Case Note & Summary
The appeal arose from the dismissal of an application by the Employee State Insurance Court, Nagpur, which upheld the recovery proceedings initiated by the Employees State Insurance Corporation against the appellant, Empress Mills, a unit of Maharashtra State Textile Corporation Limited, a government undertaking. The appellant had leased its Craft Paper Manufacturing Unit to respondent No.2, a workers' cooperative society, for a period of seven years from 16 December 1994 to 15 December 2001 under a registered lease agreement. The lease was granted on a nominal rent of Rs.1 per annum following approval by the Board of Industrial and Financial Reconstruction as the appellant was a sick industrial company. Under the lease terms, the lessee was responsible for all statutory dues including ESI contributions, held its own factory licence, and exercised full control over its employees without any supervision from the appellant. After the lease expired, the property reverted to the appellant. The lessee defaulted on ESI dues, prompting the ESI Corporation to attach the appellant's property, asserting that the appellant was the principal employer under the Employee's State Insurance Act, 1948. The appellant challenged this action before the ESI Court, which dismissed its application, holding that the appellant was liable under Section 93-A of the Act as a transferor on re-transfer of the establishment. On appeal to the High Court, the appellant argued that it never was the principal employer, as the lessee was an independent factory and employer. The ESI Corporation contended that the lease and its expiry constituted a transfer within the meaning of Section 93-A, making the appellant jointly liable. The High Court heard arguments and framed two issues for determination, but the available excerpt of the judgment does not contain the court's reasoning or final decision.
Headnote
A) Labour Law - Employee's State Insurance Act, 1948, Sections 2(9), 2(12), 39, 40, 93-A - Whether lessor of establishment can be treated as principal employer for ESI dues of lessee's employees during lease period - The appellant, owner of a paper unit, granted a lease to a workers' cooperative society which operated the unit independently and was responsible for ESI contributions - Upon default by the lessee, the ESI Corporation attached the appellant's property treating it as principal employer under Section 93-A of the Act - The ESI Court upheld the attachment, leading to this appeal - High Court framed the crucial question of lessor's liability but the judgment excerpt does not include final decision (Paras 1-10).
Issue of Consideration
Whether a lessor of an establishment can be treated as principal employer and made liable for payment of ESI dues for the employees of the lessee during the tenure of the lease when the lessee fails to make payment thereof.
Final Decision
Decision not clearly stated
Law Points
- Legal points not extracted
- Interpretation of Employee's State Insurance Act
- 1948
- Section 93-A
- Principal employer
- Lease as transfer
- Liability of lessor for ESI dues
Case Details
2022 LawText (BOM) (06) 76
First Appeal No. 368 of 2007
Shri A.A. Naik, Shri Rohan Deo, Smt. B.P. Maldhure
Empress Mills, A unit of Maharashtra State Textile Corporation Limited, Through its General Manager
1. Employees State Insurance Corporation, Through its Recovery Officer, 2. Empress Employees Co-operative Paper Mills Limited, Through its President
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Nature of Litigation
Civil first appeal under Employee's State Insurance Act, 1948 challenging dismissal of application and confirmation of attachment for recovery of ESI dues.
Remedy Sought
Appellant sought to set aside the order of the ESI Court and a declaration that it is not the principal employer and not liable for ESI dues of respondent No.2 society.
Filing Reason
ESIC attached appellant's property treating it as principal employer for unpaid ESI contributions of the lessee society, which the ESI Court upheld.
Previous Decisions
Employee State Insurance Court, Nagpur dismissed Application (ESI) No. 20/2003 vide order dated 19/09/2006, upholding attachment and declaring appellant as principal employer liable for ESI dues during lease period.
Issues
Whether a lessor of an establishment can be treated as principal employer and made liable for payment of ESI dues for the employees of the lessee during the tenure of the lease when the lessee fails to make payment thereof.
Whether the ESI Corporation is justified in law in treating the appellant...
Submissions/Arguments
Appellant argued that it was not a principal employer under ESI Act as the lessee society was an independent factory with its own licence, had full control over employees, and was responsible for all statutory dues including ESI; appellant had no supervision or control; therefore Section 93-A not attracted.
Appellant contended that application of Section 93-A was not proper as no dues were payable by appellant; authorities had already dropped attachment proceedings for PF dues; reliance placed on K.C. Thomas and ANK Sales cases.
Respondent ESIC argued that appellant was recognized as principal employer and under Section 93-A any transfer by lease, gift, sale etc. included re-transfer on expiry; thus appellant and transferee jointly liable for contribution dues.
Ratio Decidendi
Ratio not explicitly mentioned
Judgment Excerpts
The present appeal is filed challenging the judgment and order dated 19/09/2006 passed by learned Judge, Employee State Insurance Court, Nagpur in Application (ESI) No. 20/2003.
Thus the appellant was not a “contractor” nor a “principal employer” in relation to the respondent No.2 in view of Section 2(1)(c) and 2(1)(g) of the said Act.
Two questions arise for determination before this Court as follows: (1) Whether a lessor of an establishment can be treated as principal employer and made liable for payment of ESI dues for the employees of the lessee during the tenure of the lease when the lessee fails to make payment thereof.
Procedural History
Employee State Insurance Court, Nagpur heard Application (ESI) No. 20/2003 and by order dated 19/09/2006 dismissed the application, upholding attachment by ESIC and declaring appellant as principal employer liable for ESI dues during lease period. Appellant filed First Appeal No. 368 of 2007 before High Court of Bombay, Nagpur Bench.
Acts & Sections
- Employee's State Insurance Act, 1948: 2(9), 2(12), 39, 40, 93-A
- Contract Labour (Regulation and Abolition) Act, 1970: 2(1)(c), 2(1)(g)
- Factories Act, 1948: Not specified
- Maharashtra State Co-operative Societies Act, 1960: Not specified
- Sick Industrial Companies (Special Provisions) Act, 1985: Not specified
- Employees' Provident Funds and Miscellaneous Provisions Act, 1952: Not specified
