CMA/492/2003 of REGIONAL DIRECTOR, Vs M/S.AMBIKA OFFSET on 23 December 2010

------JUDGMENT

This civil miscellaneous appeal is filed challenging theaward and decree dated 10.9.1999 made in ESIOP No.9 of 1995 on thefile of the Principal District Judge, Salem.

2. The Employees State Insurance Corporation has filedthis appeal challenging the order of the E.S.I. Court setting asidethe order passed under Section 45-A of the E.S.I.Act 1942 asamended.

3. The brief facts of the case are as follows:-

(i) One Ambika Offset situated at A-1, Salem IndustrialCo-operative Estate Limited, Salem, is engaged in printing businessand another company viz., M/s. Indukala Printers is engaged inlamination work. On 26.5.1991, Mr.S.R. Radhakrishnan, Inspectorof E.S.I. Corporation inspected Ambika Offset at D.No. A-1, SalemIndustrial Co-operative Estate Limited, Salem. At the time ofinspection, the Inspecting Officer verified the General Ledger fromApril 1987 onwards and found that M/s.Indukala Printers has beendoing lamination work on job work basis to the Principal employerviz., Ambika Offset. M/s. Indukala Printers raises job work billsentirely on Ambika Offset. At the time of Inspection, theattendance register and general ledger were verified and found that13 workers were working in Ambika Offset and 7 workers were workingwith the immediate employer M/s. Indukala Printers totalling 20 innumber. This fact is supported by the Attendance Register, which isnot in dispute. In the report of the Inspecting Officer, it hasbeen clearly stated that two units have separate TNGST Number,Sales Tax registration and income tax assessment.

(ii) M/s. Ambika Offset is the partnership firmconsisting of Mr.S.A.P. Angannan, Mr. Shanmuga Sundaram and Smt.P.Janaki and the manager is Mr.Selvamani, S/o. Veerabadran.Insofar as M/s.Indukala Printers is concerned, the partners areMrs. Indirani, w/o Angannan and Mrs. Kalarani, W/oShanmugasundaram. In effect, the two brothers are the partners ofM/s. Ambika Offset and the respective spouses are the partners ofM/s. Indukala Printers. It is also not in dispute that at the timeof inspection in May 1991, M/s.Indukala Printers factory was foundon the back yard of M/s.Ambika Offset engaged in lamination workand there were six employees namely (1) Varadarajan (2)Venkatachalam (3) Mohan (4) Raja (5) Rajendran and (6) Mahalingamand this was confirmed by the Manager-Mr.Selvamani of AmbikaOffset. It is also recorded that one employee by name Tyagarajanhad left service in April 1991. The general ledger ofM/s.Indukala Printers was available from 1987-88 to 1989-90 and forthe year 1990-91, it was incomplete. The Inspecting Officer hasrecorded that the account books of both the units were produced bythe Manager of M/s.Ambika Offset.

(iii) It is also recorded that the Managing partner ofM/s. Ambika Offset has stated that from April 1987, M/s IndukalaPrinters is functioning in the same premises of M/s. Ambika Offsetas the suitable accommodation was not available. It is alsorecorded that a sum of Rs.300/- is paid by M/s. Indukala Printersto the owners of the premises M/s. Ambika Offset and this isrevealed by the general ledger entry. It is further recorded thatno separate electricity supply is available in the name of M/s.Indukala Printers. The electricity power supply is common for boththe units and it is in the name of M/s. Ambika Offset.

(iv) It is further recorded in the Inspection reportthat the labour bills raised by M/s. Indukala Printers on M/s.Ambika Offset show that the work done in favour of M/s. AmbikaOffset is exclusive. The bill numbers have also been verified andindicated in the report. Hence, the Inspecting Officer was of theview that M/s.Ambika Offset is the principal employer employing 13persons and M/s. Indukala Printers is the immediate employeremploying 7 persons and together, they employ 20 persons andtherefore, they are covered under the provisions of the E.S.I. Act.The report also shows that M/s. Indukala Printers had paid wagesfrom 1987-88 to 1989-90 to their workers. The fact that both theunits are functioning in one common roof from the date ofcommencement though for the purpose of sale tax and income taxdifferent addresses were shown, has not been refuted by therespondent by way of proper record. On this basis, a show causenotice dated 13.11.1991 was issued calling upon them to show causeas to why contribution should not be recovered from the employer.The said show cause notice was served on the respondent, theprincipal employer and it appears that on 21.4.1992, a reply wassubmitted with certain records. The authority passed an order on10.11.1994 holding that the principal employer is liable to pay thecontribution as determined in the order and one of the reasonsstated therein was that the principal employer has not shown anycause to the notice. This order came to be challenged in theproceedings before the Special Court.

