Narottamdas Bhau v. Regional Director

G.N. Vaidya, J.

1. The above First Appeal No. 744 of 1972 filed by Messrs. Narottamdas Bhau Jewellers against the judgment and order passed by the Employees Insurance Court, Bombay, on September 28, 1972 raises an interesting point regarding the definition of the word "factory" in section 2(12) of the Employees State Insurance Act, 1948 and the definition of "employee" contained in section 2(9) prior to its amendment by section 2 of Act No. 44 of 1966, which came into force with effect from January 28, 1968.

2. The question arises this way. Narottamdas Bhau Jewellers had, in addition to their business premises at Lamington Road, where they carried on their business for a number of years, an additional business premises for manufacturing jewellery and gold articles at Shaikh Memon Street, Jhaveri Bazar, Bombay, from 1939 till it was closed down on February 18, 1963. After the business at Shaikh Memon Street was closed down, the Regional Director, Employees State Insurance Corporation, called upon Narottamdas Bhau Jewellers to pay their contribution and the contribution of the workers under the Employees State Insurance Act, 1948.

3. A lengthy correspondence ensued between Narottamdas Bhau Jewellers and the Regional Director, in the course of which Narottamdas Bhau Jewellers maintained that the unit at Lamington Road was totally different and independent from the unit at Shaikh Memon Street and as each of those units had less than 20 workers, they were not liable to pay any contribution.

4. The Regional Directors Office, on the other hand, maintained that gold ornaments were manufactured at Shaikh Memon Street and were fitted with jewels at the premises at Lamington Road and as the two units were owned by the same firm, although the number of workers in each of the units was less than 20, the two units together formed one unit for the purposes of contribution as the two units together fall within the definition of the word "factory" in section 2(12) and the employees working in the two factories fail within the definition of the word "employee" in section 2(9) of the Employs State Insurance Act, 1948.

5. The said provisions, so far as they are relevant to the appeal, ran as follows at the time in respect of which the respondent, the Regional Director, was demanding the contribution, namely, from March 31, 1961 to March 21, 3 964, :

"2(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:

(i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or

(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; or

(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service;

but does not include:

(a) any member of the Indian naval, military or air force; or

(b) any person employed on a remuneration which in the aggregate exceeds four hundred rupees a month;"

* * * * *

"2(12). "factory" means any premises including the precincts thereof whereon twenty or more persons are working or were working 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 Indian Mines Act, 1923 (IV of 1923) or a railway running shed;

* * * * * * * * * * * * ***

The expressions, manufacturing process and power shall have the meanings respectively assigned to them in the Factories Act, 1948."

6. It may be observed that there was also a controversy regarding the nature of the process carried on in the two premises. While Narottamdas Bhau Jewellers admitted that there was a manufacturing process at the Lamington Road premises, they contended that there was no manufacturing process at the Shaikh Memon Street premises, as no power was used in those premises. But this question is subsidiary to the main question as to whether the two units-together formed a factory for the purposes of the Employees State Insurance Act, 1948. If they together formed one unit, the question as to whether power was used in the Shaikh Menon Street premises was irrelevant.

7. Mr. Shrikrishna, the Learned Counsel appearing for the appellants, submitted that if the Shaikh Memon Street unit was to continue when the amendment of section 2 (9) came into force, it would have been perhaps difficult for him to argue that the employees there were not "employees" within the meaning of section 2(9) as amended; but, in the absence of the amendment, what applied to the case was the definition of "employee" in section 2(9)(i), which required some link of nexus between the work done at the two units, or that, as the clause suggests, the employees must have been directly employed by the principal employer on any work of and incidental or preliminary to or connected with the work of the factory or establishment.

8. In other words, Mr. Shrikrishna submitted that unless some such links were established between the two units, the employees of one unit will not be the employees of the other unit and the two units together cannot form one factory as defined in section 2(12) of the Employees State Insurance Act, 1948.

9. Mr. Shrikrishna further submitted that under section 2 (12), "factory" means any premises, including the precincts thereof, and having regard to the geographical distance between the Lamington Road premises and the Shaikh Memon Street premises, it cannot be said that the business premises at Shaikh Memon Street were within the precincts of the shop at Lamington Road; and, according to him. it can never be argued that the two units, one at Lamington Road and the other at Shaikh Memon Street, together formed a factory.

