M/S. SUMANGALI v. REGIONAL DIRECTOR, E.S.I. CORPORATION

The Judgment of the Court was delivered by Dr. ARIJIT PASAYAT, J. 1. Leave granted in SLP (C) No.17173 of 2008.

2Copy pinpoint2. Challenge in these appeals is to the judgment of a Divi- E sion Bench of the Kerala High Court dealing with three Misc. First Appeal Nos. MFA No. 884/95, MFA No. 886 of 1995 and 964 of 1995. By the impugned judgment all the three Misc. First Appeals were dismissed. The applicants in I.A. Nos.21, 44 and 69 before the Employees' Insurance Court, Alleppey (in short F the 'E.I. Court') were the appellant before the High Court. Be- fore the E.I. Court the order of the Regional Director of the Em- ployees State Insurance Corporation (in short the 'Corporation') Trichur clubbing the applicant with other establishments for the purpose of coverage under the Employees State Insurance G Scheme (in short the 'ESI Scheme') framed under the Employ- .--'; ees State Insurance Act, 1948 (in short the 'Act') were chal- lenged. All the applications were dismissed by the E.I. Court •' by common order dated 30.3.1995. Aggrieved by the said or- der applicants filed the Misc. First Appeal before the High Court. . H

p. 1132 Copy page pinpoint

3Copy pinpoint3. The Corporation clubbed Jos Textiles and Jos Cut Piece Centre, two proprietary concerns of two brothers both function- ing in the same building at Broadway, Ernakulam, for the pur- pose of ESI coverage and issued notice as there were 20 or more employees at a time when the inspection was conducted. B Notice was issued clubbing the above establishments. The or- der was challenged, as noted above, before the E.I. Court.

4Copy pinpoint4. The Corporation also clubbed Mis. Rose Fabrics, Jos Brothers Silk and Sarees and M/s. Jos Associates and issued notice claiming coverage. All these three establishments were c functioning in Jos Annex Building, Ernakulam. Mis. Jos Asso- ciates was functioning on the 5th floor of the same building whereas the other two establishments were functioning in the same premises. The inspection conducted in November 1990 revealed that there were 12 employees working in M/s. Rose 0 Fabrics, 13 employees in Jos Brothers Silk and Sarees and 9 employees in M/s. Jos Associates. The above order clubbing the three establishments were challenged by M/s. Rose Fab- rics in l.C.44/91 before the E.I. Court, Alleppey.

5Copy pinpoint5. The applicant in l.C.69/91 was M/s. Sumangali. It was E clubbed with four other establishments viz. M/s. Jos Silk and Sarees, Mis. Gents Fabrics, Mis. Jacobs and M/s. Jos Broth- ers Trades and Investments. The clubbing of the above estab- lishments was on the basis. of an inspection conducted on 14.11.90. The inspection revealed that there were more than F 30 employees in the month of April, 1990. The notice of club- -( bing of the establishments was challenged by Mis. Sumangali in l.C.69/91. All the above three applications were heard and dismissed by the common judgment passed by the E.I. Court, Alleppey. G

6Copy pinpoint6. Jos Textiles and Jos Cut Piece Centre, two proprietary concerns were owned by two brothers, namely K.A.Sebastian and K.A.Joshy. Jos Textiles was engaged in the business of ~-

textile goods and was carrying on the business in a rented build- ., ing. Jos Cut Piece Centre was functioning in a portion of the H i=_

M/S. SUMANGALI v. REGIONAL DIRECTOR 1133 E.S.I. CORP. [DR. ARIJIT PASAYAT, J.]

