1) Regional Director, ESI Corporation v.

Francis De Costa

The question which had arisen for consideration was whether the injury caused by an
accident on a public road while an employee was on his way to join duty can be held as
arising out of or in the course of his employment within the meaning of Section 2(8) of the
ESI Act, 1948.

Section 2(8)- “ employment injury ” means a personal injury to an employee caused by accident
or an occupational disease arising out of and in the course of his employment, being an insurable
employment, whether the accident occurs or the occupational disease is contracted within or
outside the territorial limits of India.

The definition given to "employment injury" in Sub-section (8) of Section 2 envisages a

personal injury to an employee caused by an accident or an occupational disease "arising
out of and in the course of his employment". Therefore, the employee, in order to succeed
in a case, will have, to prove that the injury that he had suffered arose out of and was in the
course of his employment. Both the conditions will have to be fulfilled before he could
claim any benefit under the Act.

Facts: Francis de Costa met with an accident while he was on his way to his place of
employment. The accident occurred at a place which was about 1 km to the north of the factory
at 4:15pm and the duty shift of Francis de Costa was to commence only at 4:30pm. Francis was
going to the factory and was hit by a lorry belonging to his employers and sustained fracture in
the collar bone. His claim for disablement benefit was allowed by the ESI Court but was rejected
by High Court and finally the case went to Supreme Court. Supreme Court rejecting the appeal
held that since there is no causal connection between the employer and the accident, Francis De
Costa is not entitled to compensation.

The Supreme Court relied on two cases-

 In the case of Regina v. National Insurance Commissioner, Ex. parte Michael, Lord
Denning while construing a phrase "caused by accident arising out of and in the course
of his employment" noted that the meaning of the phrase had gradually been widened to
include doing something which was reasonably incidental to the employee's employment.
 According to Lord Denning, this test of "reasonably incidental" should be limited to
the cases where the workman was at the premises where he or she worked and was
injured while on a visit to the canteen or other place for a break.
 The meaning of the words "in the course of his employment" appearing in Section 3(1) of
Workmen's Compensation Act, 1923, was examined by the Court in the case of
Saurashtra Salt Manufacturing Co. v. Bai Valu Raja, where S. Jafar Imam, J., held that
as a rule, the employment of a workman does not commence until he has reached the
place of employment and does not continue when he has left the place of employment.

Further, the Supreme Court also laid down the following guidelines for determining what
constitutes personal injury:-

i) There must be a causal connection between the injury and the accident and the work done
should be performed in the course of employment.
ii) The onus is upon the applicant to show that it was the work and its resulting strain which
contributed to or aggravated the injury.
iii) If the evidence brought on record establishes a greater probability which satisfies a
reasonable man that the work contributed to the causing of the personal injury, it would
be enough for the workman to succeed, but the same would depend upon the fact of each
case.

Section 1(5) of the Employees' State Insurance Act, 1948

2) Employees’ State Insurance Corporation v. R.K. Swamy & Ors.

A notification was issued under Section 1(5) of the Employees' State Insurance Act, 1948 by
the Government of Maharashtra. Section 1(5) entitles the appropriate Government, to extend the
provisions of the said Act, in consultation with the Employees' State Insurance Corporation
and where the appropriate Government is a State Government, with the approval of the Central
Government, after giving one month’s notice of its intention so to do by a notification in the
Official Gazette, to any establishment or class of establishments, industrial, commercial,
agricultural or otherwise. By the said notification the said Act was applied to, inter alia, shops.
The question which had arisen was whether advertising agency was shop for the purposes of the
application of the Act?
Ruling: 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. It was observed by the Supreme Court that in place where a
systematic economic or commercial activity is carried on will be a ‘shop’. Thus an advertising
agency was held to be a ‘shop’ and was held liable to be covered under the Act.
In arriving at the aforesaid conclusion, the Supreme Court referred to and relied upon the
following judgments already rendered by it:-

(i) M/s. Cochin Shipping Co. v. ESI Corporation- In this case, the petitioner was engaged in
processing documents at customs clearing house and there was no other activity, the petitioner
was held to be carrying on systematic economic or a commercial activity and, as such, was held
to be a ‘shop’.

