1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 16 TH DAY OF DECEMBER, 2013 BEFORE THE HON’BLE MR.JUSTICE ARAVIND KUMAR MISCELLANEOUS FIRST APPEAL NO.6752/2008 (ESI) BETWEEN: EMPLOYEES STATE INSURANCE CORPORATION NO.10, BINNY FIELDS, BINNYPET, BANGALORE – 560 023 REPRESENTED BY ITS DEPUTY DIRECTOR . …APPELLANT (BY SRI M.P.GEETHA DEVI, ADVOCATE) AND: SREE VALLIAPPA TEXTILES LTD., HEJJALA P.O., BIDADI – 562 109 BANGALORE DISTRICT, REPRESENTED BY ITS MANAGING DIRECTOR …RESPONDENT (BY SRI K. RAMACHANDRAN, ADVOCATE FOR M/S MRC RAVI, ASSOCIATES, ADVOCATES) This Appeal is filed Under Section 173(1) of MV Act against the judgment & award dated 20.03.2008 passed in Exi. Appl. No.6/03 on the file of the Presiding
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 16TH DAY OF DECEMBER, 2013
BEFORE
THE HON’BLE MR.JUSTICE ARAVIND KUMAR
MISCELLANEOUS FIRST APPEAL NO.6752/2008 (ESI)
BETWEEN: EMPLOYEES STATE INSURANCE CORPORATION NO.10, BINNY FIELDS,
BINNYPET, BANGALORE – 560 023 REPRESENTED BY ITS DEPUTY DIRECTOR . …APPELLANT (BY SRI M.P.GEETHA DEVI, ADVOCATE)
the application filed under Section 75 of the ESI Act.
This Appeal coming on for Admission this day, the
Court delivered the following:
JUDGMENT
The ESI – Corporation is in appeal challenging the
order passed by Industrial Tribunal, Bangalore dated
20.03.2008 in ESI No.6/2003.
2. Learned Advocates appearing for the parties
would fairly submit that substantial questions of law
which was required to be formulated under Section 82
of the Employees State Insurance Act, 1948 (hereinafter
referred to as the ‘Act’ for the sake of brevity) has not
been formulated and as such, they request this court to
formulate the substantial questions of law.
3. Having heard the learned Advocates
appearing for parties, I am of the considered view that
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following two substantial questions of law would arise
for my consideration:
i. Whether ESI Court was correct in arriving at
a conclusion that manufacturing activity of
respondent – establishment having been
stopped with effect from 14.06.1999 and
thereby it need not pay
Employers/employees contributions to
appellant corporation?
ii. Whether Industrial Tribunal was correct in
arriving at a conclusion that respondent
had proved that stipend was paid to its
trainees/apprentices and as such it does not
form part of wages.
4. It is the contention of Smt.Geetha Devi,
learned counsel appearing for ESI – Corporation that
Tribunal committed a serious error in not construing
the inspection report in proper perspective, which came
4
to be marked as Ex.R-1, which would clearly indicate
that on 17/18.05.2001 respondent – establishment was
inspected and observation has been made about non
production of certain records and the very records
produced by respondent - establishment would itself
indicate that there was no stoppage of activity in
respondent – establishment and as such, it continued to
be a covered establishment as per Section 1(6) of the
Act. She would elaborate her submission by contending
that on facts respondent – establishment had failed to
demonstrate that it had paid stipend to its trainees
/apprentices and no evidence was tendered in this
regard. Hence, contrary conclusion arrived at by the
Industrial Tribunal is erroneous and is liable to be set
aside. She would contend that under the definition of
an employee as defined under sub-section (9) of Section
2 of the ESI Act, not only establishment has to prove
that it had employed trainees as per the approved
industrial standing orders, but it has to further
establish and prove that such payment of stipend was
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actually made, as otherwise it has to be construed as
wages as defined under Section 2(22) and thereby the
demand raised by ESI – Corporation would be justified.
