THE ESI CORPORATION versus M/S. RADHIKA THEATRE on 20 January 2023

Conclusion

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 17.02.2021, passed by the High Court for the State ofTelangana at Hyderabad in Civil Misc. Appeal No. 125/2011, by which,the High Court has allowed the said appeal and has set aside the orderdated 13.12.2010 passed by the Employees Insurance Court (hereinafterreferred to as the EI Court) dismissing EIC No. 14/2003 in which therespondent herein challenged the demand notice dated 31.08.1994 issuedby the ESI Corporation, the ESI Corporation has preferred the presentappeal.

2. The facts leading to the present appeal in nutshell are as under:-

2. The facts leading to the present appeal in nutshell are as under:- 2.1 That the respondent herein was running a Cinema Theatresince 1981. It paid ESI contributions up to September, 1989. However,thereafter, as its employees were less than 20 in number, it did not paythe contributions. Therefore, the appellant – corporation issued demandnotices. The respondent herein challenged the demand notices beforethe EI Court by way of EIC No. 14/2003 containing, inter alia, thatprior to the insertion of Sub-section (6) of Section 1 of the ESI Act, 1948w.e.f. 20.10.1989, it employed less than 20 persons and therefore, it wasnot liable to be covered under the provisions of the ESI Act. The EICourt dismissed the case vide order dated 13.12.2010. The order passedby the EI Court confirming the demand notices was the subject matterof appeal before the High Court. Before the High Court, it was the caseon behalf of the respondent – original appellant that Sub-section (6) ofSection 1 of the ESI Act which came to be inserted on 20.10.1989 shallnot be made applicable retrospectively and the same would be effectiveonly on or after 20.10.1989 and not prior to that date. On the other hand,it was the case on behalf of the ESI Corporation that the ESI Act beinga social welfare legislation, greater amplitude is required to be given to A

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Athe same, as, it is intended for the welfare of the workmen concerned. Itwas submitted that as per amended Sub-section (6) of Section 1, all theestablishments shall be governed by the ESI Act, notwithstanding thefact that the number of persons engaged therein is less than the prescribednumber. However, thereafter, by the impugned judgment and order theHigh Court has allowed the appeal preferred by the respondent hereinBtaking the view that amendment to Section 1 of the ESI Act by whichSub-section (6) of Section 1 came to be inserted w.e.f. 20.10.1989, thesame shall not be applicable retrospectively and the same shall not bemade applicable to an establishment, established prior to 20.10.1989/31.03.1989.C2.2 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court, the ESI Corporation has preferredthe present appeal.

3. Shri Mahesh Srivastava, learned counsel appearing on behalfof the appellant – ESI Corporation has vehemently submitted that theDHigh Court has materially erred in allowing the appeal and setting asidethe demand notices even for the period post 20.10.1989 by holding thatamendment to Section 1 by inserting Sub-section (6) shall not beapplicable retrospectively.

3.1 It is vehemently submitted that the High Court has not properlyappreciated the object and purpose of the ESI Act and that the ESI ActEis a social welfare legislation and intended for the welfare of the workmenconcerned. It is submitted that therefore, to achieve the object and purposeof the ESI Act, the legislature thought it fit to insert Sub-section (6) toSection 1 of the ESI Act by which a factory or an establishment shall begoverned by the ESI Act notwithstanding the number of persons employedFtherein at any time falls below the limit specified by or under the ESI Actor the manufacturing process therein ceases to be carried on with theaid of power.

3.2 It is submitted that demand notices for the period post20.10.1989, therefore, cannot be said to be illegal applying Sub-section(6) of Section 1 retrospectively as observed and held by the High Court.GIt is submitted that at the most, the demand notices for the period prior to20.10.1989 can be said to be bad in law as in that case Sub-section (6)of Section 1 of the ESI Act can be said to have applied retrospectively.

3.3 It is submitted that in any case in view of insertion of Sub-section (6) of Section 1 w.e.f. 20.10.1989, any factory or establishmentH

shall have to be governed by the ESI Act notwithstanding that the numberof persons employed therein at any time falls below the limit specifiedby or under the ESI Act.

3.4 Making the above submissions and relying upon the decisionof this Court in the case of Bangalore Turf Club Limited Vs. RegionalDirector, ESIC; (2014) 9 SCC 657, it is prayed to allow the presentappeal.

4. Though served none has appeared on behalf of the respondent.

5. Having heard learned counsel appearing on behalf of theappellant – corporation and having gone through the impugned judgmentand order passed by the High Court, the short question which is posedfor consideration of this Court is whether with respect to the demandnotices post 20.10.1989 a factory or an establishment, established priorto 20.10.1989 shall be governed by the ESI Act notwithstanding that thenumber of persons employed therein at any time falls below the limitspecified by or under the ESI Act?

An incidental question which is also posed for consideration ofthis Court is whether the demand notices for the period after 20.10.1989i.e., from the date by which Sub-section (6) of Section 1 of the ESI Actcame be inserted can it be said that the amended Section 1 of the ESIAct can be said to have been applied retrospectively?