(ii) M/s. International Ore & Fertilisers (India) Pvt. Ltd. v. ESI Corporation- In this case, the
petitioner carried on commercial activities facilitating the sale of goods by its foreign principals
to the State Trading Corporation or the Minerals and Metals Trading Corporation. It arranged for
the unloading of such goods and their survey. Upon delivery, it collected the price payable and
remitted it to its foreign principals. These were trading activities and although the
goods imported were never actually brought to the petitioner’s premises, the premises were
nevertheless held by the Supreme Court to be a ‘shop’, because the trading activities “related to
the sale of goods”.

(iii) Hindu Jea Band v. Regional Director, ESI Corporation, Jaipur- In this case, it was held by
the Supreme Court that a ‘shop’ is a place where services are sold on retail basis. In this case, the
petitioner was carrying on the business of playing music on occasions such as marriage and other
social functions. The petitioner was held to be carrying on a ‘shop’ and was held liable to be
covered under the Act.

(iv) Regional Provident Fund Commissioner v. Shibu Metal Works- It was held that in
construing the provisions of the Employees Provident Fund Act, which had a beneficent purpose,
if two views were reasonably possible, the Court should prefer the view which helped the
achievement of the object.
 3) ESI Corporation v. Hyderabad Race Club
The Supreme Court in this case keeping in view the systematic commercial activity carried on by
the club has held that the race club is an establishment within the meaning of the said expression
as used in the notification issued under Section 1(5) of the ESI Act.

4) Bangalore Turf Club Ltd. v. Regional Director, Employees’ State Insurance

Corporation

This case decided two important issues, namely,

(i) whether the decision of the apex court in the Employees State Insurance Corporation v.
Hyderabad Race Club was correct when it held that a ‘race-club’ is an ‘establishment’ for
the purposes of the Employees’ State Insurance Act, 1948 (ESI Act)? and
(ii) whether the appellant-turf clubs fall within the purview of the definition of the word
‘shop’ as categorized in the notifications issued by the state government?

The matter was referred to three-judge bench of the Supreme Court in the case under review as
two-judge bench of the Supreme Court was of the view that the decision in the case of
Hyderabad Race Club case may require reconsideration.

Relevant provisions:

In order to deal with the aforesaid issues the apex court referred to the provisions of sub-section
(4) and (5) of section 1 of the ESI Act. Sub-section (4) of section 1 provides that the ESI Act
shall apply to all factories including factories belonging to the government other than seasonal
factories. Sub-section (5) of section 1 empowers the appropriate government to extend the
provisions of the ESI Act to any other establishment or class of establishments- industrial,
commercial, agricultural or otherwise. The court termed this sub-section to be an enabling
conditional legislation.

The court then explained the meaning of the words ‘or otherwise’ occurring after the words
‘industrial, commercial or agricultural’ establishments in sub section (5) of section 1 and
observed that said sub-section indicates that the government can extend the ESI Act or any
portion thereof to any other establishment or class of establishments. The genus lies in the words
‘any other establishment or class of establishment’. The three words industrial, commercial and
agricultural represents specie. Since the legislature did not want to restrict the operation of the
ESI Act to these three species it has used the catch words ‘or otherwise’.

ESIC v. Hyderabad Race Club does not require reconsideration

The court pointed out that the test of finding out whether professional activity falls within the
meaning of the expression ‘establishment’ is whether the activity is systematically and habitually
undertaken for production or distribution of the goods or services to the community with the help
of employees in the manner of a trade or business in such an undertaking. The court held that if a
systematic economic or commercial activity is carried on in the premises, it would follow that
the establishment at which such an activity is carried on is a ‘shop’. The court then referred to its
earlier decision in Hyderabad Race Club case wherein it was held that keeping in view the
systematic commercial activity carried on by the race-club is an establishment within the
meaning of the said expression as used in the notification issued under section 1(5) of the ESI
Act. In view of this, the court in the instant case held that the decision in Hyderabad Race Club
case is in consonance with the provisions of the ESI Act and also settled legal principles.
Accordingly the said decision does not require re-consideration.