5. She would also draw the attention of the
Court to Ex.A-9 i.e., namely profit and loss account of
respondent-establishment drawn as on 30.06.2002 to
contend that it does not show about any stipend having
been paid, but on the other hand it has been shown as
salaries, wages and bonus. She would also contend
that there was no material available before ESI Court to
arrive at a conclusion that stipend was factually paid to
trainees and no vouchers were forthcoming and despite
non production of evidence for having made payment in
this regard, respondent - establishment cannot contend
that it is not liable to pay ESI contribution. Hence, she
requests this Court to answer the substantial questions
of law in favour of ESI – Corporation by allowing the
appeal.
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6. Per contra, Sri.Ramachandran, learned
counsel appearing for respondent – establishment
would support the order passed by Industrial Tribunal
and he would contend that undisputedly establishment
was closed on 31.03.1999 under Section 250 of the
Industrial Disputes Act, 1947 and on account of trade
union challenging the said order by filing a review
petition, it attained finality on 14.06.1999 and as such,
it can be construed that there was a closure of
respondent-establishment legally with effect from
14.06.1999 and immediately on such closure, three
communications were sent to ESI – Corporation on
14.08.1999 and other statutory authorities like
Provident Fund and despite such intimation he
contends appellant officials did not visit the
establishment and after a period of two years the
Inspector of ESI – Corporation visited the respondent-
establishment and a demand has been raised, which is
contrary to statutory provision namely Sub-Section (6)
of Section 1 and Sub-Clause (b) of Clause (iii) of Sub-
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Section (9) of Section 2 of the Act. He would submit that
when establishment has ceased to have any
manufacturing process, provisions of the Act would not
apply or get attracted and the establishment not being
covered under the Karnataka Shops and Commercial
Establishments Act, 1961, it cannot also be contended
that there was any commercial activity and particularly
when there was no admitted commercial activities of
trading like buying and selling and or any other
incidental activities it also cannot be held or construed
that establishment was running its business. Hence, he
contends that it cannot be construed that establishment
continued to remain as a covered establishment.
Supporting the impugned order he submits that
respondent is admittedly having a certified standing
orders and payment of stipend to its trainees would not
par-take the character of wages and as such no fault
can be found in the impugned order passed by ESI
Court. He would submit that after closure of
establishment, it is not liable to pay contributions and
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as such, he seeks for answering the substantial
questions of law in favour of respondent –
establishment.
7. In support of his submissions he has relied
upon the following judgments:
1) 1993 (1) LLJ SC 939: ESIC VS. HOTEL KALPAKA INTERNATIONAL 2) 1976 (1) LLJ SC 81:
EMPLOYEES STATE INSURANCE CORPORATION AND ANOTHER VS. TATA ENGINEERING AND LOCOMOTIVE CO. LIMITED AND ANOTHER
3) 2006 SCC (L&S) 323:
REGIONAL PROVIDENT FUND COMMISSIONER,
MANGALORE VS. CENTRAL ARECANUT & COCA MARKETING AND PROCESSING COOP. LTD., MANGALORE
4) 1999 (1) LLJ 222: ROHTAS INDUSTRIES LTD., (IN LIQUIDATION)
5) 1999 III LLJ (Supp) 243:
REGIONAL PROVIDENT FUND COMMISSIONER VS. MANAGEMENT OF HOTEL HIGHWAY LIMITED, MYSORE
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FACTUAL BACKGROUND:
8. Applicant is an establishment carrying on
manufacturing of garments. It was covered under ESI
Act with effect from 1998. Said establishment was
closed as per permission accorded to it by appropriate
Government to close down the establishment as per
Section 250 of the Industrial Disputes Act, 1947, by
order dated 26.02.1999. Said order came to be
challenged by the trade union by filing a review petition
before the appropriate Government, which ended in
dismissal and as such it is deemed that respondent is
closed with effect from 14.06.1999 according to
respondent-establishment. These aspects are not in
dispute. Respondent – establishment submitted a
representation to ESI-Corporation on 14.08.1999
intimating about the closure. Said communication has
been produced and marked as Ex. A-17. However, the
Inspector of ESI-Corporation visited the establishment
on 17/18.05.2001 for the purposes of verification and
after examining the registers namely Attendance
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Registers, Wages Registers and other Registers, made