first floor of the same building and Jos Textiles was functioning in the remaining portion of the same floor as well as in the sec- ond floor of the same building. There was temporary wooden partition separating the above two establishments. The Inspec- tor of the ESI Corporation conducted inspection on 6.1.1988 and 11.1.1988 and reported that the total employment strength in both the units together was 20 (12+8) in April 1984 and from June 1985 onwards. Again the Inspector inspected on 9.8.1990. The building was taken on rent by Sri K.J. Abraham, the father of Sri K.A. Sebastian and Sri K.A. Joshy. The father permitted his son Sri K.A. Sebastian and his daughter Dorothy Edeth Louiz c initially to run the business and Sri K.A. Joshy obtained a trans- fer of the business from his sitar. The father Sri K.J. Abraham was paying the rent to the landlord and Sri Sebastian was pay- ing the entire rent to his father though he was collecting a por- tion of the rent from his brother who was running the cut piece 0 centre. The establishments were having separate registration under the Shops and Commercial Establishments Act, Kerala Sales-tax Act and the Income-tax Act. On inspection it was found that there were 20 (12+8) employees and both these units had a common entrance, a common staircase and no separate of- fice was seen working for Jos Cut Piece Centre . .The electric E connection was common for both the units and electricity charges were paid by Jos Textiles and Jos Textiles alone had telephone connection. There was no sufficient space for open- ing cloth bails or bundles and stitching the same in Jos Cut y Piece Centre whereas all such works were done in Mis. Jos F Textiles. The General Ledger showed financial dealings· be- tween the two units. On a consideration of all the above circum- stances viz. the unity of management, geographical unity, func- tional integrality, financial unity and the general unity in purpose between the two units, the ESI Corporation decided to club both G the units for coverage under the ESI Scheme.

7Copy pinpoint7. Mis. Ros Fabrics was a partnership firm of two part- ners - Joseph Francis.and his mother Rosakutty Francis. The wife of the above Joseph Francis was the sole proprietor of M/ H

1134 SUPREME COURT REPORTS [2008] 10 S.C.R. ~

A s. Jos Brothers Silks and Sarees. Mis. Jos Associates was a proprietary concern of the above Joseph Francis. Thus two es- tablishments were owned separately by the husband and wife and the other owned by the mother as well as the son as a part- nership firm. The Inspector of the ESI Corporation conducted inspections on 6.11.90 and 13.11.90 and prepared the reports. *• B Mis. Jos Brothers Silks and Sarees and Mis. Ros Fabrics were functioning in the same premises in the ground floor and Mis. JosAssociates was functioning in the 5th floor of the same build- ing. The Inspector of the ESI Corporation found the employees c of Mis. Jos Associates working in Mis. Jos Fabrics and there was only one office for all the three units. According to the ESI Corporation the activities of these three units were interlinked and one was directly promoting the business of the others and all the three units were supplementary and complementary to each other. -t D

8Copy pinpoint8. Aggrieved by the above judgment, the applicants in l.C.21191, l.C.44191 and l.C.69191 filed MFA 964195, MFA 8861 95 and MFA 884195 respectively. As the question involved in all the three appeals was common, all the three appeals were heard E jointly and ~ere disposed of this common judgment.

9Copy pinpoint9. The main stand before the High Court was that Mis Sumangali is a partnership firm registered under various stat- utes. There were three partners who were related to each other. Merely because the partners or proprietors were related to each F 'f other that cannot be a ground for clubbing the employees for the purpose of coverage. On the other hand the Corporation referred to several factors to establish functional integrality and general unity of purpose. High Court found that Corporation's view was correct and accordingly as noted above dismissed G the appeals.

10Copy pinpoint10. In support of the appeal learned counsel for the appel- t-- lants submitted that the ownership of the composition of vari- ous concerns is as follows: ~

M/S. SUMANGALI v. REGIONAL DIRECTOR 1135 E.S.I. CORP. [DR. ARIJIT PASAYAT, J.]