10. Mr. Shrikrishna also submitted on the merits of the case that the learned Judge of the Employees Insurance Court, Bombay, came to the conclusion that the two units together were one factory in respect of which contribution could be levied by the Regional Director without any legal evidence to support his finding. According to Mr. Shrikrishna. the basic assumption made by the learned Judge, without any foundation on the record, was that there was something on the record to show that gold ornaments were manufactured in one unit and they were used for setting them with jewels in the other unit; and this erroneous assumption, without any legal evidence to support it, led him to the conclusion that the two units together formed one factory in respect of which the respondent, the Regional Director, could recover contribution from the appellants Narottamdas Bhau Jewellers.

11. As the last question goes to the root of the matter, it has to be dealt with first. The learned Judge has observed in paragraph 7 of his judgment :

"Applicants firm is carrying on business of manufacturing jewellery and golden articles. The word jewellery means ornaments set with jewels. Ornaments are made of gold and silver. For the sake of convenience the Plaintiff-firm carried on the same business at two places and registered the two units Separately under the Factories Act. The process connected with manufacture was divided into two parts, viz., jewellery and gold and silver ornaments. However, gold ornaments manufactured in one unit were used for setting them with jewels in the other unit. Applicants witness admits this fact, In fact, both the units constituted one factory as the work carried on in the two units was inter-connected and conducted by the same concern. The jewellery and gold and silver ornaments and articles were sold in one shop and the Applicant had one office adjacent to one of the two units for administering the business of the entire factory.

12. Now, it is pointed out by Mr. Shrikrishna that the so called admission of the applicants witness is not there at all; and there is no legal evidence on the record to support the finding of the learned Judge that the gold and silver ornaments were manufactured in the Shaikh Memon Street premises and were set with jewels in the Lamington Road premises.

13. Mr. Jayakar, the Learned Counsel appearing for the respondent, the Regional Director, took me through the entire evidence of Manilal Gokuldas, the Manager of Narottamdas Bhau Jewellers, who was the only witness examined on behalf of the appellants, and he could not point out anything therein to show that this witness had admitted that the gold and silver ornaments manufactured in the Shaikh Memon Street premises were set with jewels in the Lamington Road premises.

14. Mr. Shrikrishna is, therefore, quite right in contending that the learned Judge erroneously assumed that there was an admission on the part of Manilal Gokuldas.

15. Mr. Jayakar took me through the pleadings of the parties, which were nothing more than reiteration of what was contained in the respective correspondence about the stands which the parties took with regard to the liability to pay the contributions. He also submitted that the reports of the Inspectors of the respondents office were proved by Govind Bhalekar and are exhibited as Ex 1 (Collectively); and those reports should be considered as binding because one of the Inspectors, who made the reports, Mr. Bhatt, was dead at the time of the hearing; and the other Inspector Bhayani had left the service and his whereabouts were not known.

16. It is true that Bhayani in his report has stated that gold manufactured at the Shaikh Memon Street premises is set with jewels in the Lamington Road premises, but the opinion so expressed by the Inspectors in the reports cannot be said to be legal evidence which can be taken into consideration by the Court in the absence of any other evidence to show that the gold ornaments manufactured at the Shaikh Memon Street were set with jewels at the Lamington Road premises.

17. Mr. Jayakar pointed out that in that event, the appellants, Narottamdas Bhau Jewellers, should have explained what they were doing with the ornaments which were manufactured at the Shaikh Memon Street premises. He drew my attention to the pleadings and submitted that although the learned Judge may not be right in assuming that there was an admission on the part of the appellants witness, in the absence of an explanation as to how they were dealing with the ornaments at the end of the manufacturing process at the Shaikh Memon Street premises, the only inference that can be drawn from the Circumstance. of the manufacture is that those ornaments must have been brought at the Lamington Road premises and sold either with or without jewellery.

