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Kerala High Court
The Regional Director, Esi Corporation vs M/S. L & T Tech Park Ltd on 20 August, 2025
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INS.APP NO. 3 OF 2014
1
CR
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE M.A.ABDUL HAKHIM
WEDNESDAY, THE 20TH DAY OF AUGUST 2025 / 29TH SRAVANA, 1947
INS.APP NO. 3 OF 2014
AGAINST THE JUDGMENT DATED 30.08.2013 IN IC NO.67 OF 2011 OF
EMPLOYEES' INSURANCE COURT, ALAPPUZHA
APPELLANTS/1ST & 2ND RESPONDENTS:
1 THE REGIONAL DIRECTOR, ESI CORPORATION
PANCHADEEP BHAVAN, N.S.ROUND, THRISSUR -20.
2 THE DEPUTY DIRECTOR
ESI CORPORATION, MALU'S COMPLEX, ST.FRANCIS CHURCH ROAD,
KALOOR, KOCHI-17.
BY ADVS.
SHRI.T.V.AJAYAKUMAR
KUM.RIMJU P.H.
RESPONDENTS/APPLICANT/3RD RESPONDENT:
1 M/S. L & T TECH PARK LTD
INFOPARK SPECIAL ECONOMIC ZONE,IST FLOOR, REJOMAYA,
KUSUMAGIRI PO, KAKKANAD, KOCHI-30.
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2 MS.TATA CONSULTANCY SERVICE LIMITED
VISMAYA BUILDING, INFO PARK, KUSUMAGIRI PO, KAKKANAD,
KOCHI-30.
BY ADVS.
SRI.V.ABRAHAM MARKOS
SHRI.ABRAHAM JOSEPH MARKOS
SHRI.BENNY P. THOMAS (SR.)
SRI.BINU MATHEW
SRI.D.PREM KAMATH
SHRI.TERRY V.JAMES
SRI.TOM THOMAS (KAKKUZHIYIL)
THIS INSURANCE APPEAL HAVING COME UP FOR ADMISSION ON 20.08.2025,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
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CR
JUDGMENT
1. Appellants are the Respondents Nos.1 and 2 before the E.I.
Court, Alappuzha in I.C. No.67/2011 filed under Sections 75 and
77 of the Employees’ State Insurance Act, 1948 (E.S.I. Act, for
short). They are the Regional Director and the Deputy Director
of E.S.I. Corporation. The Respondents are the Applicant and
the Respondent No.3 before the E.I. Court. The Appellants are
challenging the Order by which the refund of the ESI
contribution was ordered by the E.I. Court.
2. This Court formulated the following substantial question of law
in this Appeal as per the Order dated 20.11.2024:
“Whether Section 2(9) of the E.S.I. Act covers the workers
engaged for pre-operative fit-out works by the employer requiring
contribution to be paid as per the aforesaid Act?”
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3. The parties are referred to according to their status before the
E.I. Court.
4. The Corporate office of the Respondent No.3 at Mumbai was an
establishment covered under the ESI Act during the relevant
period. The Applicant was not an establishment covered under
the ESI Act. The Applicant owns a building by the name,
Thejomaya, constructed for I.T. business, I.T. enabled services
and other related services and amenities pursuant to Sanction
Order dated 05.04.2007 issued by the Development
Commissioner, Infopark Special Economic Zone, Kochi. The
building was constructed within the Special Economic Zone at
Infopark, Kakkanad. The Respondent No.3 took lease of the 7th,
8th & 9th floors of the said building from the Applicant for starting
a new unit as per Ext.D1 Lease Deed dated 21.10.2007. As per
Ext.D1 Lease Deed, the lease commencement date is
21.10.2007 or the date of actual handover of the premises by
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the Lessor to the Lessee to start the fit-out works. Even before
the execution of the Ext.D1 Lease Deed, the Respondent No.3
awarded a contract in favour of the Applicant to do the interior
fit-out works in the premises as per Exhibit A1 Contract/Work
Order dated 08.10.2007. For the purpose of executing the pre-
operative fit-out works, 90 days rent-free period was allowed to
the Respondent No.3 by the Applicant. The interior fit-out works
were completed on 11.01.2008, and the premises were
entrusted to the Respondent No.3 on 11.03.2008. The
Respondent No.3 started its operations of the new unit in the
leased premises on 02.04.2008 by issuing Ext.A4 Letter of
Intimation to the Development Commissioner (Sez-IT & ITES),
Thiruvananthapuram. Since the burden to meet the ESI
contribution was on the Applicant as per Ext.A1 Contract, the
Respondent No.3 deducted an amount of Rs.23,68,366/- from
the value of the contract payable to the Applicant and remitted
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the same to the E.S.I. Corporation on 29.03.2008. Ext.A1
Contract contained a clause that it is the Applicant who has to
comply with all the labour laws such as E.S.I., P.F. and Contract
Labour Act. The Applicant submitted Exhibit A5 Request dated
12.01.2010 to the Respondent No.1 seeking a refund of the
amount remitted by the Respondent No.3 on the ground that, as
per Exhibit A9 Instruction No.4/99 dated 14.06.1999 of the E.S.I.