Whether shop includes club

The court then considered whether a ‘race-club’ or turf club would be covered under the
definition of a ‘shop. The court rejected the contention of appellant that the term ‘shop’ must be
understood in its ‘traditional sense’. The Court observed that the ESI Act is a beneficial
legislation. The scheme and context of the ESI Act must be given due consideration and a
narrow meaning should not be attached to the words used in the ESI Act. Further in light of the
judgment of the Cochin Shipping case, the court held that an expansive meaning may be
assigned to the word ‘shop’ for the purposes of the ESI Act.

The Appellant Turf Clubs provide various services to the viewers, ranging from providing
facilities to enjoy viewership of the horse racing, to the facilitating of betting activities, and that
too for a consideration- either in the form of admission fee or as commission. What is relevant is
that the establishment must only offer the clients or customers with goods or services. As has
been found above, the activities of the Appellant-Turf Clubs is in the nature of organized and
systematic transactions, and further that the said Turf Clubs provide services to members as well
as public in lieu of consideration. Therefore, the Appellant-Turf Clubs are a ‘shop’ for the
purpose of extending the benefits under the ESI Act.

5) Delhi Gymkhana Club Ltd. v. Employees State Insurance Corporation

In this case the Supreme Court was called upon to decide whether kitchen of club and catering
section comes within the meaning of ‘factory’ and “manufacturing process” as defined in
Employees’ State Insurance Act, 1948 (ESI Act)

Important definitions:

The term ‘factory’ has been defined under section 2(12) of the ESI Act to mean any premises
including the precincts thereof whereon ten or more persons are employed or were employed on
any day of the preceding twelve months, and in any part of which a manufacturing process is
being carried on or is ordinarily so carried on.

The term ‘manufacturing process’ has been defined under section 14AA of the ESI Act to have
the same meaning assigned to it under the Factories Act, 1948 (“Factories Act”). Section 2(k) of
the Factories Act defines ‘manufacturing process’ to include any process for making, altering,
repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing,
or otherwise treating or adapting any article or substance with a view to its use sale, transport,
delivery or disposal.

Ruling:

The Supreme Court observed that even though the term ‘kitchen’ or ‘catering’ of a club may not
be considered a factory in common parlance, but having regard to the definition of
‘manufacturing process’ and that the ESI Act is a beneficial legislation, a liberal interpretation
has to be adopted. The Court explained the importance of the said legislation and held that the
provisions of ESI Act must be construed along the lines of the object of the Act so that the
benefits of welfare legislation are not curtailed. 

Interpreting the term “factory” under the ESI Act, the Court held that a wide range of activities
of the club are associated with the large number of staff. Kitchen is an integral part of the club
which caters to the needs of its members and their guests, on payment of money either in cash or
by card, where the food items are put for sale, thereby making the appellant-club fall within the
definition of ‘factory’ under Section 2(12) of the ESI Act. Holding that preparation of food items
in the kitchen amounts to “Manufacturing process”, the Court said that so long as manufacturing
process is carried on with or without the aid of power by employing more than twenty persons
for wages, it would come within the meaning of “factory” as defined under Section 2(12) of the
ESI Act.

Reliance was placed on the decision in Employees’ State Insurance Corporation v. Jalandhar
Gymkhana Club, wherein the Punjab and Haryana High Court considered the question whether
manufacturing process is being carried on in the kitchen of the club, rendering catering services
to its members. It was held that a perusal of sub-clauses (i) to (vi) of Section 2(k) of the Factories
Act would make it clear that preparation of the items which are prepared in the kitchen and the
preservation and storing of any articles in the cold storage would amount to a manufacturing
process.

6) Royal Western India Turf Club Ltd. v. E.S.I. Corporation

The Supreme Court was invited to determine the question whether casual workers are covered
under definition of employee as defined in Section 2(9) of the Employees State Insurance Act,
1948.

