Citation Codes

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Case Number

A.A.O 198 of 1979

Attorney(S)

For the Appellant: I.A. Naidu, Advocate.
For the Respondent: A. Krishna Murthy, Advocate.

Judges

Alladi Kuppuswami
Chennakesav Reddi, JJ.

Acts

section 1 (4)

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Smart Summary

Case Summary — Employees' State Insurance Corporation v. M/s. Jayalakshmi Cotton and Oil Products (P) Ltd.

Factual and Procedural Background

The Employees' State Insurance Corporation (the "corporation") appealed under section 82 of the Employees' State Insurance Act, 1948 against an order of the Employees' Insurance Court at Hyderabad in E.1. Case No. 50 of 1978. The court below had declared that M/s. Jayalakshmi Cotton and Oil Products (P) Ltd., Perecherla, Guntur District (the "respondent" or "factory") is a seasonal factory and therefore not covered by the provisions of the Act.

Relevant facts stated in the opinion: the respondent's factory is situated at Perecherla on 28 acres. It began cotton ginning in March 1973, added cotton pressing in January 1974, and later added cotton seed decortication and oil milling; the residual oil in the cake is further extracted by solvent process. The factory claimed it functions only from December to June each year during the cotton season; it is admitted that the solvent extraction plant operates throughout the year.

Inspecting officers of the corporation visited the premises on 19-5-1977 and 20-7-1977, inspected records, and informed the factory (by Ex. P-1) that it fell within the purview of the Act and threatened prosecution for non-coverage. The factory responded by letters (1-4-1977 and 24-6-1977) asserting non-applicability on the ground that it was a seasonal factory and furnishing supporting data. The corporation, by letter dated 18-1-1978, informed the factory it would be covered from 23-7-1977. The respondent then filed an application under section 75 of the Act seeking a declaration that it is a seasonal factory within the meaning of section 2(12) and thus exempt under section 1(4). The Insurance Court accepted the respondent's claim and declared it a seasonal factory; the corporation appealed.

Legal Issues Presented

Whether on the facts and circumstances of the case the respondent factory is a "seasonal factory" as defined under section 2(12) of the Employees' State Insurance Act, 1948 (the substantial question of law identified by the court).

Arguments of the Parties

Respondent's (Factory) Arguments

The primary and dominant activity is cotton ginning and pressing.
The other activities (cotton seed decortication and oil extraction from cake, including solvent extraction) are totally connected with cotton ginning and are incidental to it.
Because the factory is exclusively engaged in cotton ginning/pressing and connected processes, it is a seasonal factory within the meaning of section 2(12) and thus exempt under section 1(4).

Appellant's (Corporation) Arguments

Although cotton ginning and pressing are seasonal, the respondent is not exclusively engaged in these processes; it also runs cotton seed decortication, an oil mill, and a solvent extraction plant which operate throughout the year.
The processes of decortication and oil extraction are not incidental to or connected with cotton ginning/pressing, and are perennial activities; therefore the factory is not a seasonal factory.
Since multiple manufacturing processes operate on the premises throughout the year, employing more than 200 persons for wages, the entire premises constitute a factory subject to the Act (relying on authority that the entire premises can constitute a factory if conditions are met).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Nagpur Electric Light and Power Co. Ltd. v. The Regional Director, E.S.I. Corporation	Quoted principle: "Any premises including the precincts thereof ... constitute a factory if (1) 20 or more persons are working or were working thereon on any day of the preceding 12 months, and (2) in any part thereof a manufacturing process is being carried on with the aid of power. If these two conditions are satisfied, the entire premises including the precincts thereof constitute a factory, though the manufacturing process is carried on in only a part of the premises."	The court noted this authority to explain the legal position that multiple units within the same premises may together constitute a factory; however, the decisive question remained whether particular processes were incidental or connected such that the factory could be treated as a seasonal factory under section 2(12).
Employees' State Insurance Corporation v. S. M. Sriramulu Naidu (Madras High Court)	Principle stated: essential requisites of a factory under the Act — (1) a premises, (2) in a part of which a manufacturing process is carried on with the aid of power, and (3) twenty or more persons should be working in the premises; coordinated departments within a compound may constitute a factory.	The court referred to this decision to confirm that buildings within the same compound housing various departments can together constitute a factory; this supported consideration of whether departments are coordinated to achieve the manufacture and whether activities are within the premises.
Royal Talkies v. Employees' State Insurance Corporation (Supreme Court)	Principle on "incidental": activities need not be integral but may be incidental to the primary purpose; an incidental activity merely appertains to the primary activity and is not extraneous. The court's quote explained how canteen and cycle stand were incidental to a theatre's purpose.	The court applied this principle to hold that decortication, oil extraction and solvent extraction were adjuncts or incidental to the primary manufacturing process of cotton ginning and pressing, supporting the conclusion that the factory is seasonal.

