The E. S.I. Act has been extended to shops by some of the Stales by invoking section 1(5) of the Act. Will an advertising agency be a 'shop' to attract the applicability of the Act?

Earlier some of the High Courts have' held that an adver­tising agency selling its experts' services to its clients to enable them to launch an effective advertising campaign of their products will not attract the applicability of the ESI Act but the Supreme Court reversed those decisions in holding that the ESI Act is a beneficial legislation hence the word 'shop' has to be construed in a liberal sense. Thus an advertising agency will attract the applicability of ESI Act.

Employees' State Insurance Corporation vs. R.K. Swamy & others, 1994 labour Law Reporter 51.


When and what circumstances two or more establishments at different places will constitute, one establishment to attract the applicability of E.S.I.?

Where a firm' manufactured its products in a workshop employing 13 person in one workshop and seven persons for polish­ing the products at a different place. The two workshops together constituted a factory to which E.S.I. Act was held to be applicable. Separate buildings, even though located as some distance when used for one continuous manufacturing process will constitute a single factory under E.S.1. Act. In another case it has been held by Madras High Court that though the work was being done at two different premises but the entire work has been one process hence the strength of both the units will be counted for the applicability of the Act.2

1.S.P. Varma vs. E.S.I Corporation, (1973) (44) FJR17 (All.H.C). Also see Agents and Manufacturers, Delhi vs. The Employees Slate Insurance Corporation, New Delhi and others, 1973(9) DLT 500 (Delhi HC).

2.A-I Plastic Firm Vs. Regional Director Employees State Insurance Corporation, Madras, 1993 LLR 156.


Whether more than one establishment situated within the common boundary can be taken to constitute a single unit for coverage under E.S.I. ?

The E.S.I. Act aims at conferring various benefits 'on the employees and as such should be construed that the employees get the intended benefits. The definition of the factory does not indi­cate that the factory will have to be located within a single premise of the building as it lays emphasis on the use of power for manufacturing process carried on in any part of any premises and number of employees engaged in the process of manufacture. Where a firm was running three establishments located at three different municipal premises namely, 1, 2 and 21 in Synagogue Street, Calcutta and the work of printing carried on with the aid of electricity although the machine section was housed only in premises Nos.1 and 2, it was held that the three premises were not only closely located but also the industry connected with the identi­cal manufacturing process carried on by the firm and as such the different units would be covered under the E.S.I. Act.

E.S.I. Corporation vs. Bengal Priming Works, 1984 Lab. LIC 1.


Whether a petrol pump is coverable under E.S.l. Act?

A petrol pump engaged in pumping oil, washing and servicing vehicles would be covered by the expression 'manufactur­ing process' as defined by section 2(12) of the ESI Act. Petrol Pump and service station are work places where persons are employed and power is used in the process of its activities. There is no material difference from the other activities of a manufacturing place strictly so-called. A very narrow construction Lo· the definition of 'manufacturing process' so as to restrict its application only to a work place where by virtue of the manufacturing process a commercially different article is produced, would be unjustified. In the .case of ~ service station, washing, cleaning or oiling a car brings about a particular result in either as a lubricated or cleaned vehicle. That result itself shall be treated as enough to bring the process within the meaning of the Act.

I. E.S.I.C. vs. Bhag Singh, 1988 LIC 1170; 1989(2) LLJ 126 (P&H) F.B. 2. Baranager Service Station vs. E.S.I. Corporation, 1988 Lab. IC 302.


Whether the employees working in showroom sales office close to the workshop will be covered under E.S.I.?

Since Employees' State Insurance Act, 1948 is a social security legislation, the term 'employee' in the Act should be held to cover a wider field and should receive a very liberal connotation than the meaning attributed to the term 'worker' it) the Factories Act. After amendment in 1966 the benefit of the Act extends also to employees whether inside the factory or establishment or elsewhere. In one case with similar facts it has beel1' held that there should be nexus between the establishment and the work of the employee, howsoever loose the connection may be. The employees who are working in a showroom/ sales office were held to be covered under ESI.