It was submitted on behalf of the Appellant club that temporary staff engaged on race-days for
issue of tickets, would not be covered by the definition of the “employee” under Section 2(9) of
the ESI Act. This submission was rejected. The Supreme Court held that the definition of
employee under Section 2(9) is very wide. A person who is employed for wages in the factory or
establishment, on any work of, or incidental or preliminary to or connected with the work is
covered. The definition brings various types of employees within its purview. The ESI Act is a
welfare legislation and is required to be interpreted so as to ensure extension of benefits to the
employees and not to deprive them of the same which are available under the Act. Further it is
apparent from section 39 that an employee who is employed for a part of the wage period is also
covered for the purposes of contribution. The definition of the term “employee” in section 2(9) is
also wide enough to cover casual employees who are employed for part of wage period.  Hence
casual workers are entitled all benefits available under ESI Act.

The Court also referred to Regional Director, Employees’ State Insurance Corporation, Madras
v. South India Flour Mills (P) Ltd. in which it was held that casual employees come within the
purview of the ESI Act.

7) Employees’ State Insurance Corporation v. Peter Sewing Machine Co.

Facts: The Peter Sewing Machine Company was carrying on the business of making and
assembling sewing machine parts by the use of power. It did not itself employ twenty or more
persons. But it allowed two contractors to work in its premises on its machines and with its
power. The employees of the Peter Sewing Machine Company coupled with the employees of
these contractors numbered twenty or more persons. These contractors also manufactured sewing
machine parts which were occasionally bought by the Peter Sewing Machine Company. But
there was no definite contract between the Peter Sewing Machine Company and these
contractors by which the former was bound to purchase the machine parts manufactured by the
latter. Nor was any raw material supplied by the Peter Sewing Machine Company to these
contractors. Nor did the Peter Sewing machine Company in any way manage the affairs of these
contractors. On the other hand, these contractors were said to be the sub-tenants of the Peter
Sewing Machine Company. The question for the Delhi High Court was whether the premises of
the Peter Sewing Machine Company were covered by the definition of "factory" in Section 2(12)
of the Employees State Insurance Act, 1948.

Ruling: For the purpose of coverage under the ESI Act,1948 a ‘Factory’ has been defined under
Section 2(12) as any premises including the precincts thereof, where 20 or more persons
employed and, in any part of which a manufacturing process is being carried on with the aid of
power.
The expression "manufacturing process" has the same meaning as is assigned to it by Section
2(k) of the Factories Act, 1948, i.e., any process for making, altering, repairing etc., or adapting
any article or substance with a view to its use, sale, transport, delivery or disposal.
Out of three constituent elements of "factory" described above, the first and the third are satisfied
in the present case inasmuch as a manufacturing process is carried on in the premises occupied
by the Peter Sewing Machine Company. The question whether the premises are a "factory",
therefore, depends on the second requirement being fulfilled, namely, whether twenty or more
persons were employed in these premises during the relevant period.

The Court held that a definite economic unit possessing four units or identities, namely—
(1) geographical or physical unity, (2) unity of ownership or occupation, (3) unity of
employment, and (4) unity in work is a factory under the Act.
In the present case, part of the factory is occupied by the Peter Sewing Machine Company while
the rest of it is occupied by the contractors who have no definite contractual relationship with the
Peter Sewing Machine Company. The unity of ownership or occupation of the factory is,
therefore, lacking in the present case. Additionally, the unity of employment is essential in the
sense that the employee must be engaged either by the principal employer or by him through the
immediate employers. The contractors in the present case are independent employers and not
immediate employers as they manufacture their goods independently and not as a part of the
goods manufactured by the Peter Sewing Machine Company. Therefore, it cannot be said, that
the contractors have undertaken to execute "the whole or any part of any work which is
ordinarily part of the work of the factory or establishment of the principle employer" within the
meaning of Section 2(13) of the ESI Act, 1948. There is, therefore, no unity of employment
between the Peter Sewing Machine Company and the contractors. Lastly, since it is necessary
that there should be a unity in the work carried on in the factory premises by the Peter Sewing
Machine Company and the contractors but there is no co-ordination and no contractual
relationship between them and this unity also, therefore, is found to be lacking.

