Case Note & Summary
The appellant, Khadi Gramodyog Emporium, Gandhi Sagar, Nagpur, challenged an order dated 14.05.1985 passed by the Deputy Regional Director, Employees' State Insurance Corporation (ESIC), Nagpur, under Section 45A of the Employees' State Insurance Act, 1948 (ESI Act). The ESIC had demanded contribution arrears of Rs. 5,624.45 for the period 01.04.1982 to 31.05.1984, along with interest, in respect of three tailors who were allegedly working for the appellant. The appellant contended that these three tailors were not its employees; they merely kept their sewing machines outside the shop and provided stitching services to customers who purchased clothes from the appellant. The appellant denied any employer-employee relationship. The ESIC rejected this plea and passed the order. The appellant then filed an application under Section 75(1) of the ESI Act before the Employees' State Insurance Court at Nagpur, registered as Application (ESI) No. 5 of 1985. The ESI Court framed two issues: (i) whether the three tailors were employees of the appellant, and (ii) whether the order under Section 45A was legal and proper. The ESI Court answered both issues against the appellant and dismissed the application. Aggrieved, the appellant filed the present first appeal before the Bombay High Court. The High Court examined the evidence and found that the tailors were not under the control or supervision of the appellant; they worked independently, using their own sewing machines, and were paid by customers directly or through the appellant as a facilitator. The Court held that the ESIC failed to discharge its burden of proving that the tailors were employees within the meaning of Section 2(9) of the ESI Act. The Court allowed the appeal, set aside the order of the ESI Court, and quashed the demand for contributions.
Headnote
A) Employees' State Insurance - Definition of Employee - Section 2(9) ESI Act, 1948 - Independent Contractor - The issue was whether three tailors who kept their sewing machines outside the shop and provided stitching services to customers who purchased clothes from the appellant were 'employees' under the ESI Act. The Court held that the tailors were not employees as there was no relationship of employer and employee; they were independent contractors working on their own account. The ESI Corporation failed to prove that the tailors were under the control and supervision of the appellant. (Paras 1-5) B) Employees' State Insurance - Burden of Proof - Section 45A ESI Act, 1948 - Determination of Contributions - The ESI Corporation passed an order under Section 45A determining contribution arrears. The Court held that the burden lies on the Corporation to establish that the persons in question are employees. In the absence of evidence showing employer-employee relationship, the order under Section 45A cannot be sustained. (Paras 2-5)
Issue of Consideration
Whether three tailors working for the appellant establishment are 'employees' within the meaning of Section 2(9) of the Employees' State Insurance Act, 1948, and consequently whether the appellant is liable to pay ESI contributions in respect of them.
Final Decision
The appeal is allowed. The judgment and order dated 30.09.2004 passed by the ESI Court in Application (ESI) No. 5 of 1985 is set aside. The order dated 14.05.1985 passed by the respondent under Section 45A of the ESI Act is quashed and set aside. No order as to costs.
Law Points
- Definition of employee under ESI Act
- 1948
- Control test for employer-employee relationship
- Independent contractor vs employee distinction
- Burden of proof on ESI Corporation to establish employment relationship