Corporation, New Delhi, the workers engaged in construction
sites are exempted from the provisions of the ESI Act and that
the contribution was paid by mistake and hence the Applicant is
eligible to get a refund of the amounts paid by the Respondent
No.3 with respect to Exhibits A1 & A2 Contracts. The
Respondent No.3 also submitted Exhibit A8 Letter dated
11.03.2010 to the Respondent No.1 stating that since
construction activity is exempted, the payment of contribution
was made by mistake, and the Respondent No.3 had no
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objection to refunding the amount to the Applicant. Since the
Respondent No.1 did not consider Ext.A5 Request, the
Applicant approached this Court by filing W.P.(C)
No.20763/2010, and this Court, as per Exhibit A10 judgment
dated 26.07.2010, directed the Respondent No.1 to pass orders
on Ext.A5 Request within a period of three months. The
Respondent No.2 obtained Exhibits A11, A12 & A13 Reports
dated 29.10.2010, 02.11.2010 & 06.12.2010 from its Social
Security Officer and passed Ext.A14 Order dated 16.03.2011
rejecting Ext.A5 Request for refund submitted by the Applicant.
After issuing Ext.A14 Order, the Respondent No.2 issued a
Communication dated 17.03.2011 to the Respondent No.3
demanding the balance contribution of Rs.2,76,354/-. The
Respondent No.3 paid the said additional contribution
demanded on 19.05.2011 as per Ext.A15 Challan. Thereafter,
the Applicant filed the present I.C. before the E.I. Court seeking
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a declaration that the work executed by the Applicant for the
Respondent No.3 pursuant to Ext.A1 for interior fit-out works to
set up a new facility at the Infopark is exempted from
contribution under the E.S.I. Act, to set aside Ext.A14 Order of
the Respondent No.2 and Notice dated 17.03.2011 and to
declare that the Applicant is eligible for refund of Rs.23,68,366/-
and Rs.2,76,354/- with interest at the rate of 12% per annum
and to direct the Respondent Nos.1 & 2 to grant the same.
5. The Respondent Nos.1 & 2 filed an Objection in the I.C.
contending, inter alia, that the Respondent No.3 is a covered
establishment. The Respondent No.3 took lease of three floors
in the building belonging to the Applicant for expanding their
business at Kochi on 21.10.2007. The Respondent No.3 is the
principal employer defined under Section 2(17) and the
Applicant is the immediate employer defined under Section
2(13) of the ESI Act with respect to the contract works awarded
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as per Exts.A1 and A2. The Respondent No.3 remitted E.S.I.
contribution on the wage element involved in the contract work
after deducting the same from the amount due to the Applicant.
As the leased premises had been occupied by the Respondent
No.3 from 21.10.2007 onwards, any work executed for and on
behalf of the Respondent No.3 in its premises would form part
of the activities carried out in the establishment and is coverable
under the ESI Act. Ext.A9 Instruction dated 14.06.1999 issued
to exclude certain classes of workers engaged by construction
agencies who belonged to the unorganised sector due to the
peculiar characteristics of the construction industry and the
peculiar nature of the employment of workers engaged in it is
not applicable to the present case. As per Clause No.3 of
Ext.A9, construction workers who are engaged directly in a
covered factory by the principal employer or through an
immediate employer are covered under Section 2(9) of the
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E.S.I. Act. All the employees employed by the Applicant are
their own employees and those employees are not employed
for the construction or building construction of the
establishment, and hence, exemption as per Ext.A9 will not be
available in the present case. The works carried out are
preliminary to the works carried on in the establishment. The
Applicant carried out the works as per the specification,
supervision and control of the Respondent No.3, which is the
principal employer. The terms and conditions, such as the scope
of work, acceptance/rejection clause incorporated in Ext.A1
Work Contract, will support the case of the ESI Corporation. The
new premises are only an expansion of the existing business of
the Respondent No.3. The construction activities carried out on
the premises are after the occupation of the premises by the
Respondent No.3, who is already covered under the Act. The
question of exemption of pre-operative construction activity from
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ESI coverage does not arise in the matter of expansion of an
existing covered establishment. It applies only when a new shop
or factory is started. Respondent No.3, who is the principal
employer, did not submit any Application for refund, and hence
the application for refund submitted by the Applicant is not
maintainable. The Application for refund is not filed within the
period specified under Regulation 40 of the E.S.I. (General)
Regulations, 1950. Thus, in any view of the matter, the request
for the refund of the contribution is not sustainable. The claim
for refund is liable to be rejected. The EI Court illegally ordered
the refund of the contribution as per the impugned order and it
is liable to be set aside.