6. While answering the aforesaid issues/questions the object,purpose and preamble of the ESI Act is required to be referred to andconsidered. The Preamble of the ESI Act is as under: - “An Act to provide for certain benefits to employees in case ofsickness, maternity and employment injury and to make provisionsfor certain other matters in relation thereto.”

6.1 Thus, the ESI Act being a social welfare legislation, anyinterpretation which would lean in favour of the beneficiary should begiven. The object and purpose of the ESI Act has been elaboratelyconsidered by this Court in the case of Bangalore Turf Club Limited(supra). After considering catena of earlier decisions under the ESIAct, it is observed and held that ESI Act should be given liberalinterpretation and should be interpreted in such a manner so that socialsecurity can be given to the employees. In paragraph 16 to 21, it isobserved and held as under:- A

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SUPREME COURT REPORTS

“16. The primary rule of interpretation of statutes may be theliteral rule, however, in the case of beneficial legislations andlegislations enacted for the welfare of employees, workmen, thisCourt has on numerous occasions adopted the liberal rule ofinterpretation to ensure that the benefits extend to those workerswho need to be covered based on the intention of the legislature.

17. The ESI Act is a welfare legislation enacted by the CentralGovernment as a consequence of the urgent need for a schemeof health insurance for workers. It would be beneficial to reproducethe Preamble of the ESI Act in this context. It is as under:

“An Act to provide for certain benefits to employees in case ofsickness, maternity and employment injury and to make provisionfor certain other matters in relation thereto”

18. In ESI Corpn. v. Francis De Costa [1993 Supp (4) SCC 100: 1994 SCC (L&S) 195] , this Court held that : (SCC pp. 105-06,paras 5-6)

“5. The Act seeks to cover sickness, maternity, employment injury,occupational disease, etc. The Act is a social security legislation.It is settled law that to prevent injustice or to promote justice andto effectuate the object and purpose of the welfare legislation,broad interpretation should be given, even if it requires a departurefrom literal construction. The court must seek light from loadstarArticles 38 and 39 and the economic and social justice envisagedin the Preamble of the Constitution which would enliven meaningfulright to life of the worker under Article 21. The State is enjoinedunder Article 39(e) to protect the health of the workers, underArticle 41 to secure sickness and disablement benefits and Article43 accords decent standard of life. Right to medical and disabilitybenefits are fundamental human rights under Article 25(2) of theUniversal Declaration of Human Rights and Article 7(b) of theInternational Convention on Economic, Social and Cultural Rights.Right to health, a fundamental human right stands enshrined insocio-economic justice of our Constitution and the UniversalDeclaration of Human Rights. Concomitantly right to medicalbenefit to a workman is his/her fundamental right. The Act seeksto succour the maintenance of health of an insured workman.The interpretative endeavour should be to effectuate the above.

Right to medical benefit is, thus, a fundamental right to theworkman.

6. Moreover, even in the realm of interpretation of statutes, ruleof law is a dynamic concept of expansion and fulfilment for whichthe interpretation would be so given as to subserve the social andeconomic justice envisioned in the Constitution. Legislation is aconscious attempt, as a social direction, in the process ofchange. The fusion between the law and social change wouldbe effected only when law is introspected in the context ofordinary social life. Life of the law has not been logic but hasbeen experience. It is a means to serve social purpose andfelt necessities of the people. In times of stress, disability, injury, etc. the workman needs statutory protection and assistance.The Act fastens in an insured employment, statutory obligation onthe employer and the employee to contribute in the prescribedproportion and manner towards the welfare fund constituted underthe Act (Sections 38 to 51 of the Act) to provide sustenance tothe workmen in their hours of need, particularly when they becomeeconomically inactive because of a cause attributable to theiremployment or disability or death occurred while in employment.The fact that the employee contributed to the fund out of his/herhard-earned wages cannot but have a vital bearing in adjudicatingwhether the injury or occupational disease suffered/contractedby an employee is an employment injury. The liability is basedneither on any contract nor upon any act or omission by theemployer but upon the existence of the relationship which employerbears to the employment during the course of which the employeehad been injured. The Act supplants the action at law, based notupon the fault but as an aspect of social welfare, to rehabilitate aphysically and economically handicapped workman who isadversely affected by sickness, injury or livelihood of dependentsby death of a workman.”

