Supreme Court clarifies ESI Act applicability in Silchar: Employees State Insurance Corporation vs. M/S Key Dee Cold Storage Pvt. Ltd. (2022)

Introduction

Date of the Judgment: 19 May 2022
Citation: [Not Available in Source]
Judges: K.M. Joseph, J., Hrishikesh Roy, J. (authored the judgment)

Can a government notification specifying areas for the applicability of the Employees’ State Insurance (ESI) Act be interpreted restrictively to exclude areas specifically mentioned in the notification? The Supreme Court addressed this question in a recent case concerning a cold storage facility in Silchar, Assam. The core issue was whether the respondent’s factory, located in Village Tarapur, was covered under the ESI Act based on a notification issued by the Employees’ State Insurance Corporation.

The Supreme Court, in this case, examined the interpretation of a notification issued under Section 1(3) of the Employees’ State Insurance Act, 1948. The court was tasked with determining whether the High Court had correctly interpreted the notification to exclude the respondent’s factory from the purview of the ESI Act. The bench comprised Justices K.M. Joseph and Hrishikesh Roy, with Justice Roy authoring the judgment.

Case Background

The respondent, M/S Key Dee Cold Storage Pvt. Ltd., operates a cold storage factory in Ramnagar, Village Tarapur. On 21 July 1999, the Employees’ State Insurance Corporation issued a notification under Section 1(3) of the ESI Act, specifying that certain provisions of the Act would come into effect on 1 August 1999, in areas including those under the Silchar Municipal Corporation and several other villages, including Tarapur.

Following the notification, the Regional Director of the ESI Corporation informed the respondent that their factory was covered under the ESI Act. The respondent failed to register under the Act and pay the required contributions. Consequently, a show cause notice was issued, followed by a notice for recovery of Rs. 17,068. The respondent then challenged these notices in the Employees Insurance Court, Guwahati, arguing that their factory was not covered by the 1999 notification.

The Employees Insurance Court ruled in favor of the ESI Corporation, stating that the notification extended to Tarapur and therefore, the respondent’s factory was covered under the ESI Act. However, the Guwahati High Court overturned this decision, holding that the notification only covered areas within the Silchar Municipal Board, thus excluding the respondent’s factory.

Timeline:

Course of Proceedings

The respondent initially challenged the show cause notice and recovery steps in the Employees Insurance Court, Guwahati. The EI Court, after examining the evidence, concluded that the 21.7.1999 notification extended to Tarapur and thus, the respondent’s factory was covered under the ESI Act. The court held that the respondent was liable to make contributions under the ESI Act.

Aggrieved by the decision of the EI Court, the respondent filed an appeal before the Guwahati High Court under Section 82 of the ESI Act. The High Court framed a substantial question of law: “Whether the establishment of the appellant is covered within the area as notified vide notification dated 21st July, 1999 (Ext.2)?” The High Court allowed the appeal, setting aside the EI Court’s judgment, opining that the notification only covered areas within the Silchar Municipal Board.

Legal Framework

The primary legal provision at the heart of this case is Section 1(3) of the Employees’ State Insurance Act, 1948, which empowers the government to extend the applicability of the Act to specific areas through notification. The notification dated 21.7.1999, issued under this section, specifies the areas in the State of Assam where the provisions of the ESI Act would come into operation from 1.8.1999. The relevant part of the notification reads:

“Areas under Silchar Municipal Corporation falling within Silchar Revenue Circles including the Revenue Village – Silchar Town, Ambicapur, Uttar Krishnapur, Kanakpur, Ukilbazar, Tarapur, Rangpur, Durganagar, Gosaipur, Srikona, Under Mouza-Barakpur, Tarapur, Ph-Barakpur, Rang Ph-Barakpur, Udharbond, Rajnagar.”

