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.5624.45 for the period 01.04.1982 to 31.05.1984, along with interest, alleging that the appellant had not submitted declaration forms for three tailors working in its establishment. The appellant denied any employer-employee relationship, stating that the three tailors were allowed to keep their sewing machines outside the shop and provided stitching services to customers who purchased clothes from the appellant. The appellant 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: whether the three tailors were employees under Section 2(9) of the ESI Act, and whether the order under Section 45A was valid. The ESI Court answered both issues against the appellant, holding that the tailors were employees and that the order was valid. The appellant then filed the present first appeal before the Bombay High Court. The High Court examined the definition of 'employee' under Section 2(9) of the ESI Act, which includes any person employed for wages in or in connection with the work of an establishment, and whose services are temporarily or otherwise utilized. The Court applied the control test, noting that the tailors were not under the control or supervision of the appellant; they worked independently outside the shop premises, using their own sewing machines, and were paid by customers directly. The Court found that the ESIC had not produced any evidence to establish that the tailors were employees, and the burden of proof lay on the Corporation. The Court held that the ESI Court erred in concluding that the tailors were employees merely because they worked for the appellant's customers. Consequently, the High Court allowed the appeal, set aside the order of the ESI Court, and quashed the demand notice under Section 45A.
Headnote
A) Employees State Insurance - Definition of Employee - Section 2(9) ESI Act, 1948 - Control Test - 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 Act. The Court held that the tailors were not employees as they were not under the control or supervision of the appellant, and the relationship of employer and employee was absent. The ESI Corporation failed to prove the employment relationship. (Paras 1-6) B) Employees State Insurance - Section 45A Order - Validity - Section 45A ESI Act, 1948 - The ESI Corporation passed an order under Section 45A determining contribution arrears without proper inquiry and despite the appellant's denial of employment. The Court held that the order was unsustainable as the Corporation did not discharge its burden to show that the tailors were employees. (Paras 2-6) C) Evidence - Burden of Proof - ESI Act - The burden lies on the ESI Corporation to establish that a person is an employee under the Act. In the absence of evidence, the order under Section 45A cannot be sustained. (Para 6)
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 whether the order under Section 45A of the Act was validly passed.
Final Decision
The appeal is allowed. The judgment and order dated 18.12.2004 passed by the ESI Court, Nagpur 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 Section 2(9) of ESI Act
- 1948
- Control test for employer-employee relationship
- Burden of proof on ESI Corporation to establish employment
- Section 45A order cannot be passed without proper inquiry