18. There is some force in the above contention of Mr. Jayakar, but that is not the only inference that can be drawn from the facts stated above. As stated above, having regard to the definition of the word "employee" in section 2(9)(i) of the Employees State Insurance Act, there must be a nexus or link established before the employers can be held responsible. It was for the Regional Directors Office to establish it by proper evidence in accordance with law. The reports relied upon are merely opinions of the Inspectors who visited the factories and such opinions by themselves cannot be considered as legal evidence.

19. In the result, 1 find that the finding recorded by the learned Judge of the link between the Shaikh Memon Street unit and the Lamington Road unit belonging to the appellants, Narottamdas Bhau Jewellers, is not supported by any legal evidence on the record. It must, therefore, follow that the employees in one unit cannot be treated as working with the employees in the other unit, having regard to the definition of the word "employee" contained in section 2( 9 )(i), as it stood before its amendment by Act No. 44 of 1966.

20. It is also impossible, therefore, to hold that the two units together formed one factory within the definition of "factory" in section 2(12), as the opinions of the inspectors of the respondents office are based on no legal evidence produced before the Court to establish the link between the two units. It may be that the same management is running both the units, but that by itself would not make the employees in both the units "employees" within the definition of section 2(9) (i) of the Employees State Insurance Act, 1948.

21. In view of the above conclusion, it is really unnecessary for me to consider a number of authorities cited by Mr. Shrikrishna and referred to by the learned Judge or relied upon by Mr. Jayakar in support of the legal tests for determining whether the two units formed one factory for certain purposes of certain labour laws, like the Employees Provident Funds Act and the Employees State Insurance Act. However, as these cases were referred to in the course of the arguments, I will briefly refer to them and express my own view in the matter.

22. The first decision strongly relied upon by Mr. Shrikrishna is that of a Division Bench of the High Court of Judicature at Panjab in Metro Motors (Private) Ltd. v. Regional Provident Fund Commissioner, Punjab : (1959) I L L J 56. That was a case under section 19A of the Employees Provident Funds Act. In that case, the question was whether the persons working under the same employer in his shop where motor-cars were sold in the service station attached to such shop where servicing and repairs to motor-cars were undertaken and in a workshop run by him in the premises situated half a mile away from his shop and service station, could be counted together in order to determine as to whether the workshop was a "factory" within the meaning of the Employees Provident Funds Act. The High Court held, with respect, rightly that it could not be contended that the shop and service station though housed in a different premises must be deemed to be in the precincts of the workshop where manufacturing process was carried on.

23. The second case relied upon by Mr. Shrikrishna was a decision of a Division Bench of the Madras High Court in Regional Director, Employees State Insurance Corporation, Madras v. Sriramulu Naidu (1968) II L L J 699, where questions arose under sections 2(9) and 2(12) of the Employees State Insurance Act and it was held that reading the definitions of the "employee and "factory" in sections 2(9) and 2(12) of the Employees State Insurance Act together, it is clear that where within the same premises or compound a number of departments ate situate and the departments are engaged in the work in connection with or incidental to the manufacturing process of the factory, they would prima facie all form part of the factory. The scope of the statutory definition of the term "factory" in section 2(12) of the Employees State Insurance Act and the application of the Act cannot be decided on the basis of what the employer either for the sake of efficiency or convenience of management, does, e. g., by dividing the factory into various departments. The essential requisites of a factory under the Act are :

(1) a premises 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.

24. Relying on what was pointed out as the essential requisites of a factory by the Madras High Court, Mr. Shrikrishna strenuously urged that the first test was not fulfilled in the present case, inasmuch as the two units, one at Shaikh Meraon Street and the other at Lamington Road, could not be said to be within the geographical area within a certain boundary. With very great respect, however, I find myself unable to agree with what they call the essential requirements or requisites, inasmuch as reading section 2(12), it would be perilous to lay down any such tests and each case must be decided on its own facts.

25. I would not like to read "premises" to mean only as "geographical area within a certain boundary" as observed by the learned Judges of the Madras High Court. In a city like Greater Bombay, it is not unusual, particularly during the last two decades, to have several units working under the same management and manufacturing the same products. Sometimes, the boundary may be extended not only beyond the city to Thane and Pune but even beyond the Maharashtra State itself.