available, he prepared an inspection report as per
Exhibit-R-10. Thereafter a demand came to be raised
on establishment by issuance of notice dated
17.07.2001 Ex.A-3.
9. Prior to it, an order came to be passed under
Section 45-A of the ESI Act by determining the total
demand at Rs.2,95,274/- contending that it covers
contribution for the period October 1997 to March 2000
vide order dated 26.11.2001. Aggrieved by the said
order an application was filed under Section 75 of the
ESI Act before ESI Court, which came to be numbered
as ESI No.6/2003. Said application came to be allowed
in part by order dated 29.10.2005 holding that
Corporation is entitled to claim contribution for the
period 02.10.1997 to 16.06.1999 only and claim
regarding stipend paid to the apprentice held was not
justified.
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10. Being aggrieved by this order Corporation
filed an appeal before this Court in MFA No.1040/2006.
After considering the contentions of respective parties,
this Court allowed the appeal and set aside the order of
remand and remitted the matter back to the Industrial
Tribunal for adjudication afresh. In the light of
observations made by Co-ordinate Bench of this Court
while remanding the matter, it requires to be extracted.
Hence, same is extracted herein below:
“5. With regard to the next contention
urged by the learned counsel for the
appellant regarding closure of the factory, it
is seen that the court below has proceeded
on the basis of the admission made by the
very Inspector who claims to have inspected
the premises. He has admitted in his
evidence that the manufacturing activities
were closed on 16.06.1969. Based on this
admission, the court below has proceeded to
hold that the manufacturing activities were
closed from 16.06.1999 and therefore, the
question of demanding contribution to the
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remaining period did not arise. However, the
counsel for the appellant referring to the
inspection report of the Inspector contends
that for the period subsequent to 16.6.1999
contribution is stated to have been deducted.
6. The counsel for the appellant rightly
contends that if the court below had properly
considered the inspection report marked as
Ex.R-1 along with the oral evidence led by
the Inspector, it would have come to a just
and reasonable conclusion and failure to do
so has vitiated the order. There is
considerable force in this submission as the
court below has not referred to the Report of
the Inspector. Therefore, as the court below
has not examined the inspection report
wherein it is shown that certain amount was
deducted towards contribution even after the
date of alleged closure on 16.6.1999, without
expressing any opinion at this stage on the
matter, I consider it appropriate to remand
the matter back for fresh consideration in
accordance with law. This process is all the
more necessary because the court below has
placed reliance on the two decisions which
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are not applicable to the facts of the case
and are subsequently distinguished by the
division bench in MFA No.2910/01. Hence, I
pass the following order:
ORDER
The appeal is allowed. The order under
challenge is set aside. The matter is
remanded back for fresh consideration in
accordance with law and in the light of the
observation made above. No costs.
Sd/-
Judge”
11. On such order of remand being made,
establishment tendered further evidence by examining
one of its employee namely Labour Officer - Sri N.S.Raju
on 14.03.2007. There was no cross-examination of this
witness by corporation. Subsequently, Corporation filed
a memo on 13.05.2007 adopting the evidence recorded
in application 5/2003 as its evidence in the instant
case. Thereafter Industrial Tribunal re-examined the
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matter and allowed the application by holding that
Corporation is entitled to claim ESI contribution for the
period October 1997 to 16.06.1999 only and claim
regarding stipend paid by applicant to apprentice was
held to be not justified. In this background and in the
light of contentions raised by learned advocates as
recorded hereinabove and case laws relied upon by
them, substantial questions of law formulated
hereinabove is being adjudicated and answered.