Court's Reasoning and Analysis

The court began by observing that the Employees' State Insurance Act is social security legislation enacted to ameliorate risks faced by employees and therefore "demands an interpretation liberal enough to achieve the legislative purpose and object."

The court identified section 1(4) as creating a differential treatment between perennial and seasonal factories and section 2(12) as the statutory definition of "seasonal factory." It set out the essential conditions for a seasonal factory under section 2(12): (i) exclusive engagement in one or more of the specified manufacturing processes such as cotton ginning or cotton pressing, or (ii) engagement in processes incidental to or connected with those specified processes. The court emphasized that the key factual and legal difficulty was determining what is "incidental to or connected with" the specified processes.

The court examined the factual matrix: the factory began with ginning and pressing and later added decortication, oil extraction and solvent extraction; seed from ginning is decorticated and the decortication output ("meats") is fed to the oil mill; cotton ginning and pressing are seasonal while the oil and solvent extraction units operate year-round. The factual interconnection between the units was thus established in the evidence (including PW-1's evidence).

To resolve whether the additional processes are incidental or connected, the court relied on authorities. It cited the Nagpur Electric Light principle and the Madras High Court decision (Sriramulu Naidu) to frame how premises and multiple departments may constitute a factory. It then relied on Royal Talkies to explain the legal meaning of "incidental": an activity is incidental if it appertains to the primary activity, need not be integral, and should not be extraneous.

Applying that test, the court concluded that the decortication, oil extraction and solvent extraction processes were adjuncts or incidental to the primary manufacturing process of cotton ginning and pressing. On this basis the court held the respondent factory to be a "seasonal factory" within the meaning of section 2(12).

The court also remarked on policy: although section 1(4) excludes seasonal factories from coverage, the court observed that employees in seasonal factories are equally in need of social insurance and suggested that the Act's scope ought to be widened in future to include seasonal factories, possibly with proportionate contribution rates. This observation is presented as a policy comment rather than a statutory holding.

Holding and Implications

Holding: APPEAL DISMISSED WITH COSTS. The court upheld the Insurance Court's declaration that M/s. Jayalakshmi Cotton and Oil Products (P) Ltd. is a seasonal factory within the meaning of section 2(12) of the Employees' State Insurance Act, 1948, and therefore not covered by the Act and the Scheme made thereunder.

Implications:

Direct consequence: The respondent factory is declared seasonal and exempt from the provisions of the Employees' State Insurance Act as applied in this case; the corporation's attempt to cover the factory from 23-7-1977 was rejected by the appellate court and the appeal was dismissed with costs.
Policy observation by the court: The opinion contains a judicial comment urging legislative reconsideration — that the Act's limited applicability (by section 1(4)) excludes seasonal factories from coverage and that the scope of the Act might be widened to cover seasonal factories with proportionate contributions. This is an exhortation for legislative action rather than a change in legal doctrine effected by this decision.

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Employees' State Insurance Corporation Hyderabad v. Jayalakshmi Cotton & Oil Products (P) Ltd., Perecherla, Guntur District

Chennakesav Reddy, J.:-

(1) This appeal under section 82 of the employees state insurance act 1948 (hereinafter referred to as 'the act') is preferred by the employees state insurance corporation, hyderabad (hereinafter referred to for the sake of brevity as 'the corporation') against the order of the employees insurance court at hyderabad, in e. 1. Case no. 50 of 1978 declaring that m/s. Jayalakshmi cotton and oil products (p) ltd , perecherla, guntur district, the respondent herein is a seasonal factory and hence not covered by the provisions of the act.

(2) The facts relevant for the purpose of this appeal are these: the respondent - factory is situated at perecherla 11 k. Ms, away from guntur in an area of 28 acres of land. Initially the factory started cotton ginning in march, 1973 and to that was added cotton pressing in january, 1974, cotton seed decortication and oil milling were later on added. The seed obtained by ginning is decorticated and oil is extracted. The oil that is still left over in the cake is further extracted by means of solvent process. The factory is claimed to be seasonal in that it functions only from december to june every year during the cotton season. It is admitted that the solvent extract plant works continuously throughout the year.