26. In these circumstances, I find it difficult to adopt the tests or the requisites as formulated in the above decision of the Madras High Court. Moreover, this question is now academic in view of the amendment of the word "employee" by Act No. 44 of 1966.

27. The third case strongly relied upon by Mr. Shrikrishna was the judgment of Misbhoy, J. of the Gujarat High Court in Swastik Textile Trading Co. Ltd. v. Union of India and others (1965) II L L J 254. That judgment was under the provisions of the Employees Provident Funds Act. In that case, the company was engaged in the manufacture of shuttles, wire healds and reeds, described as items of mill stores. The articles were manufactured in three different buildings housed in the same compound. The number of workmen in each of such activities was less than 50 in number, but the total strength of workmen taking all the three activities as part of the one and the same unit exceeded 50 in number.

28. The company filed a suit for a declaration that the provisions of the Employees Provident Funds Act, 19.2, as amended by Act No. 37 of 1963, do not apply to any of their three activities and for a permanent injunction restraining the concerned authorities from enforcing the provisions of the Act against them. It was contended, inter alia, that each activity must be considered as a separate factory and as the number of workmen in each of such "factories" did not exceed 50, the Act did not cover any of the activities.

29. Both the Courts below had dismissed the suit. Miabhoy, J. observed:

"The matter can be tested in this way also. Supposing, if all the three articles were being manufactured in one and the same building, then, it is crystal clear that, for the purpose of computing the number of workers, the workers engaged in the manufacture of all the three articles would be included. It does not stand to reason that the workers should be denied the benefit of the provisions of the Act by the mere fact that, for economic or other reasons, the employer accommodates the workers in separate buildings, but in the same compound. This is apart from the question as to whether the separation was designed to avoid the provisions of the Act. Even apart from the latter question, in the present case, all the three buildings together must be regarded as constituting one factory having regard to the fact that they were situated in one and the same compound specially because when we find that plaintiff is engaged in the activity of producing articles which are used in one and the same industry, namely, the textile industry."

The learned Judge, therefore, rightly dismissed the second appeal.

30. Mr. Shrikrishna emphasised the above observations and contended that it is because of the compound and the close connection between the units that all other considerations were held to be irrelevant in that case; and as there is no such connection in the present case as of a compound or the Shaikh Memon Street premises being in the precincts of the Lamington Road premises, they cannot be notionally united together into one factory as attempted to be done by the respondent.

31. As stated already by me, even where the compound is there, that may not be the final test of the units being one factory. With respect, Miabhoy, J. was quite right in helding that as all the three units were producing the same kind of textile products and they were all in the same compound, they constituted one unit for the purposes of the Employees Provident Funds Act. From that it is not possible to infer logically that in every case there must be a compound or that the same kind of things or the same class of goods must be manufactured in the units.

32. Each case must depend on its facts and the Court must look at all the circumstances of the case before coming to the conclusion that the various units form one unit within the meaning of section 2(12), having regard to the provisions of section 2 (9) of the Employees State Insurance Act, 1948.

33. The fourth case referred to by Mr. Shrikrishna was a Division Bench decision of the Assam and Nagaland High Court in Hindusthan Construction Co v. Employees State Insurance Corporation 1969 Lab. & Indus. Cases 769 where the Division Bench, in the circumstances of the case, held that the piers which were being built at different places by Hindusthan Construction Co Ltd. did not constitute one unit. That case, again, depended on the facts peculiar to the construction of the piers.

34. Mr. Shrikrishna relied on the decision of the Delhi High Court in Employees State Insurance Corporation v. Patter Sewing Machine Co. A I R 1970 Del. 182, [LQ/DelHC/1970/27] where, again, the learned Judge (Deshpande, J.) tried to formulate some tests or unities or identities and found, in the circumstances of the case, that there were two units of tailoring, which were independently managed, and that only supports the proposition that decision in each case must depend on the facts and circumstances of that case; and no general formulas can be laid down for determining the question as to whether the various units, form one factory for the purposes of section 2(12) of the Employees State Insurance Act.