Bhopal Motors (Pvt.) Ltd., Bhopal vs Employees’ State Insurance Corpn.,Indore,1982-II LLN 827 (M.P.HC)


Can there be any distinction between employees in kitchen and those in hotel for purposes of E.S.l. Act, 1948?

Sub-section (12) of section 2 of the Act defines a ‘factory’, amongst others, as meaning any premises where manufacturing process is being carried on with the aid of power. Where, therefore, in the kitchen of the hotel power is used for manufacturing articles of food and twenty persons are employed, then the 'kitchen' of the hotel would come within the definition of 'factory'. No distinction can also be made between the workers employed in the kitchen and those in the hotel. Classification of employees working in the kitchen of the hotel and those engaged in supply and distribution and other work is next to impossible and it will be unjustified to say that the former are covered by the E.S.I. Act and the latter are not. It therefore, follows that all persons employed for the purpose of supply and distribution of food prepared in the kitchen and for doing other incidental duties in the hotel are regarded as employees of the factory, (1978) Lab. IC 307 (SC) and 1978 Lab.IC 1759 (Mad. HC) and 1980 Lab. Ie 100 (Bam.) have been followed.

All India lTDC Employee's Union us. Hotel Ashok, Bangalore and another. 1984 Lab. IC NOC 107 (Kant. HC).


Whether the workers employed in a hospital attached to the factory will be covered under E. S.I. ?

The E.S.I. Act will be applicable to a hospital. A company was running a factory at. Sahibabad and the company also establish­ed a hospital exclusively for the benefit of its employees, where the employees and the members of their families were given medical treatment free of charge. There were 15 persons employed by the company including a doctor and a nurse. It has been held that the E.S.I. was applicable to the hospital also.

Regional Director, E.S.J. vs. Manager, Associated Cement Company Ltd. (1979) I Kant. LJ 209; (1979) 1 Lab. LN 418; AIR 1979 NOC 145 (Kant.); 55 FJR 307; (39) FLR 220.


Will a 'club' be covered under the ESI Act?

Yes. The sole test to decide whether any premises is a factory under the 1\ct, therefore, depends on the finding whether any 'manufacturing process' is being carried on with the aid of power or is ordinarily so carried on in the premises including the precincts thereof whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months. A club, which has a kitchen rendering catering services to its mem­bers. The question then arises as to whether any manufacturing process is being carried on in the kitchen. A perusal of sub-clauses I to 6 of Section 2 (K) of Factories Act would make it clear that preparation of the items which arc prepared in the kitchen and the preservation and storing of any articles in the cold storage would amount to a manufacturing process. The Bombay High Court has also held that ESI Act will apply to dub since there is no distinction between a hotel and a club.

1 Employees' State Insurance Corporation vs.jalandhar Gymkhana Club, 1992 I J.R 733 (Punjab & Haryana High Colin).

2 Cricket Club of India Bombay and others vs., Employees' State Insurance Corporation and another 1992 LLR 729; 1993 (1) CLR 120; 1992 Lab IC 2029 (Bombay High Court).


How the concept of manufacturing process is to be determined while applying the E.S.!. ?

It depends upon the merits of a particular case. Where in a case the owner of petrol pump-cum-service station was carrying on the business of sale of petrol, diesel, motor spirit, lubricants, etc. and servicing of motor cars and lorries, it has been held that it will be treated as manufacturing process and the E.S.I. will be applicable as more than 20 employees were employed on the petrol pump-cum-service station.

Barnagar Service Station vs. Employees' State Insurance Corporation, 1987- I LLN 9]2


Are the members of a co-operative society working as employees coverable under the E.S.I. Act?

A co-operative society is a separate legal entity distinct from its members and if members work for wages for the society then they are, of course, its employees within the meaning of section 2(9) of the E.S.I. Act.

Kunnathund Chalakudy Sankethika Co-operative Society Ltd. vs. Employees' Slate Insllranc~ Corporation 1989(2) LLJ 27 (Ked'1C).


What meaning is attributed 10 a 'shop' liable to be covered under the ESI Act?