Name of the shop Owners/Partners No. of Floor A employ- No. ees

1. M/s. Sumangali 1. M/s. K.J. Abraham 12 Ground (Partnership) 2. M/s. Dothy Henry Floor (Saree and cut pieces) w/o. K.A. Henry B

3. M/s. Betsy Sabu w/o. KA Sebastian

2. M/s. Gents Fab- 1. Sri K.A. Henry 10 Ground rics s/o K.J. Abraham Floor (Partnership) 2. Mrs. Marykutty c (Shirtings and Abraham (Suitings) w/o K.J. Abraham

3. Mrs. Jessintha Edward, w/o K.A. Edward D

3. M/s. Jose Silk & 1. Sri K.A. Edward 5 - Sarees Proprietary 2. s/o K.J. Abraham (Wedding Sarees)

4. Mis. Jacobs Sri K.A. Jacob, 2 3rd (Proprietory) s/o K.J. Abraham Floor E

5. M/s. Jose broth- 1. Sri K.J. Abraham 2 4th ers Trades & In- 2. Sri K.A. Edward Floor vestments (Part- s/o. Sri K.J.Abraham nership Purchase 3. Sri K.A. Henry F of all) s/o. Sri K.J.Abraham

4. Shri KA Sebastian, s/o. Sri K.J.Abraham

5. Sri K.A. Jacob, s/o. Sri K.J.Abraham G

5. Shri K.A. Josey, s/o. Sri K.J.Abraham

6. M/s. Rose Fab- 1. Joseph Francis rics (Partnership) 2. Rosakutty Francis 12 (mother of Joseph Francis) H

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A 7. M/s. Jose Broth- w/o. Joseph Francis 13 ers Silk & Sarees (Proprietorship)

8. M/s. Jose Associ- Joseph Francis 9 ates (Proprietor- B ship) TOTAL 34

11Copy pinpoint11. According to him there was no functional integrality.

12Copy pinpoint12. Learned counsel for the Corporation on the other hand submitted that because of the findings recorded by the ESI Court and the High Court the impugned judgment do not suffer from any infirmity to warrant interference. According to him the names of the Unit and numbers of the employees and numbers of the o applicants before the ESI Court are to the following effect:

No. of Application Name of the Unit No. of employees

l.C. 21 of 1991 1. Jos Textiles 10

2. Jos Cutpiece 10 E Centre 21 l.C. 44 of 1991 1 . Rose Fabrics 12

2. Jose Brothers Silk & Sarees 13

3. Jose Associates 09 F 34 1.C. 69 of 1991 1. Sumangali 12

2. Jose Silk & Sarees 05

3. Gents fabrics 10

4. Jacobs 02 G 5.Jose Brothers Traders & Invest men ts 31

13Copy pinpoint13. In the counter affidavit before this Court the Corpora-

MIS. SUMANGALI v. REGIONAL DIRECTOR 1137

~ E.S.I. CORP. [DR ARIJIT PASAYAT, J.]

tion gave the following reasons which were indicated in details A before the El Court and High Court for clubbing were: (a) there was one common entrance between the two units; (b) there was one common staircase; (c) they had no separate office; B

(d) they had one rented building;

(e) the rent was paid by the father of the two proprietors who were brothers and sons of the .father who paid the rent; c (f) there was a common electric connection/phone connection; (g) there was single general Ledger for financial dealings >- of both the units. D

14Copy pinpoint14. The High Court noted that the ESI Corporation was justified in clubbing Jose Cut Piece Centre with Jos Textiles, Jose Brothers Silks and Sarees and Mis. Jos Associates with M/s. Rose Fabrics a11d M/s. Jos Silks and Sarees, M/s. Gents E Fabrics, M/s. Jacobs and Mis. Jos Brothers Trades and Invest- ments with M/s. Sumangali and treating Jos Textiles, M/s. Rose Fabrics and Mis. Sumangali as "single establishments" for the purpose of coverage under the ESI Scheme as there was func- .,. tional integrality, unity in management, financial unity, geographi- cal proximity, unity in supervision and control and general unity F of purpose. Even if each unit was an establishment having sepa- rate registration under the Sales Tax Act, Shops and Establish- ments Act and the Income-Tax Act, all the units were interde- pendent and were supplementary and complementary to each other for the sake of their textile business. G __,); 15. So far as the factual aspects are concerned the High Court noted as follows: "On verification of the records it was further found that there were 34 employees working in the three units as on H ~