6. The Respondent No.3 supported the case of the Applicant by
contending that Respondent No.3 is engaged in the software
development and related activities. The fit-out works carried on
by the Applicant in its own premises before the commencement
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of operation by Respondent No.3 cannot be treated as
preliminary or incidental to the ordinary part of the works of the
establishment of Respondent No.3. The Respondent No.3 will
not come within the purview of the principal employer.
7. On the side of the Applicant, its Project in Charge was examined
as PW1 and Exts.A1 to A16 were marked in evidence. On the
side of the Respondent Nos.1 & 2, its former Deputy Director
(Legal) was examined as DW1 and Exts.D1 to D4 were marked.
8. The E.I. Court passed the impugned order declaring that the
workers employed by the Applicant for executing pre-operative
fit-out works of the Respondent No.3 are not employees under
S.2(9) of the Act and hence no contribution is payable on their
behalf; directing E.S.I. Corporation to refund Rs.23,68,366/-
remitted on 29.03.2008 and Rs.2,76,354/- remitted on
16.05.2011 to the Applicant within one month from the date of
the judgment and directing that thereafter, the above amounts
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will carry interest at the rate of 12% per annum from the date of
Ext.A14 Order and setting aside Ext.A14 Order to the contrary.
9. I heard the learned counsel for the Appellants, Sri. T.V.
Ajayakumar, learned counsel for the Respondent No.1, Sri.
Terry V. James and the learned Senior Counsel for the
Respondent No.2, Sri. Benny P. Thomas, instructed by Adv. Sri.
Prem Kanth.
10. The learned counsel for the Appellants contended that the
Respondent No.3 is the principal employer of the establishment
as defined under Section 2(17) of the E.S.I. Act and the
Applicant is the immediate employer as defined under Section
2(13) of the E.S.I. Act. Admittedly, the Respondent No.3 took
possession of the leased premises from the Applicant on
21.10.2007. Admittedly, the Respondent No.3 is an
establishment covered under the E.S.I. Act. In such a case,
workers employed by the Applicant to do the fit-out works in the
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establishment of the Respondent No.3 will come under the
definition of employees defined under Section 2(9)(ii) of the ESI
Act. Exts.A1 & A2 would reveal that the works were done under
the supervision of the Respondent No.3. The Respondent No.3
correctly understood the legal status of the parties and the law
on the point and hence collected the E.S.I. contribution from the
Applicant with respect to the wage element involved in the
contract and remitted the same to the E.S.I. Corporation. Ext.A9
Instruction of the E.S.I. Corporation is not applicable to the facts
and circumstances of the present case. It is meant for avoiding
coverage of workers engaged in construction work, as they
belonged to the unorganised sector and could not be identified,
and hence no benefit under the ESI Act could be extended to
them. In Ext.A9, the peculiar nature of the construction workers
is specifically referred to as mobile and migratory in nature. In
the case on hand, the employees of the Applicant are identified
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persons. They are not construction workers. They are employed
for the purpose of doing the fit-out works in order to make the
premises ready for occupation of the Respondent No.3. The
said fit-out works are preliminary to the ordinary work of the
Respondent No.3 and incidental to the same. Clause 3 of
Ext.A9 specifically provides that construction workers who are
engaged directly in a covered factory by the principal employer
or through an immediate employer are to be taken into
consideration for coverage under Section 2(9) of the E.S.I. Act.