12. In order to answer these two substantial
questions of law, it would be necessary to note the
relevant provisions which would have bearing namely
Sections 1(6), 2(9) and 2(22) of the ESI Act. They are
extracted hereinbelow:
“1. Short title, extent, commencement and application.—(1) This Act may be called the Employees’ State Insurance Act, 1948. (2) xxxxxxxxxxxxx
(3) xxxxxxxxxxxxx (4) xxxxxxxxxxxxx (5) xxxxxxxxxxxxx [(6) A factory or an establishment to which this Act applies shall continue to be
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governed by this Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under this Act or the manufacturing process
therein ceases to be carried on with the aid of power.] 2. Definitions.—In this Act, unless there is anything repugnant in the subject or context,--
(19) xxxxxxxxxxxxxx (20) xxxxxxxxxxxxxx (21) xxxxxxxxxxxxxx (22) “wages” means all remuneration paid or
payable in cash to an employee, if the terms
of the contract of employment, express or
implied, were fulfilled and includes [any
payment to an employee in respect of any
period of authorized leave, lock-out, strike
which is not illegal or lay-off and] other
additional remuneration, if any, [paid at
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intervals not exceeding two months], but
does not include—
(a) any contribution paid by the
employer to any pension fund or provident fund, or under this Act; (b) any travelling allowance or the value of any travelling concession; (c) any sum paid to the person employed to defray special expenses
entailed on him by the nature of his employment; or (d) any gratuity payable on discharge;”
RE. SUBSTANTIAL QUESTION OF LAW NO.1:
13. A reading of Sub-Section (6) of Section 1
would clearly indicate that when an establishment is
covered under the Act it shall continue to be covered
under the Act notwithstanding with the number of
employees employed in an establishment at any time
falls below the limit specified by or under the Act or the
manufacturing process therein ceased to be carried on
with the aid of power. Whether mere closure of an
establishment would amount to establishment falling
outside the purview of the Act or on account of
manufacturing process or ceasing of manufacturing
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process with the aid of power would amount to closure
or the very order of closure issued by `appropriate
Government’ itself would suffice to arrive at a
conclusion that establishment would be outside the
purview of the Act, requires to be examined and
answered in this appeal.
14. In the instant case there is no dispute that
under Section 25-O of the Industrial Disputes Act
`appropriate Government’ passed an order of closure of
respondent-establishment. Same did not reach finality
inasmuch as workers trade union challenged the said
order by filing a review petition before the appropriate
Government and said review petition came to be
dismissed on 14.06.1999, which also came to be
affirmed by this court.
15. Contention of ESI - Corporation is that on
account of Inspector having inspected the respondent
factory on 17/18.05.2001 and having scrutinised the
Registers made available for inspection and having
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noticed that even subsequent to the period of closure
there was activity carried on by the covered
establishment and expenses expended by the
establishment have been booked in the accounts
maintained by the establishment, was itself sufficient to
establish or indicate that it continued to be a covered
establishment or manufacturing process having ceased
would not take away the establishment from the
purview of the Act.
16. At this juncture, it would be relevant to note
the admissions of witness examined on behalf of
Corporation as well as establishment namely
Sri.Basaravaraj and Sri.N.S.Raju, respectively. Their
admissions reads as under:
Sri Basaravaraju examination-in-chief dated 13.07.2005: “In may 2001, I was working xxxxxxx with me. I checked attendance registers, wages
registers, Form-7 registers, Form-6 returns, and also challans, payment of ESI contributions. I also verified the ledgers, vouchers. As on the date of my inspection,
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the manufacturing activities had been closed.”
Sri N.S.Raju cross-examination dated 15.06.2005:
“4. It is not true to suggest xxxxxxxxx 18th May 2001. It is true that the Government sanctioned permission to close the
establishment by order dated 26.02.1999. It is true to say that the factory was functioning upto February 1999.” 17. These admissions would clearly indicate that
respondent-establishment in question had ceased
functioning from the date as indicated in the closure
order dated 31.03.1999 or in the alternate from the date
review petition is filed by the trade union came to be
dismissed on 14.06.1999. There cannot be any iota of
doubt on this point.