4. Before the Special Court in ESIOP No. 9 of 1995, onbehalf of the respondent S.P.A. Angannan was examined as P.W.1 andhe deposed on behalf of the Ambika Offset and Thiru P.Venkatesanwas examined as P.W.2 and he was the manager of M/s.IndukalaPrinters. Exs. A1 to A19 were marked on behalf of the petitionerand on behalf of the appellant Inspecting Officer, Radhakrishnanwas examined as R.W.1 and his report dated 25.5.1991 was marked asEx.B1.

5. The E.S.I. Court framed the following issue forWhether Indukala Printers or M/s. Ambika Offset areone and the same and the petitioner is not liable to paythe contribution amount?

consideration.

6. P.W.1 Mr. Angannan, partner of M/s. Ambika Offset, inhis evidence, stated that prior to 1987, the factory was coveredunder E.S.I.Act and on 16.5.1995, an inspection was done andthereafter, it is stated that they need not pay contribution.According to him, from 1.4.1987, the factory did not come under theE.S.I. Act. However, from April 1991, the factory was coveredunder the E.S.I. Act and he has remitted the contribution.

7. Insofar as the show case notice dated 13.11.1991 isconcerned, it is stated that it is not correct to state that M/s.Indukala Printers is functioning in the same place as that of theAmbika Offset. According to him, the two units are at differentplaces. One in Gugai area and the other is in Udayapatti, which is15 kms. away from Gugai. The employers are different and theaccount books are different. It is also the case of thepetitioner/respondent herein that M/s. Indukala Printers are doinglamination work not only for M/s.Ambika Offset but also others. Inthe cross examination of P.W.1 has accepted that his wife name isIndirani and his brother wife name is Kalarani. P.W.2, animportant witness is the manager of M/s.Indukala Printers said tobe situated at D.No.210 Trichy main road, Gugai, Salem. He statesthat six employees were working in that place. He has also statedthat there is no relationship between M/s. Ambika Offset and M/s.Indukala Printers and there is no inter relationship between theemployers. It is further stated that M/s.Indukala Printers ishaving separate sale tax registration. It is pertinent to notethat those documents were marked by the manger of M/s. IndukalaPrinters. E.S.I. Inspector was examined as R.W.1 and he gave thedetails of the inspection and emphasised that both the units arenot separate units and are running in the same premises with commonelectricity service connection though a sum of Rs.300/- iscollected as rent by M/s. Ambika Offset.

8. Based on the plea taken by the respondent that theyare totally different entity, the Court below gave the findings asfollows:- " The mere fact that the account books of Ms/.Indu Kala Printers were found in the same premises doesnot prove that both the firms are one and the same. Thefirms are two different partnership firms. Admittedly,the sale tax and income tax assessment are separate. Thisgoes to show that two are independent firms though thepartners are related to each other. The very fact thattwo separate firm has been registered and separateaccounts are being maintained shows that they are doingindependent business. Admittedly Indu Kala Printerspaying rent to Ambika Offset Press. From the evidence ofP.Ws. 1 and 2, it is proved that InduKala Printers weredoing lamination work for Ambika Offset Press and also forothers. Therefore, merely because the account books arefound in the premises of Ambika Offset press, it cannot besaid that Indu Kala Printers is part of Ambka Offset.Such a conclusion cannot be arrived at. Therefore, thetwo firms are different legal entities. Hence, the demandof contribution clubbing both the firms is not legal andvalid. If they are liable to pay E.S.I. Contribution aseparate demand notice has to be issued and collected.The notice issued as such is not maintainable and it is not valid and legal. Hence, the petition is allowed andthe order dated 10.11.94 passed by the respondent is setaside."