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,. A 2.4.1990. Mis. Ros Fabrics and Mis. Jos brothers Silks and sarees were functioning in the ground floor of Mis. Jos Annexe. Building and they were having a common signboard and a common entrance. The activities of all the three units were administered by Sri. K. Joseph Francis. B The billing counter, cash counter and delivery counter were +- common for all the three units. Mis. Jos Brothers Silks and Sarees was an exclusive showroom for sarees whereas Mis. Ros Fabrics w~s dealing with items other than sarees. Mis. Jos Associates was dealing with the sale of furnishing c clothes. According to the ESI Corporation all the three units were different sections of a composite textile shop and the customers were at liberty to purchase whatever they wanted from the three units and they need to make payment at the common cash counter. It was further found that there was t= <= only one electric connection and the electricity charges were paid by Mis. Ros Fabrics. The standby generator was also L """ I common to all the units. Ac~ording to the ESI Corporation I there was unity in ownership, geographical unity, unity in administration, functional unity, financial unity and inter- chargeability of employees in all the three units and hence the ESI Corporation decided to club all the three units for the purpose of ESI coverage under the ESI Scheme."

16Copy pinpoint16. In Associated Cement Cos. II. Their Workmen (AIR 1960 SC 56) it was inter alia observed as follows: F "The Act not having prescribed any specific tests for i determining what is one establishment. In considering the question whether a cement factory and the adjacent lime j ' stone quarry supplying lime stone to it, are one establishment, one must fall back on such considerations as in the ordinary industrial or business sense determine the unity of an industrial establishment, having regard no ....__ doubt to the scheme and object of the Industrial Disputes Act and other relevant provisions of the Mines Act, 1952, or the Factories Act, 1948. It is perhaps impossible to lay down any one test ac; an absolute and invariable test for

M/S. SUMANGALI v. REGIONAL DIRECTOR 1139 E.S.I. CORP. [DR ARIJIT PASAYAT, J.]

all cases. The real purpose of these tests is to find out the true relation between the parts, branches, units etc. if in their true relation they constitute one integrated whole the establishment is one, if one the contrary they do not constitute one integrated whole, each unit is then a separate unit. How the relation between the units will be judged must depend on the facts proved, having regard to the scheme and object of the statute which gives the right of unemployment compensation and also prescribes a disqualification therefore. Thus, in one case the unity of ownership, management and control may be the important c or general unity may be the important test; and in still another . case the important test may be the unity of employment."

17Copy pinpoint17. In Rajasthan Prem Krishan Goods Transport Co. v. Regional Provident Fund Commissioner, New Delhi & Ors. (1996 (9) SCC 454) it was observed as follows: D "The finding recorded by the Regional Provident Fund Commissioner is that there is unity of purpose on each count inasmuch as the place of business is common, the management is common, the letterheads bear the same telephone numbers and 10 partners of the appellant are common out of the 13 partners of the third respondent. The trucks plied by the two entities are owned by the partners and are being hired through both the units. The respective employees engaged by the two entities when added together, bring the integrated entities within the grip of the Act; so is the finding. Now, this finding is essentially one of fact or on legitimate inferences drawn from facts. Nothing could be suggested on behalf of the appellant as to why could the Regional Provident Fund Commissioner not pierce the veil and read betvveen the lines within the outwardliness of the two apparents. No legal bar could be pointed out by the learned counsel as to why the views of the Regional Provident Fund Commissioner, as affirmed by the Central Government, be overturned." H _I I

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18Copy pinpoint18. In the instant case factual findings as recorded by the ESI Court and the High Court go to show that there was unity in management, supervision and control, geographical proximity, financial unity, general unity of purpose and functional integral- ity between the different units and for the sake of ESI coverage, B the different units could be treated as "one establishment". +--

19Copy pinpoint19. In the given case role of the Corporation is to read between the lines to find out the true intent. The concurrent con- clusions are essentially factual and are legitimate inferences. That being so, there is no meritin these appeals, which de- e serve dismissal which we direct. No costs. N.J. Appeals dismissed.