Therefore the Court held that the Peter Sewing Machine Company and the contractors were
carrying on their respective businesses independently of each other. The employees employed by
all of them could not, be clubbed together to find out if the total of the employees was twenty or
more persons.

8) Employees’ State Insurance Corporation v. Venus Alloy Pvt. Ltd.  

Facts: Respondent-Company had been covered under the ESI Act and had been depositing the
amount of contribution with reference to the wages paid to some of its employees. However, in
an inspection carried out by the Appellant (the Corporation), it was observed that the respondent-
Company had not made the contribution in respect of the remuneration paid to the Directors.

Decision: The Supreme Court held that the Directors of Company, who are receiving
remuneration for discharge of duties assigned to them, fall within the definition of an
“employee” under Section 2 (9) of the Employees’ State Insurance Act, 1948 (the ESI Act).
Thus, the Company has to deposit contribution in respect of the remuneration paid to the
Directors with the Employees’ State Insurance Corporation.     

The SC, while arriving at this decision relied on the case of Employees’ State Insurance
Corporation v. Apex Engineering Pvt. Ltd where the SC held that a director, while performing a
managerial function, could also be treated as an employee of the Company and could carry out
such dual capacity. This decision regarding Managing Directors applies with greater force in
relation to a Director of the Company, if he is paid the remuneration for discharge of the duties
entrusted to him.

In the present case, the directors of Venus Alloy Pvt. Ltd were given a remuneration of INR
3,000 per month. The SC held that such remuneration would fall under the definition of wages,
as defined under Section 2(22) of the ESI Act. The SC, accordingly, directed Venus Alloy Pvt.
Ltd. to make the requisite contribution.

Case 9.:

Now reverting to Section 2(9) of the Act it is seen that the expression 'employee' means any person
employed for wages in a factory or any person employed for wages in connection with the work of a
factory. It also means any person employed for wages in or in connection with the work of an
establishment to which the Act applies.

Sec. 2(9) 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. He must
not only be employed in connection with the work of the establishment but also be shown to be employed
in one or other of the three categories mentioned in Sec. 2(9).
Section 2(9) contains two substantive parts. Unless the person employed qualifies under both, he is not
an employee. First, 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
establishment. Some nexus must exist between the establishment and the work of employee but it may
be a loose connection. 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. He must not only be employed in connection
with the work of the establishment but also be shown to be employed in one or other of the three
categories mentioned in s. 2(9). The three categories include the one who is directly employed by
principal employer, by immediate employer or on hire basis.

In Royal

In Hyderabad Asbestos Cement Products Ltd. v. The Employees Insurance Court and Anr.
MANU/SC/0228/1977 : (1978)ILLJ181SC the appellant company which had a factory at Sanatnagar
where it was manufacturing asbestos sheets contended that the employees working in its zonal offices
situated at various other places who were doing the work of canvassing for the sale of products
manufactured by it at Sanatnagar were not employees within the definition of Section 2(9) of the Act as
the zonal offices ' were establishments and not factories. Negativing the above contention, this Court
held that any person employed for wages in the zonal offices for the purpose of purchase of raw
materials or 'distribution or sale of the products of the factory or for administrative purposes of the
factory was a person employed in connection with the work of the factory and hence was an employee
as defined by Section 2(9) of the Act. The Court in reaching the conclusion also relied on the amendment
of Section 2(9) of the Act by Act No. 44 of 1966 which provided that the expression 'employee' included
'any person employed for wages on any work connected with the administration of the factory'.

8. In Royal Talkies, Hyderabad and Ors. v. Employees State Insurance Corporation

MANU/SC/0004/1978 : [1979]1SCR1 employees working in a canteen and at the cycle stand attached to
a cinema theatre were held to be persons employed in connection with the work of the cinema; theatre.
The Court, however deserved that merely being employed in connection with the work of a factory or of
an establishment in itself did not entitle a person to be an employee but it must be proved that he was
not only employed in connection with the work of the establishment but also be shown to be employed
in one or other of the three categories mentioned in Section 2(9) of the Act.