The learned counsel cited the decisions of the Hon’ble Supreme
Court in the Associated Cement Companies Ltd., Chaibassa Cement
Works, Jhinkpani v. Workmen [AIR 1960 SC 56], Royal Talkies,
Hyderabad v. Employees State Insurance Corporation [AIR 1978 SC
1478], Regional Director, E.S.I. Corporation, Madras v. South India Flour
Mills Pvt. Ltd. [AIR 1986 SC 1686], Employee’s State Insurance
Corporation v. Harrison Malayalam Pvt. Ltd. [AIR 1993 SC 2655],
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Regional Provident Fund Commissioner, Jaipur v. Naraini Udyog and
Others [(1996) 5 SCC 522], Transport Corporation of India v. Employees’
State Insurance Corporation and Another [AIR 2000 SC 238], Saraswathi
Films v. Regional Director, E.S.I. Corporation [2003 (1) KLT 886],
Sumangali v. Regional Director, E.S.I. Corporation [(2008) 9 SCC 106],
Bombay Anand Bhavan Restaurant v. Deputy Director, E.S.I. Corporation
[2009 9 SCC 61], Torino Laboratories Pvt. Ltd. v. Union of India & Ors.
[2025 Supreme (SC) 1067] and the decisions of this Court in the
Regl. Director, E.S.I. Corporation v. Kerala Wheat Flour Roller Mill [1997
2 ILR (Ker.) 771] and the Director, E.S.I. Corporation v. M/s. Western
Marine Engineering [2019 (3) KHC 593] in support of his contentions.
11. On the other hand, the learned Senior Counsel for the
Respondent No.3 contended that the ESI Act covers only
factories under Section 1(4) and establishments notified under
Section 1(5) of the ESI Act. The registration under Section 2-A
of the ESI Act is with reference to the factory and establishment.
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It does not require the entity which owns the establishment to
be registered. Respondent No.3 is a limited company. It cannot
be treated as an establishment. Different establishments owned
by the Respondent No.3 could not be treated as a single
establishment only for the reason that they belong to the
Respondent No.3. The existing coverage of the establishment
is the establishment that belonged to the Respondent No.3 in
Mumbai. The establishment established by the Respondent
No.3 in Infopark, Kochi, could not be treated as an extension of
the already existing establishment. The establishment of the
Respondent No.3 at Kochi is a new establishment. It started
only on 02.04.2008. Respondent No.3 is engaged in providing
I.T. services. It does not have any technical know-how to
supervise the construction works. Any work done prior to
02.04.2008 for making the leased premises ready for the
occupation of the Respondent No.3 could not be treated as an
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ordinary part of the work of the establishment or preliminary to
the work or incidental to the purpose of the establishment. That
apart, construction work is clearly excluded from coverage as
per Ext.A9 Instruction of the E.S.I. Corporation itself. The
establishments of the Respondent No.3 in Thejomaya building
and in the neighbouring building, Vismaya, are distinct and
separate. They are registered under different schemes. One
could not be said to be an extension or a part of the other. Even
in the Report of the Inspector of the E.S.I. Corporation, it is
stated that the establishment in the Thejomaya building is not
an addition or modification of the existing covered unit of
Vismaya. Hence, the Respondent No.3 is not liable to pay E.S.I.
contribution in the capacity of principal employer with respect to
the fit-out works done by it through the employees of the
Applicant. The payment made by the Respondent No.3 towards
the contribution after deducting the same from the contract
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value due to the Applicant is not an erroneous payment. It is an
illegal collection of contribution by the E.S.I. Corporation and
hence Regulation 40 of the E.S.I. (General) Regulations, 1950,
is not applicable to the present case. The issue is covered by
the decision of this Court in Deputy Director v. B.P.L. Cellular Ltd.
[2005 (2) KLT 775]. Hence, the E.I. Court correctly understood the
law on the point and correctly decided the matter in favour of
the Applicant. No substantial question of law arises in the matter
to entertain the appeal at the instance of the E.S.I. Corporation.
12. The learned counsel for the Respondent No.1 also advanced
contentions substantially the same as those raised by the
Senior Counsel for Respondent No.2.
13. I have considered the rival contentions.
14. Section 2(9)(ii) of the ESI Act covers employees employed for
wages through an immediate employer on the premises of the
factory or establishment or under the supervision of the principal
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employer or his agent on work which is ordinarily a part of the
work of the factory or establishment which is preliminary to the
work carried on in or incidental to the purpose of the factory or
establishment. The workers engaged by the contractor of the
principal employer for doing works preliminary and incidental to
the purpose of the establishment are covered by the definition.
Here, the Respondent No.3 has employed workers through the
Applicant in the premises of the establishment to do the fit-out
works. Whether such fit-out work is a work preliminary or
incidental to the purpose of the establishment of the
Respondent No.3 or not is the question to be answered in this
case.
15. The learned Counsel for the Appellants cited several decisions
of the Hon’ble Supreme Court and this Court to enlighten the
law on the point. Let me examine the decisions cited by the
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learned Counsel for the Appellants in order to have the correct
understanding of the law on the point.