18. The next point that would arise would be as
to whether this would suffice or respondent-
establishment continued to be a covered establishment
by virtue of deeming provision under Section 6(1) of the
Act. To buttress her arguments Smt Geetha Devi,
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learned counsel appearing for ESI-Corporation has
contended that Ex.R-1, inspection report dated
17/18.05.2001 would indicate various expenses having
been booked in the account books of establishment
indicating that activities have further continued and
merely because of manufacturing activity with the aid of
power having been stopped by itself would not absolve
the establishment of being construed as falling outside
the purview of Act. When said contention is examined
with reference to records it would clearly indicate that
an inspection was conducted by the Inspector of ESI-
Corporation and it was noticed by him that following
amounts were spent and booked in the registers and
account books for the period October 1997 to March
2000 by the respondent – establishment. Same is
extracted herein below in the tabular column for the
purpose of convenience:
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Sl. No.
Nature of omitted wages
Period Amount Contribution
1 Loading and unloading charges booked in cotton expenses
10/97-9/98 10/98-3/00
19,173-75 8,202-75
2 Cleaning charges 10/97-9/98 10/97-9/98
150-00 63,336-00
3 Production/ Attendance bonus
10/98-3/00 10/97-9/98
3,07,079-00 12,40,242-00
4 Stipend 10/98-3/00 10/97-9/98
8,41,340-97 22,358-00
5 Loading and Unloading charges booked in Freight Charges
10/98-3/00
23,244-00
6 Building repair 10/97-9/98 10/98-3/00
2,06,823-00 1,08,738-00
7 Machinery Repair 10/97-9/98 10/98-3/00
3,67,154-40 87,718-18
8 Electrical Repair 10/97-9/98 10/98-3/00
50,414-18 21,375-00
9 Generator Expenses 10/97-9/98 10/98-3/00
37,558-00 38,903-00
10 Garden Expenses 10/97-9/98 10/98-3/00
54,820-00 1,87,173-00
11 Welfare Expenses -do- 8,809-00
12 Repair to others -do- 1,269-00
13 Waste Cotton Sales Expenses
-do- 8,290-00
14 Waste Scrap Sales Expenses
-do- 1,292-00
Total 37,05,466-49
Contribution Rs.2,40,856/-
19. There is no dispute that these amounts
having been reflected in the book of accounts of
respondent-establishment. It is pertinent to note at this
juncture that respondent – establishment has also
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produced the balance sheet before the industrial
Tribunal as well as profit and loss account for the year
ending 30.06.2002 and it came to be marked as Ex.A-9.
Thus, inspection report Ex.R-1 will have to be read
along with the accounts of respondent - establishment
which has been relied upon by the respondent-
establishment itself. In the registers produced before
the authorities namely the Inspector at the time of
inspection it has been indicated that a sum of
Rs.8,41,340-97 and Rs.12,40,242-00 having been paid
for the year October 1998 to March 2000 and October
1997 to September 1998 towards stipend. The balance
sheet namely profit and loss account Ex.P-9 would
indicate that as on year ending 30.06.2002 (18 months)
under the column schedule ‘M’ to words “employees
remuneration and their benefits”, it has been indicated
that a sum of Rs.1,20,28,098-00 has been booked as
expenses towards “salaries, wages and bonus”.