Arguments

Arguments by the Appellants (Employees State Insurance Corporation):

• The notification of 21.7.1999 specifically names areas/villages, including Tarapur, where the respondent’s factory is located, in addition to areas under the Silchar Municipal Corporation.
• Village Tarapur is constituted by several parts, and the respondent’s factory is situated in the Para Lamar Gram of Tarapur Part III.
• The village Tarapur partially falls under Silchar Municipal Corporation and also under the Silchar Revenue Circle. Since the village name is mentioned twice in the notification, the entire village area of Tarapur should be covered.
• The High Court erred in relying on the certificate dated 5.7.2004 (Ext. 16), which certified that the respondent’s factory was outside the limits of the Silchar Municipal Board, to exclude the area from the purview of the notification.
• The respondent did not challenge the validity of the 21.7.1999 notification. Therefore, the High Court should not have given a restrictive interpretation of the notification.
• Excluding areas of Ramnagar, Tarapur, would have far-reaching consequences, as other establishments in the area would also claim exclusion from the ESI Act, which would be detrimental to the interests of the employees.
• The respondent should have impleaded the factory’s workmen and the Union of India in the proceedings before the E.I. Court. The failure to do so makes the finding in favor of the respondent a nullity.

Arguments by the Respondent (M/S Key Dee Cold Storage Pvt. Ltd.):

• The factory of the respondent does not fall within the limits of the Silchar Municipal Corporation and the Silchar Revenue Circle but is located in Ramnagar Tarapur Gram Panchayat, which is outside the coverage of the ESI Act as per the notification dated 21.7.1999.
• The certificate issued by the Silchar Municipal Board on 5.7.2004 (Ext. 16) certified that the respondent’s cold storage factory at Ramnagar Tarapur is outside the municipal limits.
• Due to the penal implications under the ESI Act, an expanded interpretation of the notification is not warranted. The High Court correctly interpreted the notification in favor of the respondent.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the High Court was correct in its interpretation of the notification dated 21.7.1999 and holding that the notification covers only the areas within the Silchar Municipal Board, although the notification additionally mentions names of other areas/villages including the Village of Tarapur, where the respondent’s factory is located.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Court relied on South Central Railway Employees Cooperative Credit Society Employees’ Union vs. Registrar of Cooperative Societies and Ors [1998] 2 SCC 580* and *National Highways Authority of India vs. Pandarinathan Govindarajulu and Anr* [2021] 6 SCC 693* to emphasize the principles of interpretation of subordinate legislation, stating that effect must be given to every word in a notification. The Court followed *Dr. M.K Salpekar Vs. Sunil Kumar Shamsunder Chaudhari and Ors* [1988] 4 SCC 21* to interpret the use of commas in the notification, concluding that the areas mentioned after commas should be read disjunctively. The Court also relied on *Ramanlal Bhailal Patel and Ors. vs. State of Gujarat* [2008] 5 SCC 449* to interpret the word “includes” as an intention to enlarge the meaning of the word used in the statute. The Court followed *Union of India and Anr. vs. Hansoli Devi and Ors* [2002] 7 SCC 273* to state that words in a statute should not be treated as surplusage. The Court also followed *Quebec Railway, Light, Heat & Power Co. V. Vandry* AIR 1920 PC 181* to state that the legislature is deemed not to waste its words. The Court relied on *Delhi Gymkhana Club Limited vs. Employees’ State Insurance Corporation* [2015] 1 SCC 142* to state that the ESI Act is a beneficial social welfare legislation. The Court followed *Employees’ State Insurance Corporation vs. Bhakra Beas Management Board and Anr.* [2009] 10 SCC 671* and *Fertilizers and Chemicals Travancore Ltd. vs. Regional Director, Employees’ State Insurance Corporation and Ors.* [2009] 9 SCC 485* to emphasize the necessity of impleading employees in proceedings under the ESI Act. The Court followed *Khetrabasi Biswal vs. Ajaya Kumar Baral and Ors.* [2004] 1 SCC 317* to state that non-joinder of a necessary party goes to the root of the matter and could be fatal to a legal proceeding.

What weighed in the mind of the Court?

