IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT : CODE OF CIVIL PROCEDURE FAO No. 250/1987 RESERVED ON: 4.01.2008 DATE OF DECISION: 15.01.2008 E.S.I.C.... Appellant through: Mr. N.S.Bajwa, Advocate VERSUS Hotel Corporation of Delhi... Respondent through: Mr. Sandeep Sethi, Sr. Advocate with Mr. Krishan Kumar, Advocate FAO No. 38/1988 E.S.I.C.... Appellant through: Mr. N.S.Bajwa, Advocate VERSUS M/s. Asian Hotels Ltd. and Anr... Respondents through: Mr. Amit Shukla, Advocate for R-1 Mr. Rakesh K.Garg, Advocate for R-2 PRADEEP NANDRAJOG, J. 1. The above captioned appeals raise a common question of law and hence are being decided together. 2. Facts relevant to FAO No. 250/1987 are that the first respondent, Hotel Corporation of India, intended to set up a five star hotel near the International Airport at Delhi called Centaur Hotel. On 1.2.1981 it awarded the work of
constructing the hotel to the second respondent M/s. Tirath Ram Ahuja Pvt. Ltd. The hotel building was stipulated to be completed by December 1983. 3. When the work was in progress, a wing consisting of 200 rooms was completed. It be noted that 400 rooms were to be constructed under the original contract. Due to the ensuing Asian Games to be held in the month of November- December 1982, first respondent decided to commence partial operations from the building by putting to use the 200 rooms which were constructed. Appellant learnt that partial operations had commenced from the building. It demanded ESI dues with effect from 1.6.1982. It demanded from the second respondent the list of workmen engaged and wage register. Appellant did so by treating first respondent as the principal employer and the second respondent as the immediate employer. According to the appellant since the establishment had come into being when business commenced, the remaining construction work pertaining to 200 rooms was akin to the extension work of an existing establishment. According to the appellant the ratio of law as per decisions of the Supreme Court reported as Vol. 69 FJR 77 Regional Director ESI Corporation Vs. South India Flour Mills and AIR 1978 SC 1478 Royal Talkies Vs. ESIC stood squarely attracted. 4. Though appellant proceeded to determine liability under the ESIC Act with effect from 1.6.1982 but on understanding that partial operations commenced in November 1982 restricted its enquiry to post November 1982. 5. The second respondent took resort to an action under Section 75 of the ESIC Act. It urged that the issue had to be looked at with reference to the factual situation when it undertook the work of constructing the hotel building. In other words, it was urged that an employee would be a person who was employed in or in connection with the work of a factory or establishment i.e the existence of a factory or establishment was a sine qua non when a person was engaged as an employee. 6. The plea of the second respondent was accepted by the learned Judge who vide order dated 25.5.1987, absolved the respondents from any liability to contribute to the appellant any money under the ESIC Act pertaining to the workmen engaged in construction of Centaur Hotel and who remained at site after November 1982. 7. The reasoning of the learned Judge is as under:- In the present case the work has been undertaken by the petitioner before the factory or establishment has come into existence. The petitioner therefore, cannot be an immediate employer qua the respondent No.2 and if the petitioner is not the immediate employer there cannot be any liability of the petitioner for the purpose of contribution. The construction which has been raised by the petitioner from November, 1982 to December, 1983 cannot be said to be additional construction or a factory or establishment.