16. The learned Counsel for the Appellants cited the decision of the
Hon’ble Supreme Court in Associated Cement Companies Ltd.
(supra) to explain the term establishment. The Hon’ble Supreme
Court interpreted the term ‘establishment’ with reference to the
Mines Act, 1952, and the Factories Act, 1948. In the E.S.I. Act,
the term ‘establishment’ is not defined. The Hon’ble Supreme
Court held that the real purpose is to find out the true relation
between the parts, branches, units etc.; that if in their true
relation they constitute one integrated whole, the establishment
is one and on the contrary they do not constitute one integrated
whole, each unit is then a separate unit; that the relation
between units will be judged and must depend on the facts
proved, having regard to the scheme and object of the statute;
that in one case the unity of ownership, management and
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control may be the important test, in another case, functional
integrality or general unity may be the important test and still in
another case the important test may be the unity of employment;
that in large number of cases several tests may fall for
consideration at the same time; that the difficulty of applying
these tests arises because of the complexity of modern
industrial organisation; many enterprises may have functional
integrality between the factories which are separately owned;
some may be integrated in part with units or factories having the
same ownership and in part with factories or plants which are
independently owned. The learned counsel cited this decision
to substantiate the point that the new unit of the Respondent
No.3 in Kochi is a part of the Corporate Office of the Respondent
No.3 at Mumbai which is a covered establishment.
17. The decision of the Hon’ble Supreme Court in Royal Talkies
(supra) is one rendered under the ESI Act. In the said decision,
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the Hon’ble Supreme Court considered the scope of the
definition of ’employee’ under Section 2(9) of the ESI Act. It is
specifically held that the expression ‘in connection with the work
of an establishment’ ropes in a wide variety of workmen who
may not be employed in the establishment but may be engaged
only in connection with the work of the establishment; that it is
enough if the employee does some work which is ancillary,
incidental or has relevance to or link with the object of the
establishment. It is further held that the language used in
Section 2(9)(ii) is extensive and diffusive imaginatively
embracing all possible alternatives of employment by or through
an independent employer; that in such cases the principal
employer has no direct employment relationship since the
immediate employer of the employee concerned is someone
else; that even so, such an employee, if he works on the
premises of the establishment or under the supervision of the
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principal employer or his agent on work which is ordinary part of
the work of the establishment or which is preliminary to the work
carried on in or incidental to the purpose of the establishment
qualifies under Section 2(9)(ii); that the plurality of persons
engaged in various activities who are brought into the
definitional net is wide and considerable and all that is
necessary is that employee be on the premises or be under the
supervision of the employer or his agent; that all that the Statute
requires is that the work should not be irrelevant for the purpose
of establishment; that it is sufficient if it is incidental to it. In the
said case, it is held that keeping a cycle stand and running a
canteen are incidental or adjuncts to the primary purpose of the
theatre. In the said decision, the Hon’ble Supreme Court
considered the activities which were started after commencing
the operation of the establishment. Even though the general
principles laid down in the said decision give some guidance, it
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does not specifically deal with the construction works which
were done prior to the commencement of the establishment.
18. In South India Flour Mills (supra), the Hon’ble Supreme Court
considered the question whether the employment of workers for
the purpose of putting up additional buildings for the purpose of
commencing the manufacturing process would come within the
scope of work incidental or preliminary to or connected with the
work of the factory. The Division Bench of the Madras High
Court was of the view that such employees are not employees
within the meaning of Section 2(9) of the ESI Act. The Hon’ble
Supreme Court understood the question as whether the workers
employed for the purpose of additional buildings for the
expansion of the factories are employees within the meaning of
Section 2(9) of the Act. The Hon’ble Supreme Court found that
the definition of employee seems to be very wide and brings
within the purview of various types of employees; that as soon
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as the conditions under the definition of employee are fulfilled,
one becomes an employee within the meaning of the definition.
The Hon’ble Supreme Court specifically held that work of
construction of additional buildings required for the expansion
of the factory must be held to be ancillary, incidental or having
some relevance to or link with the object of the factory; that the
expression ‘work of the factory’ should also be understood in the
sense of any work necessary for the expansion of the factory or
establishment or for augmenting or increasing the work of the
factory or establishment, that such work is incidental or
preliminary to or connected with the factory or establishment.