(3) It appears on 19 - 5 - 1977 and once again on 20 - 7 - 1977 r. W. T the office manager of e. S. I, corporation, guntur visited the factory. During both the visits, he inspected the factory records. He wrote a letter ex. P - 1 informing p. W - 1, manager of the respondent factory that the factory falls within the purview of the e. S. I. Act and threatened with criminal prosecution in the event of non - coverage. The respondent - factory by their letter dated 1 - 4 - 1977 informed the corporation that the e. S. I. Scheme was not applicable to their factory. Once again they affirmed the same by their letter dated 24 - 6 - 1977 by furnishing all the data required to prove that the respondent - factory is a seasonal factory and, therefore, does not fall under the ambit of the act. In spite of it, the corporation by their letter dated 18 - 1 - 1978 informed the respondent - factory that the factory would be covered by the e. S. I. Scheme from 23 - 7 - 1977. Aggrieved by the said action the respondent - factory filed an application under section 75 of the act seeking declaration that the respondent - factory is a seasonal factory within the meaning of section 2 (12) of the act and is, therefore, exempted from the provisions of the act as per section 1 (4) of the act. The main contention of the respondent - factory was that the primary and dominant activity of the factory is cotton ginning and pressing, that the otner activities including the cotton seed decortication and extraction of oil from the cake are totally connected with the cotton ginning and therefore the factory is a seasonal factory within the meaning of section 2 (12) of the act. The corporation resisted the application contending that as per sub - section (12) of section 2 of the act the process of cotton ginning and pressing are seasonal in nature but that the respondent - factory is not exclusively engaged in the process of cotton ginning and pressing but in addition the respondent is havingcotton seed decortication, cotton seed oil mill and solvent extraction plant, that the process of cotton ginning and pressing is ancillary to the work of cotton seed decortication and oil mill and thus the factory is engaged in multifarious activities and manufacturing process throughout the year employing more than 200 persons for wages. Therefore, it is argued that the respondent factory is a factory within the meaning of section 2 (12) of the act.

(4) On a consideration of the evidence adduced in the case, the insurance court declared the respondent - factory at perecherla, guntur district, is a seasonal factory and therefore not covered under the act and the scheme made thereunder. Hence this appeal by the corporation.

(5) The substantial question of law that arises is whether on the facts and circumstances of the case the respondent - factory is a seasonal factory or not as denned under section 2 (12) of the act.

(6) It is well to remember at the outset that the employees' state insurance act is a social security legislation and was enacted to ameliorate the various risks and contingencies which the employees face while serving in a factory or establishment. It is thus intended to promote the general welfare of the worker. Therefore, the enactment demands an interpretation liberal enough to achieve the legislative purpose and object.

(7) section 1 (4) of the act postulates differential treatment between perennial and seasonal factories and seasonal factories are excluded from the purview of the act apparently on the ground of administrative exigency and convenience. The expression 'seasonal factory' has been denned in section 2 (12) of the act as follows:

"2 (12) "factory" means xx xx "seasonal factory" means a factory which is exclusively engaged in one or more of the following manufacturing processes namely, cotton ginning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber, supar (including gur) or tea or any manufacturing process which is incidental to or connected with any of the aforesaid processes and includes a factory which is engaged for a period not exceeding seven months in a year (a) in any process of blending, packing or repacking of tea or coffee; or (b) in such other manufacturing process as the central government, may by notification in the official gazette specify; the expressions "manufacturing process" and "power" shall have the meanings respectively assigned to them in the factories act, 1948"

(8) The essential conditions requisite for a factory to be called as a

"seasonal factory" are; (i) the factory must be engaged exclusively (2) in one or more of the manufacturing processes viz , cotton ginning, cotton or jute pressing, decortication of groundnuts or (3) any manufacturing process which is incidental to or connected with any of the aforesaid processes. The first two conditions: exclusive engagement and the manufacturing process of cotton ginning, cotton pressing, decortication of groundnuts do not present any difficulty. But the real problem is: as to what is incidental to or connected with the aforesaid manufacturing processes".