8. The decision of the Hon'ble Supreme Court reported as Vol. 69 FJR 77 Regional Director ESI Corporation Vs. South India Flour Mills which was cited before the learned Judge has been distinguished with the following observations:- All the parties have relied upon the authority as reported in 1986 Indian Factories Journal page 77 Regional Director, E.S.I.C. Vs. South India Flour Mills. The said Authority has no application to the facts and circumstances of the present case. The said authority deals with the case where a factory was already in existence and the additional constructions were sought to be raised from the contractors. Once the factory is in existence any construction which is made for making additional construction in the factory can be covered under Sec. 2 (13). It is not the case where the additional constructions were being raised by the petitioner. Instead it is the original construction which was agreed upon about two years prior to the coming existence of the hotel were being raised. In this view of the matter no benefit can be given of the said authorities to either parties as the construction herein involved are not the additional constructions agreed upon to be raised after the factory has come into existence. 9. Pertaining to FAO 38/1988 relevant facts are that Asian Hotels Ltd., respondent No.1., awarded a contract to M/s. Tirath Ram Ahuja Pvt. Ltd. for construction of Hotel Hayat Regency. The contract was awarded in the year 1981. The hotel was to be completed by 1984. Some rooms which were completed by November 1982 were put to use due to ensuing Asian Games. As in the case of Centaur Hotel, appellant demanded contribution under the ESIC Act pertaining to the workers engaged by M/s. Tirath Ram Ahuja Pvt. Ltd. for completion of the hotel building post November 1982. 10. This action has been quashed vide impugned order dated 21.12.1987 in an action initiated by respondent No.1 under Section 75 of the ESIC Act. 11. The reasoning is the same as is the reasoning in the order dated 25.5.1987 which is a subject matter of challenge in FAO No. 250/1987. 12. Contention urged by learned counsel for the appellant in both the appeals is the same which was urged by the appellants before the learned Judge, ESIC Court, i.e. its reason for holding that in respect of the workman engaged by M/s.Tirath Ram Ahuja Pvt. Ltd. for completion of the balance work liability to pay had accrued under the ESIC Act. It was urged by learned counsel for the appellant that with operations commencing, though partially, the establishment had come into being and therefore law as laid down by the Hon'ble Supreme Court in the decision in South India Flour Mills' case (supra) and Royal Talkies' case (supra) stood squarely attracted.
13. Per contra, Mr.Sandeep Sethi, learned senior counsel appearing for Hotel Corporation of India urged that the sine qua non for liability to be fastened was the existence of an establishment when additional construction work was undertaken. Mr.Amit Shukla, learned counsel appearing for Asian Hotels Ltd. adopted the submissions made by Mr.Sandeep Sethi, learned senior counsel appearing for Hotel Corporation of India. 14. To appreciate the contentions of learned counsel for the parties the definition of the word 'employee', 'immediate employer' and 'principal employer' as defined in sub-sections 9, 13 and 17 of Section 2 of the ESIC Act may be noted. The same are defined as under:- A. 'Employee' is defined as under :- (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; [and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment] [or any person engaged as apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), or under the standing orders of the establishment; but does not include]- (a) any member of the [the Indian] naval, military or air forces; or (b) any person so employed whose wages (excluding remuneration for overtime work: exceed [such wages as may be prescribed by the Central Government] a month: Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;] B. Immediate employer is defined as under :- (13) immediate employer', in relation to employees employed by or through him, means a person who has undertaken the execution, on the premises of a factory or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the wok carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a
contract of service with him are temporarily lent or let on hire to the principal employer [and includes a contractor]; C. Principal employer is defined as under :- (17) principal employer means- (i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner of occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under [the Factories Act, 1948 (63 of 1948), the person so named; (ii) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is so appointed, the head of the Department; (iii) in any other establishment, any person responsible for the supervision and control of the establishment; 15. It is not in dispute that ESIC dues have to be deducted and paid to the authority in respect of the employees, subject of course to other provisions of the statute being attracted vis-a-vis the employer. 16. I need not analyze in detail the three limbs of sub-section 9 of Section 2 for the reason the first two limbs thereof have been pithly analyzed by the Hon'ble Supreme Court in the decision in Royal Talkies' case (supra). The same reads as under:- 14. Now here is a break-up of Sec.2(9). The clause contains two substantive parts. Unless the person employed qualifies under both he is not an 'employee'. Firstly, he must be employed in or in connection with' the work of an establishment. 