The Supreme Court’s reasoning was primarily driven by the need to give effect to the plain language of the notification and to ensure that the beneficial objectives of the ESI Act are not defeated. The court emphasized that the notification specifically mentioned areas beyond the Silchar Municipal Corporation, including Tarapur, and that this could not be ignored. The Court also highlighted the importance of not interpreting statutory notifications restrictively, especially when they are meant to extend the coverage of social welfare legislation. The Court also noted that the respondent failed to implead the necessary parties in the case.

Logical Reasoning:

The Court rejected the High Court’s interpretation, stating that it failed to give effect to every word of the notification. The Court noted that the notification’s use of the word “including” and the specific mention of areas beyond the Silchar Municipal Corporation indicated that the intention was to extend the coverage of the ESI Act beyond the municipal limits. The Court also emphasized that the ESI Act is a beneficial piece of legislation and should not be interpreted restrictively. The court also noted the non-impleadment of the necessary parties.

The Court stated, “The notification issued under Section 1(3) of the ESI Act is a statutory notification and the same should be treated as a part of the statute, both for the purposes of construction and also for the obligations arising therefrom, as if, they are contained in the Act.”

The Court further noted, “If the area of coverage of the ESI Act was intended to be restrictive, there was no need to mention other areas by name in the said notification. The logical interpretation would then be that the entire village area of Tarapur is notified for coverage as the name of Tarapur village is mentioned twice in the notification.”

The Court also observed, “The High Court has restricted the application of the statutory notification to the limits of the Silchar Municipal Corporation, which would imply that all the other areas mentioned beyond “including” would be taken out of the purview of the ESI Act. This could not have been the intention of the Union Government.”

The Court held that the High Court erred in its interpretation and that the respondent’s establishment is covered under the ESI Act. The Court emphasized that the word “including” in the notification is used as a word of enlargement, so as to make the territorial application of the ESI Act extensive.

Key Takeaways

• Notifications issued under Section 1(3) of the ESI Act should be interpreted in a manner that gives effect to the plain language of the notification and the intention of the legislature.
• The word “including” in a notification indicates an intention to enlarge the scope of the notification, rather than restrict it.
• Specific mention of areas in a notification implies that these areas are intended to be covered by the notification, even if they fall outside the general area mentioned.
• Beneficial social welfare legislation, like the ESI Act, should not be interpreted restrictively.
• Non-joinder of necessary parties, such as the employees, in a proceeding under the ESI Act can be fatal to the legal proceedings.

Directions

The Supreme Court set aside the impugned decision of the High Court and allowed the appeal, holding that the respondent’s establishment is covered under the ESI Act. No specific directions were given by the Supreme Court.

Development of Law

The ratio decidendi of this case is that statutory notifications, especially those issued under social welfare legislation, should be interpreted in a manner that gives effect to their plain language and the intention of the legislature, and that the word “including” is a word of enlargement. The Supreme Court clarified that the mention of specific areas in a notification indicates an intent to cover those areas, even if they fall outside the general area mentioned. This case reinforces the principle that beneficial legislation should be interpreted liberally to achieve its objectives and that non-joinder of necessary parties can be fatal to a legal proceeding.

Conclusion

The Supreme Court’s judgment in The Employees State Insurance Corporation & Ors. vs. M/S Key Dee Cold Storage Pvt. Ltd. clarifies the interpretation of notifications issued under Section 1(3) of the Employees’ State Insurance Act, 1948. The court held that the High Court erred in its restrictive interpretation of the notification, which had excluded the respondent’s factory from the purview of the ESI Act. The Supreme Court emphasized that the notification’s language, which specifically named areas beyond the Silchar Municipal Corporation, indicated an intention to include those areas under the ESI Act. The court also highlighted the importance of not interpreting social welfare legislation restrictively and the necessity of impleading the employees in a proceeding under the ESI Act. This judgment ensures that the benefits of the ESI Act are extended to a wider range of employees in the specified areas.