The said decision answers the issue involved in this case to a
great extent. If the Respondent No.3 was having an already
existing establishment during the relevant time, the employees
engaged in the fit-out works through the Applicant in a new
premises for expanding the business in the existing
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establishment are covered under the ESI Act and an ESI
contribution is liable to be paid with respect to the wage element
in Exts.A1 and A2 contracts. It takes me to the next question of
whether the Corporate Office of the Respondent No.3, which is
a covered establishment, could be treated as an existing
establishment and the new unit is only an extension of the
existing unit. If the new unit of the Respondent No.3 at Infopark,
Kochi, is an independent unit, the employees engaged in the fit-
out works done before commencing operation of the unit could
not be treated as employees covered under Section 2(9) of the
ESI Act.
19. The learned counsel for the appellants cited the decision of the
Hon’ble Supreme Court in Naraini Udyog (supra) to contend that
even two units located at a distance of 3 KM from the
establishment therein were treated as one single unit, finding
functional unity and integrity between the two units.
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20. The learned Counsel cited the decision of the Hon’ble Supreme
Court in Transport Corporation of India (supra) to substantiate the
point that when the Head Office or registered office is covered
under the ESI Act, employees working in different branches
anywhere in India would get covered by the sweep of the Act.
In the said case, the Hon’ble Supreme Court found that the
employees of the Bombay branch of the principal employer,
which is stationed in Secunderabad in Andhra Pradesh, are the
employees of the principal employer. It is held by the Hon’ble
Supreme Court that the Bombay branch of the principal
employer facilitating and directly connected with the principal
office and working under its complete control and supervision
cannot be treated to be beyond the sweep of the Act once the
employees at Bombay branch are held to be employees of the
principal employer; that it could not be held on the facts of the
said case that Bombay branch was functioning as a separate
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and independent entity not being controlled or supervised by the
Secunderabad Principal Office so as to enable the employer to
contend that its Bombay branch was not its limb and was an
independent establishment by itself as if it was run by some
independent transport company. The learned counsel cited the
decision of the Hon’ble Supreme Court in Sumangali (supra) in
which the Hon’ble Supreme Court relied on the factual findings
of the EI Court and the High Court that there was unity in
management, supervision and control, geographical proximity,
financial unity, general unity of purpose and functional integrality
between the different units and held that for the sake of ESI
coverage, the different units could be treated as one
establishment. In view of these two decisions, the employees of
the new unit of the Respondent No. 3 at Infopark, Kochi, are to
be treated as the employees of the Corporate office of the
Respondent No.3, which is a covered establishment, provided
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there is functional unity and integrity between the Corporate
Office and the new unit at Kochi.
21. The Hon’ble Supreme Court specifically observed in Paragraph
No.25 of the decision in Transport Corporation of India (supra) that
it is necessary to keep in view the salient fact that the Act is a
beneficial piece of legislation intended to provide benefits to
employees in case of sickness, maternity, employment injury
and for certain other matters in relation thereto; that it is enacted
with a view to ensuring social welfare and for providing safe
insurance cover to employees who were likely to suffer from
various physical illnesses during the course of their
employment; that such a beneficial piece of legislation has to be
construed in its correct perspective so as to fructify the
legislative intention underlying its enactment; that when two
views are possible on its applicability to a given set of
employees, that view which furthers the legislative intention
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should be preferred to the one which would frustrate it. The
learned counsel cited the decision of the Hon’ble Supreme
Court in Bombay Anand Bhavan Restaurant (supra), which deals with
the interpretation of the ESI Act. In the said decision it is held
that the ESI Act is a social security legislation and the canons
of interpreting a social legislation are different from
interpretation of taxation law; that the court must not
countenance any subterfuge which would defeat the provisions
of social legislation and the courts must even, if necessary,
strain the language of the Act in order to achieve the purpose
for which the legislature had in placing this legislation on the
statute book; that the Act, therefore, must receive a liberal
construction so as to promote its objects. Of course, the Courts
are to prefer the view which furthers the legislative intention
when two views are possible on interpretation. But when the
language of the provision is plain and clear and admits only one
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view, or there are well-considered precedents accepting one
view, there is no question of preferring another view.
22. The learned counsel cited the decision of the Hon’ble Supreme
Court in Torino Laboratories Pvt. Ltd. (supra), in which the Hon’ble
Supreme Court considered a question of clubbing of two units
of an establishment. The Hon’ble Supreme Court held that the
contention that once there are two separate juristic entities, the
theory of clubbing cannot be invoked is completely untenable
and it is stated to be rejected; that it is common knowledge that
artificial devices, subterfuges and facades are commonly
resorted to, to create a smokescreen of separate entities for a
variety of purposes; that the Court of law faced with such a
scenario has a duty to lift the veil and see behind applying the
well-established tests to determine whether the entities are
really separate entities or they are really a single entity; that
myriad fact situations may arise; that the contention that Section
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2A of the Act cannot be applied if ostensibly two separately
registered entities under the Companies Act are involved, has
only to be rejected. The learned counsel for the appellants, on
the strength of the decision, contended that even two entities
can be treated as one single establishment in light of the said
decision of the Hon’ble Supreme Court.