9. Since the order passed under Section 45-A of the E.S.I.Actwas set aside, the present appeal has been filed. The learnedcounsel appearing for the appellant submitted that the evidence onrecord and the inspection report clearly goes to show that both theunits are one and the same (i.e.) a single establishment. There isfunctional integrality and mutuality of interest between both theunits and the Indukala Printers is doing work exclusively for andon behalf of the Ambika Offset press. The partners of IndukalaPrinters are the spouses of the partners of Ambika Offset press.The electricity supply connection is common for both the units andboth the units are functioning in the same premises. It wouldclearly goes to show that both the units are not distinct andseparate but one establishment and the sales tax and income taxrecords will not change their character. The records, viz.,attendance register, general ledger, which were also found at thepremises of the principal employer viz., Ambika Offset pressclearly establishes that they are not separate and distinctentities as pleaded.

10. In order to appreciate the petitioner plea, thedecision of the Apex Court in Sumangali – Vs. - Regional Director,Employees State Insurance corporation (2008, 9, S.C.C. 106),particularly, in paragraph 18 to 20 and 22, was pointed out and itis as follows:- " The High Court noted that ESI Corporation wasjustified in clubbing Jos Cut-Piece Centre with JosTextiles, Jose Brothers Silk and Sarees and M/s. JosAssociates with M/s. Rose Fabrics and M/s. Jos Silk andSarees, M/s. Gents Fabrics, M/s. Jacobs and M/s. JoseBrothers Trades and Investments with M/s. Sumangali andtreating Jos Textiles, M/s. Rose Fabrics and M/s.Sumangali as "single establishments" for the purpose ofcoverage under the ESI Scheme as there was functionalintegrality, unity in management financial unity,geographical proximity, unity in supervision and controland general unity of purpose. Even if each unit was anestablishment having separate registration under theSales Tax Act, the Shops and Establishments Act and theIncome Tax Act, all the units were interdependent andwere supplementary and complementary to each other forthe sake of their textile business.

19. So far as the factual aspects are concerned theHigh Court noted as follows:- " On verification of the records it was further

found that there were 34 employees working in the threeunits as on 2.4.1990. M/s. Rose Fabrics and M/s. JosAnnexe Building and they were having a common signboardand a common entrance. The activities of all the threeunits were administered by Shri K. Joseph Francis. Thebiling counter, cash counter and delivery counter werecommon for all the three units. M/s. Jose Brothers Silkand Sarees was an exclusive showroom for sarees whereasM/s. Rose Fabrics was dealing with items other thansarees. M/s. Jos Associates was dealing with the sale offurnishing cloth. According to EST Corporation all thethree units were different sections of a compositetextile shop and the customers were at liberty topurchase whatever they wanted from the three units andthey need to make payment at the common cash counter. Itwas further found that there was only one electricconnection and the electricity charges were paid by M/s.Rose Fabrics. The standby generator was also common toall the units. According to EST Corporation there wasunity in ownership, geographical unity, unity inadministration, functional unity, financial unity andinterchargeability of employees in all the three unitsand hence ESI Corporation decided to club all the threeunits for the purpose of ESI coverage under the ESIScheme. 20. In Associated Cement Companies Ltd. - V.Workmen, it was, inter alia, observed as follows:-" The Act not having prescribed any specifictests for determining what is ' one establishment', inconsidering the question whether a cement factory and theadjacent limestone quarry supplying limestone to it, areone establishment, one must fall back on suchconsiderations as in the ordinary industrial or businesssense determine the unity of an industrial establishment,having regard no doubt to the scheme and object of theIndustrial Disputes Act and other relevant provisions ofthe Mines Act, 1952, or the Factories Act, 1948. It isperhaps impossible to lay down any one test as anabsolute and invariable test for all cases. The realpurpose of these tests is to find out the true relationbetween the parts, branches, units, etc. If in theirtrue relation they constitute one integrated whole, theestablishment is one; if on the contrary they do notconstitute one integrated whole, each unit is then aseparate unit. How the relation between the units willbe judged must depend on the facts proved, having regardto the scheme and object of the statute which gives theright of unemployment compensation and also prescribes adisqualification therefor. Thus, in one case the unityof ownership, management and control may be the important test; in another case functional integrality or generalunity may be the important test; and in still anothercase, the important test may be the unity of employment"

21. .....

22. In the instant case factual findings asrecorded by the ESI Court and the High Court go to showthat there was unity in management, supervision andcontrol, geographical proximity, financial unity, generalunity of purpose and functional integrality between thedifferent units and for the sake of ESI coverage, thedifferent units could be treated as "one establishment".