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20. The demand raised by the Corporation would
indicate that expenses booked for the above period
related to loading and unloading charges, cleaning
charges, building repair, machinery repair, electrical
generator repair, etc., has been taken into consideration
for purposes of raising the demand. Though it is the
contention of Sri Ramachandran, learned counsel
appearing for respondent-establishment that to keep the
establishment in a saleable condition minimum skeletal
staffs had to be employed and as such expenses had to
be incurred and that by itself cannot be construed as
establishment having carried on any activity either
manufacturing or commercial or trading activity. Said
contention requires to be considered with utmost
circumspection for reasons more than one. Firstly
profit and loss account dated 30.06.2002 for the year
ending 31.03.2001 would indicate that respondent-
establishment itself has booked expenses for having
paid the salaries, wages and bonus upto 2001 and in
the registers maintained by establishment in natural
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course, which was produced for inspection before the
authorities would themselves indicate that
establishment has classified the payment under
different heads and depicting same as expenses for
having incurred it has been depicted as such and as
such it cannot contend those expenses have not been
incurred or there was no activity in the establishment
after closure. Secondly, the list appended to Ex.P-3
would indicate that for the period October to December
1999 number of employees employed in respondent-
establishment were 17, 34, 14 persons. Again in the
months of July to December 2000 number of employees
employed by it were 90, 74, 95, 99, 91 and 73. As such,
it cannot be construed that there was only minimum
skeletal staff and this material evidence available on
record has not been construed in proper perspective by
the Industrial Tribunal and as such version put forward
by establishment cannot be accepted. Thirdly, in view
of deeming provision under sub-section (6) of Section 1
the mere cessation or stoppage of the manufacturing
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process either with the aid of power or without the aid
of power would not by itself sufficient to conclude that
such establishment would be outside the purview of the
Act and it would not come to the rescue of the
establishment to contend that it has ceased to operate
or continue with its activity. As such provisions of the
Act is inapplicable. ESI Act being a social piece of
legislation, the avowed object with which it has come
into force will have to be looked into or taken into
consideration. In the light of object of the Act it has to
be necessarily held that in the facts and circumstances
of the case it cannot be construed or held that the
activity of respondent-establishment had been stopped
or by virtue of closure order issued by `appropriate
Government’ to respondent – establishment it had
ceased to operate or stopped its activity so as to claim
immunity from the Act. Hence, substantial question of
law No.1 is answered in the negative and against the
respondent – establishment.
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RE: POINT NO.2: 21. Section 2(9) of the Act would clearly indicate
as to who are the persons who are construed to be a
employee of an establishment. Said definition is
exhaustive and an apprentice engaged by an
establishment not being an apprentice engaged under
the Apprentices Act, 1961 or an apprentice appointed
under the standing orders of an establishment would
not be an `Employee’ as defined under the ESI Act. In
other words apprentice who have been employed as per
registered industrial standards of establishment would
not an employee coming within the purview of sub-
section (9) of Section 2 of ESI Act and as such stipend
paid to them would not form part of wages. There
cannot be any dispute with regard to this position. The
authorities of corporation have conducted an inspection
of the establishment on 17/18.05.2001 and a report
came to be submitted which was marked as Exhibit R-
1 before ESI Court. To determine the ESI contribution
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at the rate of 6.5% certain amounts or expenses
incurred and booked under the respective heads in the
books of account of respondent-establishment have
been taken into consideration by ESI authorities for
raising demand. Tabular column already extracted
herein above would indicate the amount booked in the
various ledgers maintained by establishment. One such
amount which was construed as wages and a demand
for ESI contribution raised thereon by corporation
relates to stipendiary amount reflected in the books of
accounts of the establishment for the period October
1998 to March 2000 and October 1997 to September
1998 which was in a sum of `8,41,340.97ps and
`12,40,242.80ps.
22. It has been the specific contention of
establishment that these amounts are paid as stipend
to apprentice or trainees and hence they do not come
under the purview of being construed as wages having
been paid to the employees nor these apprentices or
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trainees would fall within the definition of `employee’ as
defined under section 2(9) of ESI Act. This plea which
was raised by covered establishment before the ESI
Court found in its favour. ESI Court has noticed at
paragraph 11 of its order that respondent-establishment
in question had invited applications from the intending
applicants for taking them for training and as such it
had appointed trainees. It is the contention of
Sri.Ramachandran that ESI Authorities are not
disputing that there is a Certified Industrial Standing
Orders of the covered establishment and when this fact
is not disputed by the authorities and the same having
been accepted by them for earlier period they cannot
now turn around and contend that such amounts paid
by establishment towards stipendiary to apprentices or
trainees is to be construed as wages and as such
demand for ESI contribution cannot be raised by
corporation. ESI Court at paragraph 12 has taken note
of the evidence tendered on behalf of establishment and
arrived at a conclusion that certified standing orders of
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establishment provides for appointment of trainees and
said evidence has not been challenged by way of cross
examination. As already noticed herein above certified
standing orders of the covered establishment would
definitely take away the right of authorities to bring
apprentices or trainees within the definition of
`employee’ as defined under section 2(29) of the Act.
