. If reliance is made on the rationale laid down by the High Court in the abovesaid decisions it is very clear that the identities of the employees should be an essential factor for bringing under coverage employees and paying contribution in respect of them. Here, in this case, because of the peculiar nature of the work arrangement, at depots, it is impossible to register an employee engaged in the loading and unloading work under the ESI scheme. If there is requirement, a group of headload workers will come and they do the work collectively and payments are received on tonnage basis. On behalf of this group engaged, one person will collect payment from the depot and distribute the same among themselves. Such labourers coming on one day may not be the same on the next day. That is because of this peculiar nature of arrangement among workers on the basis of understanding or agreement reached between trade unions. After completing work in the depot they will go elsewhere and do identical nature of work. If such is the nature of work it is quite improper to compel the applicant to pay contribution on the payments given in various depots merely because they obtained the services of such workers. However as a principal employer the applicant cannot absolve itself from the responsibility of covering such employees under the scheme because those employees are rendering service to them. Therefore it would be appropriate that in close cooperation with the ESI Corporation they should take effort at least now to ascertain the identities of those headload workers so as to cover them also under the ESI scheme.

ESI Corporation will also make immediate arrangement for bringing all the loading and unloading workers in the depots under the ESI scheme. ESI Corporation shall work out the modus operandi for bringing these workers under the coverage. On such registration of the headload workers under the scheme, the applicant will pay contribution from the date of passing of the order passed under Section 45-A of the ESI Act viz. 15-6-1989. ESI Corporation shall work out the contribution from that date in respect of workers who are brought under scheme and who were found to be working from that day onwards.

With the above observation and direction, this application is disposed of.”

Aggrieved against the said order dated 4-2-1993 of the Employees' Insurance Court, both the appellant herein as well as the Employees' State Insurance Corporation filed appeals before the High Court under Section 82 of the Act.

4. The appeal filed by the respondent ESIC has been allowed and the appeal filed by the appellant herein has been dismissed. Hence, the appellant is before us by way of the present appeal by special leave.

5. It may be noted that in its petition before the Employees' Insurance Court, the appellant herein only impleaded Employees' State Insurance Corporation and the District Collectors of Alleppey, Palaghat and Cannanore as the respondents but did not implead even a single workman as a respondent. Labour statutes are meant for the benefit of the workmen. Hence, ordinarily in all cases under labour statutes the workmen, or at least some of them in a representative capacity, or the trade union representing the workmen concerned must be made a party. Hence, in our opinion the appellant (petitioner before the Employees' Insurance Court) should have impleaded at least some of the persons concerned, as respondents.

6. The case of the appellant was that, in fact, none of the persons concerned was its employee and it was difficult to identify them. In this connection we may refer to Section 75(1)(a) of the Act which states that if any question or dispute arises as to whether any person is an employee of the employer concerned, or whether the employer is liable to pay the employer's contribution towards the said persons' insurance, that is a matter that has to be decided by the Employees' Insurance Court. Hence, in our opinion, the person concerned has to be heard before a determination is made against him that he is not an employee of the employer concerned.

7. The rules of natural justice require that if any adverse order is made against any party, he/she must be heard. Thus if a determination is given by the Employees' Insurance Court that the persons concerned are not the employees of the petitioner, and that determination is given even without hearing the persons concerned, it will be clearly against the rules of natural justice. It may be seen that Section 75 of the Act does not mention who will be the parties before the Insurance Court. Since the determination by the Insurance Court is a quasijudicial determination, natural justice requires that any party which may be adversely affected or may suffer civil consequences by such determination, must be heard before passing any order by the authority/court.

8. In our opinion, wherever any petition is filed by an employer under Section 75 of the Act, the employer has not only to implead ESIC but has also to implead at least some of the workers concerned (in a representative capacity if there are a large number of workers) or the trade union representing the said workers. If that is not done, and a decision is given in favour of the employer, the same will be in violation of the rules of natural justice. After all, the real parties concerned in labour matters are the employer and the workers. ESI Corporation will not be in any way affected if the demand notice sent by it under Sections 45-A/45-B is quashed.

9. It must be remembered that the Act has been enacted for the benefit of the workers to give them medical benefits, which have been mentioned in Section 46 of the Act. Hence the principal beneficiary of the Act is the workmen and not ESI Corporation. ESI Corporation is only the agency to implement and carry out the object of the Act and it has nothing to lose if the decision of the Employees' Insurance Court is given in favour of the employer. It is only the workmen who have to lose if a decision is given in favour of the employer. Hence, the workmen (or at least some of them in a representative capacity, or their trade union) have to be necessarily made a party/parties because the Act is a labour legislation made for the benefit of the workmen.

10. In the present case the workmen concerned were not made parties before the Employees' Insurance Court, nor was notice issued to them by the said court. Also, the order of the Employees' Insurance Court dated 4-2-1993, relevant portion of which we have quoted, is not a very happy one as no proper determination has been made therein as to whether the workmen concerned are the employees of the appellant and whether they are entitled to the benefit of the Act.

11. No doubt some observations have been made that some labourers come on one day but they may not come on the next day. Having said so, a direction has been given that ESI Corporation will after making inquiries about the identities of the said workers will register them and then extend the benefit of the Act.

12. In our opinion, the Employees' Insurance Court should have itself made a proper investigation of the facts after getting evidence from the parties, including the workmen concerned, and after impleading them as party in the petition, it should have determined the question as to whether the persons concerned were the employees of the appellant or not.

13. For the reasons stated above, we set aside the impugned judgment and order of the High Court as well as the order dated 4-2-1993 passed by the Employees' Insurance Court and remand the matter to the Insurance Court for deciding the same afresh after impleading some of the workmen, if not all of them, or their trade union in a representative capacity.

14. Needless to say, the Employees' Insurance Court will grant an opportunity to all the parties, including the alleged workmen, to lead documentary evidence or oral evidence and thereafter proceed in accordance with law. We make it clear that nothing stated hereinabove shall be construed as an expression of opinion on the merits of the controversy involved. All questions of law and fact are left open for the parties to be raised before the Insurance Court.

15. Appeals allowed. No order as to the costs.

Civil Appeals Nos. 917-18 of 2004, decided on August 20, 2009

Fertilizers And Chem... v. Regional Director, E...