23. The learned counsel cited the decision of the Hon’ble Supreme
Court in Saraswathi Films (supra) in which the aforesaid two
decisions of the Hon’ble Supreme Court in Royal Talkies and
Transport Corporation of India are followed. The Division Bench
decision of this Court in Kerala Wheat Flour Roller Mill (supra) is
cited to point out that the construction of an office building or the
maintenance or repair of an existing building is a work incidental
to the purpose of the establishment. The Division Bench
Decision of this Court in M/s. Western Marine Engineering (supra) is
cited to contend that the employees who were appointed by the
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sub-contractor will also come under the definition of Employee
under Section 2(9) of the Act. The decision of the Hon’ble
Supreme Court in Harrison Malayalam Pvt. Ltd. (supra) is cited to
substantiate the point that it is the duty of the principal employer
to get the necessary details of the workmen employed by the
contractor at the commencement of the contract since the
primary responsibility of payment of the contribution is on the
principal employer and that such obligation ceases only when
the Act ceases to apply to the establishment.
24. On analysing the facts of the present case, the Respondent
No.3 is engaged in I.T. related services. It does not undertake
construction activities. It has no technical know-how to
supervise construction works. The checking and verification of
the work after completion of the work for processing the bill
could not be termed as an element of supervision. The right of
the principal employer to reject or accept the work after
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completion of the work cannot be treated as supervision of the
work. There could not be any implied supervision on account of
the approval by the Respondent No.3 with respect to the work
done after completion of the work. It is evident from Ext.A13
Report of the Social Security officer of the ESI Corporation that
the Applicant gave the work to its different sub-contractors and
the Applicant had only monitored the quality of work rendered
by its sub-contractors. Hence, whatever interior fit-out works are
done in the leased premises by the Applicant, it is done under
the supervision of the Applicant itself, and it is not done under
the supervision of the Respondent No.3.
25. The Corporate Office of the Respondent No.3 is a covered
establishment. Respondent No.3 obtained lease of the
premises from the Applicant for expanding their business in
Kochi on 21.10.2007. As per Ext.D1 Lease Deed, the lease
commencement date is 21.10.2007 or the date of actual
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handover of the premises by the Lessor to the Lessee to start
the fit-out works. Even before the execution of Ext.D1 Lease
Deed, the Respondent No.3 awarded a contract in favour of the
Applicant to do the interior fit-out works in the premises as per
Ext.A1 Contract/Work Order dated 08.10.2007. So the
commencement of the lease is from 08.10.2007. The interior fit-
out works were completed on 11.01.2008 and the premises
were entrusted to the Respondent No.3 on 11.03.2008.
Respondent No.3 started its operations of the new unit in the
leased premises on 02.04.2008. Even though Ext.A2 Amended
Work Order is dated subsequent to the date of starting
operations by the Respondent No.3, it is clear from it that it
relates to the additional works done on the basis of Ext.A1,
before starting operations by the Respondent No.3. Thus, the
fit-out works as per Exts.A1 and A2 were done before starting
business operations in the leased premises by the Respondent
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No.3. While doing the fit-out works in the premises, the
establishment was not existing and hence the fit-out
construction works cannot be termed as a preliminary or an
incidental one for the purpose of the establishment of the
Respondent No.3 at Kochi. In relation to the Corporate office of
the Respondent No.3 at Mumbai, which was a covered
establishment at the time of executing the fit-out works, the
works are outside the premises of such establishment. Only if
there is functional unity and integrity between the Corporate
Office and the new unit at Kochi, the ESI Corporation can rope
in the fit-out construction works in the new unit under ESI
coverage. The functional unity and integrity between two units
can be assessed only if both the units are existing. The
functional unity and integrity between two units of an
establishment could not be decided with reference to the pre-
operative fit-out construction works in a unit which is yet to be
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started. Since construction works are not the business of the
Respondent No.3, there could not be functional unity and
integrity between the two units of the Respondent No.3 with
reference to the construction fit-out works.