In some States, the ESI Act has been extended to the 'shop' also employing 20 or more than 20 employees. However, the word 'shop' is not defined in the Act or in the notifications issued by the State Government. According to the Shorter Oxford English Dictionary, the expression 'shop' means 'a house or building where goods arc made or prepared for sale and sold'. It also means a 'place of business' or 'place where one's ordinary occupation is carried on'. In ordinary parlance a 'shop' is a place where the activities connected with the buying and selling of goods are carried on. In one case before the Supreme Court the facts were that the appellant has been carrying on stevedoring, clearing and forwarding oper­ations, the question arose as to whether such activities would within the purview of the term 'shop'. The Supreme Court held that the clearing the documents, even it be in the customs house, is necessary for the export of import of goods. These services formed part of the carrier's job. Thus it cannot be gainsaid that the appellant is render­ing service to cater to the needs of exporters and importers and others who want to carry the goods further. Therefore, it will be a 'shop' carrying on a 'systematic economic or a commercial activity.

In another case, the Madras High Court has held that the test to be applied is whether goods are sold or services are rendered for a price in the premises and whether 20 or more persons are employed in the establishment; if the' answer is in the affirmative, the provisions of the Employees' State Insurance Ac~ 1948, will be clearly attracted. It was further held that even if the sale or services rendered for price are stray or restricted, nevertheless, it would be a 'shop' if20 or more persons are employed in the establishment, whether it be an independent establishment or part of larger organization which may be carrying on additional activities falling out­side the Employees' State Insurance Act, J 9482

1.Cochin Shipping Co. and others vs. Employees State Insurance Corpo., 1992 LLR 801 (Supreme Court)

2.Employees' State Insurance Corpn. vs. Oxford University Press, 1993 LLR 450 1993 (1) CLR 1035


Can an establishment engaged in tailoring of clothes be covered under E.S.I.? Whether the tailoring of clothes comes under the purview of manufacturing process?

So far as an establishment manufacturing of ready-made garment is concerned, it has been held by Bombay High Court that ironing is a process of treating the articles with a view to enhance their use for sale in the market and as such a ready made garment must be ironed properly before it is sold. Accordingly the process of treating the articles would be a manufacturing process carried on with the aid of power so as to constitute the place of premises to be a 'Factory'. In another case, pertaining to the tailoring establish­ment the Andhra Pradesh High Court has held that even though power was not used to stitch clothes or garment, yet the tailoring firms adopted La iron them with aid of power for ornamentation or giving elegant appearance to stitched clothes as finished product of use, thereby ironing the clothes with the aid of power became an integral part of manufacturing process. The tailoring firm employ­ing ten or more persons in a 'Factory' under section 2(m) of the Factories Act coming within the sweep of clause (i) of the notifica­tion under section 1(5) of E.S.I. Act.

1.Kalpana Dresses Bombay V.I". E.S.L Copn; 1976 Lab. IC.186.

2.Smt. Vasanti Mahendra Kumar Shah and etc. vs. All India Handloom Fabrics Marketing Coop. Society Ltd. Ahmedabad, 1985 Lab. Ie, 1104 (Gujarat HC).


Whether the workers working in the canteen are 'employees' under E.S.J. Act?

The provisions of the Factories Act, 1948, cast an obliga­tion on a factory which employs more than 250 workers to maintain a canteen. In one case the management of a factory opened a canteen section 72 of the Contract Act provides that person to whom money has been paid or anything delivered by mistake or under coercion must return or repay-it. It was however, contended on behalf of ESI Corporation that the employees have taken benefit, but there has been no evidence to this effect. This aspect is immate­rial, because the benefit to be received has nothing to do with the employer's liability to make contributions. No equitable consider­ation can be imported when section 72 of the Contract Act is clear and unambiguous. The petitioner's contribution included the amount deducted from the wages of employees. The petitioner will thus be entitled to refund of 2/3rd amount. If the workmen make application for refund of their contribution they shall be entitled to the same.

Anil Textile Industry vs. ESI Corpn., 1992 (64) FLR 856 (Rajasthan High Court).


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