11. Per contra, Mr.Muthukumar, learned counsel appearing forthe respondent reiterated the order passed by the E.S.I. Court andstated that merely because M/s. Indukala Printers is having a unitbehind the same premises, it will not lose its identity. The factthat they are having separate sales tax and income tax registrationand different partners makes it clear that both the units cannotbe clubbed and stated as one establishment for invoking theprovisions of the Act. He relied upon the evidence of P.W.2. andcontended that M/s. Indukala Printers is not a dependent of AmbikaOffset Printers and they are also doing job works to others also.

12. Having considered the rival plea, the followingquestion of law arises for consideration.

Whether the E.S.I. Court was justified in holding thattwo units viz., Ambika Offset press and Indukala Printers aredistinct and separate legal entities so as to exclude them fromthe purview of the provisions of the E.S.I. Act?

13. The evidence of P.W.1, who is the partner of AmbikaOffset, is that the two units are separate from each other at adistance of 15 kms. But no documentary evidence has been producedto prove the above and establish separate identity for the twounits . Except sale tax and income tax records, there is no otherrecord. P.W.2, the accountant of Indukala Printers, merelystates that they do job works for M/s. Ambika Offset and forothers. He has not produced any record to substantiate the pleathat they are separate and an independent units and there is noproof of outside job work in addition to work done to AmbikaOffset. . The inspection report is not disputed by P.W.1 and P.W.2as incorrect, which would go to show that what is recorded in theinspection report that Indukala Printers was functioning in a shedbehind Ambika Offset press is a proved fact. This recording of theE.S.I. Corporation officer is further clarified by the evidence ofmanaging partner of Ambika Offset , who also stated that for wantof proper accommodation, Indukala Printers are working in the back

yard of the Ambika Offset press. The fact that the electricityservice connection is drawn from one common service line and usedby both the units is also not disputed. If that is the case, thenfunctional integrality of both the units can be discerned. P.W.2has not shown any record that a separate service connection is infavour of Indukala Printers so as to establish that the unit wasfunctioning at D.No. 210 Trichy main road (i.e.) 15 kms. away fromAmbika Offset. There is no record to show that Indukala Printersare doing job work for other customers besides Ambika Offset press.

14. In the absence of material evidence to prove thecontrary, the report of the Inspecting Officer stands unrebutted.The plea that both the units are having separate sale taxassessment and income tax assessment will be of no avail in view ofthe decision of the Apex Court cited above.

15. In this case, there is a clear evidence offunctional integrality, commonality of management (i.e.) byspouses, geographical proximity because both the units arefunctioning in one premises (i.e.) Ambika Offset press. Thefunctional integrality is evident from the fact that employees areworking in the common premises doing the work of printing andlamination for producing the end product. There is general unityof purpose in the business of both units. The supervision andcontrol also apparent by the production of records by the managerof Indukala Printers-P.W.2. The facts of the present case clearlyproves that two units should be treated as one establishment forthe purpose of ESI Act and they cannot claim independent existence.More than one of the several test indicated in the Apex Courtdecision cited above is attracted to the facts of this case.

16. The Court below has come to an erroneous conclusionthat Indukala Printers is doing job work for others as well andthat finding is without any basis. The finding of the Court belowthat the sales tax and income tax assessments are separate and theyare doing work separately under different partnership andtherefore, they are two separate and independent units will be ofno avail in the light of the decision of the Apex Court, which hasclearly held that necessary parameters to decide the question ofone establishment does not rest merely on sales tax and income taxrecords.

17. In the present case, the order of the Court belowbased merely on the two records without supporting materialevidence is erroneous on the contrary the Inspection report andevidence on record supports the case of the department. This Courtis clearly of the view that the Court below erred in setting asidethe order of the department bringing the establishment under thepurview of the Act. The Order of the Court below is liable to beset aside and accordingly set aside. The question of law raised is

answered in favour of the appellant. This civil miscellaneousappeal is allowed. In the facts and circumstances of the case,there will be no order as to costs.

ra

Sd/-Asst. Registrar

//True Copy//

To

Sub Asst. Registrar

1. The Principal District Judge, Salem.

2. The Section Officer, VR Section, High Court, Madras.

+ 1 cc to Mrs. Lakshmi Sriram, Advocate SR No.92445

+ 1 cc to Mr. S. Vaidyanathan, Advocate SR No.92194

SA(CO)SR/29.3.2011

CMA No. 492 of 2003