26. There is a covered establishment of the Respondent No.3 in the
neighbouring building by the name ‘Vismaya’. The Respondents
Nos.1 and 2 contended that the new unit is an extension of the
said existing unit of the Respondent No.3. It is clear from the
said contention that separate coverage is for the Vismaya unit
and the Corporate office of the Respondent No.3, and both are
different establishments under the ESI Act. The EI Court relied
on Exts.A11 and A12 Reports of the Social Security officer of
the ESI Corporation to hold that the Thejomaya unit and the
Vismaya unit of the Respondent No.3 are independent and
separate entities and that the Thejomaya unit is not an
extension of the Vismaya unit. In Ext.A11, it is reported that the
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Vismaya unit and the Thejomaya unit are functioning under
different schemes of the Government of India and their
operations are independent of each other and that they are
situated in separate and distinct premises having no connection
with each other. This would also support the finding that there is
no functional unity and integrity between the Corporate Office
and the new unit in Thejomaya.
27. Another contention raised by the Applicant before the EI Court
was that construction workers are exempted from ESI coverage
during the relevant time as per Ext.A9 Instruction and hence the
ESI Corporation has no authority to collect contribution for them.
The EI Court found in favour of the Applicant. Ext.A9 Instruction
of the Head Office of the ESI Corporation is dated 14.06.1999
exempting construction site workers on the ground that they
belonged to the unorganised sector due to the peculiar
characteristics of the construction industry and the peculiar
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nature of the employment of workers engaged in it could not be
identified and that no benefit under the ESI Act could be
extended to them. Later, Ext.A9 Instruction was revisited, and
another Circular dated 03.01.2011 was issued by the ESI
Corporation extending the coverage and benefits to
construction site workers. The said Circular is extracted in the
impugned order.
28. Learned counsel for the Appellants invited my attention to
Clause 3 in Ext.A9, which acts as an exception to the exemption
of construction site workers. It reads as follows.
“Such construction workers are to be taken into consideration for
coverage under Section 2(9) as ’employee’ who are engaged
directly in a covered factory by the principal employer or through
an immediate employer.”
29. The premises of the Respondent No.3 are not a factory to attract
the said exception clause. Hence, the workers engaged by the
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41
Respondent No.3 through the Applicant to execute the interior
fit-out construction works are not liable to be covered as they
are exempted as per Ext.A9 Instruction during the relevant time.
30. Lastly, it is contended by the Counsel for the Appellant that the
Refund Application was not made before the commencement of
the benefit period corresponding to the contribution period in
which the contribution was paid as required under Regulation
40 of the ESI (General) Regulations, 1950. The contribution was
remitted by the Respondent No.3 on 29.03.2008, and the
additionally demanded contribution was remitted on 16.05.2011.
It is the Respondent No.3 who had remitted the contribution
using the amount belonging to the Applicant. The Applicant had
no control over the payment of the contribution made by the
Respondent No.3 to the ESI Corporation, as it is the liability of
the Applicant to meet the burden to pay ESI Corporation as per
the contract. If it were the Applicant who had to pay the
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contribution, the Applicant could have refused to pay the
contribution, disputing the liability, and could have instituted
litigation with respect to the same. The only remedy available to
the Applicant is to claim return of the amount to it after effecting
payment of the same by the Respondent No.3 as per the
contract. The refund is claimed by the Applicant and not the
Respondent No.3, who had remitted the contribution. In case
the Applicant proves that there is no liability to pay the
contribution under the provisions of the ESI Act, the Applicant is
entitled to get the said amount from the ESI Corporation.
Regulation 40 deals with the refund of the contribution to the
person who has made the contribution and does not deal with
the return of the remitted contribution to any person other than
who remitted the contribution. An Application for refund by a
person other than who has made the contribution does not
come under Regulation 40. Hence, the time limit prescribed
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under Regulation 40 is not applicable to the Application for
refund by a person other than who has made the contribution.
In B.P.L. Cellular Ltd. (supra), this Court held that the Act or the
Rules or the Regulation does not expect or intend that the ESI
Corporation should be benefited out of a mistaken payment
made by the employer or the employee; that if the Corporation
wants to gain or make money out of such mistakes committed
by the employer or the employee it will amount to unjust
enrichment and that therefore Regulation 40 need not be
liberally construed if it results in undue advantage or benefit to
the Corporation. In this case also, if the ESI Corporation is
allowed to keep the money belonging to the Applicant, which is
remitted by the Respondent No.3, it is an undue enrichment to
the ESI Corporation. ESI Corporation is liable to restore the
benefit of such undue enrichment back to the person eligible for
the said benefit.
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31. The substantial question of law is answered in the negative and
against the appellants.
32. In view of the answer to the substantial question of law, the
Appeal is dismissed without costs.
Sd/-
M.A.ABDUL HAKHIM
JUDGE
Shg/
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