19. A three-Judge Bench of this Court, in reference to the ESIAct, in Transport Corpn. of India v. ESI Corpn. [(2000) 1 SCC332 : 2000 SCC (L&S) 121] , held that : (SCC pp. 357-58, paras27-28)

“27. Before parting with the discussion on this point, it is necessaryto keep in view the salient fact that the Act is a beneficial piece of ABC

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legislation intended to provide benefits to employees in case ofsickness, maternity, employment injury and for certain other mattersin relation thereto. It is enacted with a view to ensuring socialwelfare and for providing safe insurance cover to employees whowere likely to suffer from various physical illnesses during thecourse of their employment. Such a beneficial piece oflegislation has to be construed in its correct perspective soas to fructify the legislative intention underlying its enactment.When two views are possible on its applicability to a given setof employees, that view which furthers the legislative intentionshould be preferred to the one which would frustrate it. …

28. Dealing with this very Act, a three-Judge Bench of this Courtin Buckingham and Carnatic Co. Ltd. v. Venkatiah [AIR 1964SC 1272] speaking through Gajendragadkar, J., (as he then was)held, accepting the contention of the learned counsel, Mr Doliathat : (AIR p. 1277, para 10)

‘10. … It is a piece of social legislation intended to confer specifiedbenefits on workmen to whom it applies, and so, it would beinappropriate to attempt to construe the relevant provisions in atechnical or a narrow sense. This position cannot be disputed.But in dealing with the plea raised by Mr Dolia that the sectionshould be liberally construed, we cannot overlook the fact that theliberal construction must ultimately flow from the words used inthe section. If the words used in the section are capable of twoconstructions one of which is shown patently to assist theachievement of the object of the Act, courts would be justified inpreferring that construction to the other whichmay not be able tofurther the object of the Act.’”

20. In Bombay Anand Bhavan Restaurant v. ESI Corpn. [BombayAnand Bhavan Restaurant v. ESI Corpn., (2009) 9 SCC 61 : (2009)2 SCC (L&S) 573] , it was observed that : (SCC p. 66, para 20)

“20. The Employees’ State Insurance Act is a beneficial legislation.The main purpose of the enactment as the Preamble suggests, isto provide for certain benefits to employees of a factory in caseof sickness, maternity and employment injury and to makeprovision for certain other matters in relation thereto. TheEmployees’ State Insurance Act is a social security legislation and the canons of interpreting a social legislation are differentfrom the canons of interpretation of taxation law. The courts mustnot countenance any subterfuge which would defeat the provisionsof social legislation and the courts must even, if necessary, strainthe language of the Act in order to achieve the purpose which thelegislature had in placing this legislation on the statute book. TheAct, therefore, must receive a liberal construction so as to promoteits objects.”

21. The legislature enacted the ESI Act to provide certain benefitsto employees in case of sickness, maternity in case of femaleemployees, employment injury and to make provision in certainother matters in relation thereto. The provisions of the ESI Actapply to all the factories other than seasonal factories. The StateGovernment with the approval of the Central Government isauthorised to make the provisions of the ESI Act applicable toany other establishment or establishments. The provisions of theESI Act provide that all employees in factories or establishmentsto which the ESI Act applies shall be insured in the manner providedunder the ESI Act. Since the ESI Act is passed for conferringcertain benefits to employees in case of sickness, maternity andemployment injury, it is necessary that the ESI Act should receivea liberal and beneficial construction so as to achieve legislativepurpose without doing violence to the language of the enactment.”

7. Prior to insertion of Sub-section (6) of Section 1 of the ESI Act,only those establishments/factories engaging more than 20 employeeswere governed by the ESI Act. However, thereafter, Sub-section (6) ofSection 1 of the ESI Act has been inserted on 20.10.1989, and after20.10.1989 there is a radical change and under the amended provision afactory or establishment to which ESI Act applies would be governed bythe ESI Act notwithstanding that the number of persons employed thereinat any time falls below the limit specified by or under the ESI Act.Therefore, on and after 20.10.1989, irrespective of number of personsemployed a factory or an establishment shall be governed by the ESIAct. Therefore, for the demand notices for the period after 20.10.1989,there shall be liability of every factory or establishment irrespective ofthe number of persons employed therein. With respect to such a noticeit cannot be said that amended Section 1 inserting Sub-section (6) isapplied retrospectively as observed and held by the High Court. Only in A

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Acase of demand notice for the period prior to inserting Sub-section (6) ofSection 1 of the Act, it can be said that the same provision has beenapplied retrospectively. Therefore, the High Court has committed a veryserious error in observing and holding that even for the demand noticesfor the period subsequent20.10.1989 i.e., subsequent to inserting Sub-section (6) of Section 1 the said provision is applied retrospectively andBthe High Court has erred in allowing the appeal and setting aside thedemand notices even for the period subsequent to 20.10.1989. Sub-section(6) of Section 1 therefore, shall be applicable even with respect to thoseestablishments, established prior to 31.03.1989/20.10.1989 and the ESIAct shall be applicable irrespective of the number of persons employedCor notwithstanding that the number of persons employed at any timefalls below the limit specified by or under the ESI Act.

8. In view of the above and for the reasons stated above, thepresent appeal succeeds. The impugned judgment and order passed bythe High Court is hereby set aside and the demand notices for the period Dpost 20.10.1989 are hereby restored. Present appeal is accordinglyallowed. No costs.

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Divya Pandey(Assisted by : Abhishek Pratap Singh and Rakhi, LCRAs)

Appeal allowed.

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