(9) It is the contention of the learned counsel for the corporation that the decortication of cotton seeds and oil extraction are not incidental to or connected with the cotton ginning or cotton pressing. He fervently pleads that the oil section and solvent extraction unit work all - through the year and one unit of the factory cannot be branded as seasonal and the rest not and that the factory as a whole is liable for contribution. According to him, it is the entire premises that constitutes a factory. He submits that the 4 units of the factory viz. , cotton ginning and pressing, cotton seed decortication, oil extraction and solvent extraction are located in the same premises and that the main activity in the factory premises is cotton seed oil extraction and the last three sections are perennial and it is only the first section ie. , ginning and pressing that is seasonal. According to him, the main activity in the factory is not cotton ginning and pressing and therefore, the factory does not fall within the fold of the seasonal factory defined in section 2 (12) of the act. The learned - counsel placed reliance on a decision of the supreme court in the nagpur electric light and power co. Ltd vs. The regional director e. S. I. Corporation wherein the supreme court observed:

"any premises including the precincts thereof (excepting a mine and railway running shed) constitute a factory if (1) 20 or more persons are working or were working thereon on any day of the preceding 12 months, and (2) in any part thereof a manufacturing process is being carried on with the aid of power. If these two conditions are satisfied, the entire premises including the precincts thereof constitute a factory, though the manufacturing process is carried on in only apart of the premises."

In employees' state insurance corporation vs. S. M. Sriramulu naidu the mardas high court held ;

"the essential requisities of a factory under the act are (1) a premises, a geographical area within a certain boundary (2) in a part of which at least manufacturing process should be carried on with the aid of power and (3) twenty or more persons should be working in the premises, it is not necessary that all ths twenty persons should be working in the same section or department. So long as the efforts of all the departments are co - ordinated to achieve the main object of the factory, that is, the manufacture, the decision whether a particular place is a factory or not, would depend largely on the question, whether those activities are carried on within the premises of the factory. The premises need not be a single building; a number of buildings within a single compound might constitute a factory."

(10) In the present case all the buildings in which various departments are housed lie within the same compound, and all the units taken together, according to the learned counsel constitute a 'factory'. But the question in this case is not whether all the units are located in the same premises. The perplexing question is whether the decortication of seeds, oil extraction and solvent extraction are incidental to or connected with the cotton ginning and pressing. It is common ground that the factory is not exclusively engaged in cotton ginning or pressing. But it is an admitted fact that the petitioner factory started only with the cotton ginning and pressing in march, 1973 and subsequently added the cotton seed decortication section and oil mill and solvent extraction sections. It is in the evidence of p. W. 1 that the seed that comes out from the cotton ginning mills is decorticated and the meats from the decortication plant are fed to the oil mill for oil extraction. It is also admitted that the cotton ginning and pressing is a seasonal activity but the cotton seed oil extraction and solvent extraction are perennial. Thus the activities in the factory are inter - connected and the solvent extraction and oil seeds sections though perennial are closely connected with or incidental to cotton seed and pressing. In royal talkies vs. Employees' state insurance corporation the supreme court had occasion to consider whether the employees of cycle stand and canteen run in a cinema theatre by contractors are covered by the definition of employee under section 2 (9) of the act. The supreme court observed:

"no one can seriously say that a canteen or cycle stand or cinema magazine booth is not even incidental to the purpose of the theatre. The cinema goers ordinarily find such work an advantage, a facility, an amenity and sometimes a necessity. All that the statute requires is that the work should not be irrelevant to the purpose of the establishment. It is sufficient if it is incidental to it. A thing is incidental to another if it merely appertains to something else as primary. Surely such work should not be extraneous or contrary to the purpose of the establishment but need not be integral to it either. Much depends on time and place, habits and appetites, ordinary expectations and social circumstances. In our view, clearly the two operations in the present case, namely, keeping a cycle stand and running a canteen are incidental or adjuncts to the primary purpose of the theatre"

(11) Here, as there, the primary manufacturing process is cotton ginning and pressing. The other manufacturing process viz. , decortication and oil extraction and solvent extraction are only adjuncts to the primary manufacturing process of cotton ginning and pressing. We have, therefore, no hesitation in holding that the petitioner - factory is a seasonal factory.

(12) Before parting with the case, it would be pertinent to point out that the most important criterion for evaluating the efficacy and merit of a social insurance legislation is its universality. But by section 1 (4) of the act the applicability is limited to perennial factories and seasonal factories are exempted; thereby a number of employees in the country are denied the benefits conferred by the act. The employees in seasonal factories need as much care and protection against risks as those in factories now within the purview of the act. Time has now come to widen the scope of the act and extend its operation to seasonal factories also. In respect of seasonal factories, depending upon the duration for which they function in a year, the rate of contribution may proportionately be fixed under the act.

(13) In the result, the appeal fails and it is accordingly dismissed with costs.

Employees' State Ins... v. Jayalakshmi Cotton &...