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. Some nexus must exist between the establishment and the work of the employee but it may be a loose connection. 'In connection with the work of an establishment' only postulates some connection between what the employee does and the work of the establishment. He may not do anything directly for the establishment; he may not do anything statutorily obligatory in the establishment; he may not even do anything which is primary or necessary for the survival or smooth running of the establishment or integral to the adventure. 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. Surely, an amenity or facility for the customers who frequent the establishment has connection with the work of the establishment. The question is not whether without that amenity or facility the establishment cannot be carried on but whether such amenity or facility, even peripheral may be, has not a link with the establishment. Illustrations may not be exhaustive but may be informative. Taking the present case, an establishment like a cinema theatre is not bound to run a canteen or keep a cycle stand (in Andhra Pradesh) but no one will deny that a canteen service, a toilet service, a car park or a cycle stand, a booth for sale of catchy film literature on actors, song hits and the like, surely have connection with the cinema theatre and even further the venture. On the other hand, a book-stall
where scientific works or tools are sold or a stall where religious propaganda is done, may not have anything to do with the cinema establishment and may, therefore, be excluded on the score that the employees do not do any work in connection with the establishment, that is, the theatre. In the case of a five star hotel, for instance a barber shop or an arcade massage parlour, foreign exchange counter or tourist assistance counter may be run by some one other than the owner of the establishment but the employees so engaged do work in connection with the establishment or the hotel even though there is no obligation for a hotel to maintain such an ancillary attraction. By contrast, not a lawyer's chamber or architect consultancy. Nor, indeed, is it a legal ingredient that such adjunct should be exclusively for the establishment, if it is mainly the ancillary. 17. In respect of the third limb, the language is clear. A person 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 would also be an employee. 18. The underlined phrases in para 14 of the decision in Royal Talkies case (supra) emphasizes the connectivity required by law between the person employed and the establishment. That is to say, employment has to be in connection with an establishment, the being of which is in existence. 19. In South India Flour Mills' case (supra), their Lordships of the Supreme Court were considering the status of employees engaged by a contractor to whom an existing establishment had awarded work for erecting buildings required for expansion of the factory. 20. Noting the earlier decision in Royal Talkies' case (supra), their Lordships of the Hon'ble Supreme Court opined as under:- In our opinion, the work of construction of additional buildings required for the expansion of a factory must be held to be ancillary, incidental or having some relevance to or link with the object of the factory. It is not correct to say that such work must always have some direct connection with the manufacturing process that is carried on in the factory. 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. Such work is incidental or preliminary to or connected with the work of the factory or establishment. 21. A plain reading of sub-section 9 of Section 2 of the Act shows that a person would be an employee if he is employed for wages in or in connection with the work of a factory or establishment and the employment is additionally attracting clause (i), (ii) or (iii) thereof.
22. Ex facie, the being of the factory or establishment when employment commences is the principal requisite. In other words, issue of relationship has to be considered with reference to the date of employment and with reference to no other date. 23. When the construction work of the two hotel buildings was awarded to M/s.Tirath Ram Ahuja Pvt. Ltd., admittedly, the establishment had not come into being. Till the hotel buildings were constructed, operations pertaining to the establishment of the hotels could not commence. It is for this reason the authorities under the Act themselves did not require any contribution to be paid under the ESIC Act when M/s.Tirath Ram Ahuja Pvt. Ltd. deployed workman to commence construction of the two hotel buildings. Both contracts awarded the complete work of construction of the buildings and merely because, due to the ensuing Asian Games to be held in the month of November and December 1982, partial hotel operations commenced from the partly constructed buildings would not mean that the remaining construction work was akin to the expansion work of an existing establishment. 24. The view taken by the learned Judge ESIC is a reasonable and a plausible view. I see no reasons to differ therefrom. 25. I find no merits in the appeals. The same are dismissed. 26. No costs. Sd/- (PRADEEP NANDRAJOG) JUDGE