35. Mr. Shrikrishna also referred to the judgment of a Division Bench of the Mysore High Court (now Karnataka High Court) in Mohipal Singh Shankarsing Pawar v. Regional Provident Fund Commissioner (1972) 2 Lab. & Indus. Cases 1202. But in that case, there was not even an allegation by the Regional Provident Fund Commissioner that any of the three concerns,(l) dealing in commission agency business in cigarettes, petrol and kerosene oil; (2) dealing in commission agency business in food grains and (3) oil-mill called Shri Shankar Oil-mill, were departments of each other or branches of each other; and, with respect, the learned Judges of the Mysore High Court rightly held, in the circumstances, that they together could not form one unit for the purposes of provident fund contribution.

36. The last case relied upon by Mr. Shrikrishna was the decision of a single Judge of the Madras High Court in E. S. I. C, Madras v. R. Sreedhara Punicker : (1977) II L L J. 280, where cleaning of bottles or washing and soaking of medicinal herbs were being done with the water pumped from the well using electric motors in one place and it was contended by the Ayurvedic Vaidyasala that there was no connection between the washing and soaking with the ultimate process of medicines and this contention was upheld on the ground that using of electric motors for pumping water had no connection with the medicinal purpose, and the learned Judge rightly said at page 284: -

"As already stated, the question in this case is, whether the necessary connection has been established between the pumping of water and manufacturing process. The water pumped out from the well is found to have been used for cleaning bottles and soaking herbs. The question is whether from the said user of water the pumping could he said to be intimately linked up with or integrally connected with the manufacturing process. It is not possible to find such an intimate connection between the cleaning of bottles or soaking of herbs with the ultimate process of manufacture of ayurvedic medicines. In this view of the matter, I have to uphold the view taken by the Employees Insurance Court."

37. In my view, the conspectus of these cases only shows how varied are the facts and circumstances relating to different kinds of units of manufacturing process and the question, whether the requirements of sections 2 (9) and 2 (12) are fulfilled so as to constitute two or more of the units as one factory, must, therefore, depend on all the facts and circumstances, from which a reasonable inference can be drawn of a close nexus, or common link or interlinking among the various units so as to make them legally one unit; and such facts and circumstances must be properly established by the Regional Director, Employees State Insurance Corporation, by leading legal evidence before he claimed contribution, on the basis that the various units under one management form one factory and the employees working in the various units fall within the definition of "employees" under section 2 (9) of the Employees State Insurance Act, 1948.

38. As already stated above, in the present case, there is no evidence to show such a link between the unit at Lamington Road and the unit at Shaikh Memon Street belonging to the appellants.

39. Mr. Jayakar has, however, submitted that even though direct evidence may not be there to show the link, the Ragional Director can rely on the circumstances from which it could be reasonably inferred that there is a link between the two units being managed by the employers. In support of his argument, he relied on the English decision in Thomas Hoyle and others v. Oram 142 E. R. 1090.

40. In that case, the appellants carried on the business of calico-printers at two places distant from each other seven miles. The business of a calico-printer consists of four processes, viz., bleaching, printing (by impressing the pattern on the bleached cloth by means of mordants), dyeing, and finishing. Three of these processes, viz., the bleaching, dyeing and finishing, were performed at one branch of the establishment, and the fourth, viz., the printing, at the other. It was held that a child employed on the premises where the bleaching, dyeing and finishing were performed, was employed in an "incidental printing process" within the 2nd section of the 8 and 9 Vict. c. 29; and that the place where he was so employed formed part of "the establishment where the chief process of printing was carried on," within the meaning of that Act; and, consequently, that the appellants were not liable to be convicted of an offence against the Bleaching Works Act, 23 and 24 Vict, c. 78, in employing him without a school-masters certificate.