There cannot be any dispute with regard to said
proposition. On the other hand it is the specific case of
the authorities that it was incumbent upon the covered
establishment to demonstrate that date on which these
trainees came to be appointed, manner in which stipend
was paid to them by producing evidence in this regard
and additional information furnished by the inspector
who has visited the covered establishment on
17/18.05.2001 which was available on record would
clearly indicate that respondent-establishment did not
produce any records in respect of trainees/ apprentice
and the amount paid to them towards stipend and this
material evidence had been overlooked. It is not the
31
case of establishment that such records were produced
before the authorities to establish for the said period
i.e., October 1998 to March 2000 and October 1997 to
September 1998 that stipend to trainees were produced.
It is also not the case of respondent-establishment that
records were produced to establish or demonstrate that
apprentices or trainees were paid stipend in accordance
with the certified standing orders of establishment and
this was taken note of by the authorities. On the other
hand it is specific case of the authorities that
establishment did not produce any records in this
regard. As already noticed herein above mere assertion
by the establishment that it had paid its apprentices or
trainees stipend would not by itself absolve of its
liabilities. It is because of this precise reason
authorities would be required to pierce the corporate
veil to ascertain the factual matrix. Thus, burden has
been cast on the establishment to demonstrate before
the authorities by producing cogent material about
having appointed trainees, period for which they worked
32
as trainees and stipend having been paid to such
trainees by producing bank statements or vouchers or
any other material supporting such contention. In the
absence of such material it cannot be construed that
mere assertion by the establishment that the trainees
were paid stipend is to be accepted by the corporation.
Respondent-establishment having paid stipend to its
trainees so as to exclude the said amount from the
purview of wages and consequential ESI contribution
payable by such establishment.
23. It is also intriguing to note at this juncture
itself that according to respondent-establishment itself
it had closed its manufacturing activity or trading
activity or commercial activity with effect from
26.02.1999 (Exhibit A-1) or 14.06.1999 (Exhibit A-2). If
it is so, as to how the apprentices or trainees were
retained and for what purpose and how they were paid
stipend thereafterwards upto March 2000 is a moot
question which has remained unanswered. Though
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Sri.Ramachandran made a valiant attempt to contend
that it is the composite accounts relating to two(2)
companies which was looked into by the inspector who
visited the factory, it cannot be accepted since there is
no material available on record to arrive at such
conclusion. On the other hand profit and loss account
of the covered establishment for the period ending
30.06.2002 would clearly indicate under the heading
“Employees Remuneration and other Benefits”, Schedule
H that salaries, wages and bonus have been paid to the
employees upto the said period. Thus, it was for the
covered establishment to demonstrate that factually it
was stipend which was paid for a anterior period and
not for period after the order of closure. In that view of
the matter it cannot be construed that amounts
reflected in the books of accounts as stipend should not
be construed as wages. Nothing prevented the
establishment to produce material to show and
establish about the date on which the trainees were
appointed, date till which they worked as trainees, proof
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of payment of stipend if any, like vouchers, bank
statement accounts etc., and the resolution of the
establishment –company if any passed to show as to
approval of the board of Directors approving the
appointment of trainees that came to be passed by for
the period in question. No evidence whatsoever was
produced that expenses booked under the head
“stipend” was actually stipend and it related to payment
of amount prior to closure and paid after the closure. In
the absence of any such material being tendered I am of
the considered view that authorities were justified in
coming to a conclusion that these amounts are to be
construed as wages for the purposes of reckoning or
calculating ESI contribution payable by the covered
establishment. Mere assertion in its oral evidence by
the witnesses of establishment about having paid the
stipend to its trainees or apprentices without producing
any documentary evidence in this regard would not
suffice and ESI court was not justified in arriving at a
conclusion that stipend paid to trainees or apprentices
35
by establishment by itself would be sufficient to
conclude that it does not form part of wages. In the
absence of factual evidence being tendered in this
regard order passed by ESI authorities under section
45A dated 26.11.2001 cannot be construed as one
suffering from any error or infirmity which called for
interference at the hands of ESI court. In that view of
the matter Point No.2 deserves to be answered in the
negative i.e., against the covered establishment and in