41. Erle, C. J., with whose view Willes, Byles and Keating, JJ. agreed, said at page 1095 :

"The three processes of bleaching, dying and stiffening are all processes incidental to the principal process of printing by the application of the mordant. The child Pratt was employed at Sandy Vele, where the cloth is bleached, dyed and stiffened. He therefore, was employed in an incidental printing process, and so far clearly comes within the 8 and 9 Vict. c. 29. Then, it is not every incidental process that is excepted: it must be process which is carried on within buildings, sheds, & c, lying adjacent to each other, or forming a part or parts of the establishment where the chief process of printing as aforesaid is carried on. The three incidental processes here are all performed at Sandy Vale, and therefore in buildings adjacent to each other. But that is not the ground upon which my mind is brought clearly to the conclusion that the exception in the 9th section of the 23 & 24 Vict. c. 78, applies to these appellants; because, in my opinion, the buildings at Sandy Vale form part of the establishment at which the principal process, the printing, is done, viz. Mayfield. It appears that the works at Mayfield having some years ago become inadequate, by reason of the increase of the business and by the deterioration and deficiency of the water of the river Medlock, the appellants transferred part of their works to Sandy Vale; but that the principal part of the work continued to be carried on at Mayfield, which was the principal seat of the firm. In a commercial sense, therefore, Sandy Vale clearly was part of one entire establishment. It was contended for the respondent that the statute did not mean forming part in a commercial sense, but in a popular and local sense. But I see no reason for confining the meaning to local proximity. The whole substantially forms one establishment. It seems to me that bleaching was purposely left out of the first Act; but that the bleaching and the other processes incidental to the printing process are within it, and stand upon the same footing as printing, and that the boy is to have the benefit of that Act."

42. With very great respect, the view taken by the learned Judges in the above case was quite right, but in that case, the necessary links were established between the two units legally and, therefore, the commercial sense was employed.

43. Mr. Jayakar submitted that, in the circumstances of the present case also, although technically the evidence may not clearly establish the link between the two units, in a commercial sense the two units worked together and were linked to each other by one management and, in these circumstances, the link or nexus could be inferred in the circumstances of the case.

44. There is, again, some force in the above contention of Mr. Jayakar, but the respondent has not led any evidence to establish any such link, as was established in Thomas Hoyles case, between the two units either legally or commercially, apart from the opinions expressed by the two Inspectors, which cannot be considered to be legal evidence. The fact that the units belonged to or managed by the same person by itself is not a concluding circumstance

45. It is true that it is open to the Court to infer from circumstances whether there is such a link, but in the present case. Mr. Shrikrishna is right in his contention that there is no circumstance Established by any legal evidence from which any inter-linking of (he work done or of products or of profits or of employees between the two units was established by the respondent.

45. Another case relied upon by Mr. Jayakar was Pharam Poul Aggarwal v. The Regional Director, Employees State insurance Corporation- ILR 1967 P&H. 355, where a process connected with the manufacture was proved to be carried on in three different houses and it was held that it was not necessary, for the purpose of section 2(12) of the Employees State insurance Act, to constitute a building a factory that all the processes connected with the manufacture should be carried on or should be located in the same compound.

47. It was proved in that case that the work conducted in all the three buildings unmistakably was directed towards the same object, namely, the manufacture of Science Instruments; and, with respect, the learned Judge (Sharma, J.) rightly observed at page 359 : -

"What is necessary is that the work carried on in different buildings including the precincts should be inter-connected and conducted by the same concern. In the present case, as has been indicated above, appellant No. 2 is carrying on the process connected with the manufacture of Science Instruments of bakelite in the three different buildings. This tact has not been controverted by the appellants."

48. There is no such evidence in the present case and, therefore, the case is distinguishable on facts. I would also respectfully demur with regard to the observation of the learned Judge that it must be always conducted by the same concern. It may be that in a particular case, there may be different concerns which are so interlinked that they must be considered as one concern for the purposes of interpreting and applying the Labour Law.

49. In the result, the judgment and order passed by the Employees Insurance Court, Bombay, on September 28, 1972 are set aside and the above First Appeal No. 744 of 1972 is allowed.

50. In the circumstances of the case, however, there shall be no order as to costs. The amount, if any, deposited by the appellants shall be refunded to the appellants or their counsel.

51. For the same reasons, the judgment and order dated September 28, 1972 passed in the application for recovery of contribution and section 75 of the Employees State Insurance Act, 1948 filed by the Employees State Insurance Corporation are set aside and First Appeal No 745 of 1972 is allowed with no order as to costs. The amount, if any, deposited shall also be refunded to the appellants.