Expansive Definition Of 'Manufacturing Process' To Include More Factories Under ESIC Act Shall Apply "Prospectively": Allahabad High Court

A Single-judge Bench of Justice Pankaj Bhatia, sitting at Lucknow, observed thus while allowing a writ petition that primarily challenged multiple orders of the Employees State Insurance Corporation that demanded payment from the petitioners towards the employer's contribution in respect of the employees working in the accounts section of the PCF Press run by the petitioner.

Factual Background

The petitioner is an apex cooperative society created under Section 2(a-4) Clause 3 of the U.P. Cooperative Societies Act, 1965. It was aggrieved by demand orders issued by the Employees State Insurance Corporation, calling upon the petitioner to show cause as to why the petitioner's society should not be made liable for payment of the contribution to the ESI Fund.

Demand of Rs.33,846/- was raised against the petitioners allegedly towards the employer's contribution for the employees working in the account section of PCF press for the period January 1981 to September 1986 and from January 1988 to May 1989.

The petitioners claimed that the persons employed in the accounts section were enjoying the benefits of the State Government from time to time which according to the petitioner were far superior to the benefits flowing to the persons from the Act.

It was also argued that ESI Act would not be applicable to the petitioner since it's not notified under Section 1(5) of the Act and it is not a 'factory', in terms of the definition under Section 1(4) r/w Section 2(12) of the Act.  

Fundamentally, the Court had to determine whether the petitioner's establishment would be covered within the ambit of the Act by virtue of Section 1(4) of the Act, which provides that the Act at the first instance was made applicable to all factories including the factories belonging to the government but excluding the seasonal factories. However, the Proviso to sub-section 4 excludes a factory or establishment belonging to or under the control of the government whose employees are otherwise in respect of benefits substantially similar or superior to the benefits provided under this Act.

Tellingly, the said sub-section is applicable to the factories at first instance. Under Section 2(12), a 'factory' means any premises where ten or more persons are employed and in any part of which, a manufacturing process is being carried on. The word 'manufacturing process' is defined under section 2(14-AA) and incorporates the meaning assigned to the term 'manufacturing process' under the Factories Act.

On the interplay of the term 'manufacturing process' with the Amendment Act, the Court held,

"It is important to note that the definition of the word 'manufacturing process' as defined under section 2(14-AA) was inserted under the ESI Act w.e.f. October 20, 1989 by virtue of ESI (Amendment) Act No.29 of 1989. Prior to the said amendment the meaning of 'manufacturing process' as specified under the Factories Act was not applicable to the 'ESI Act' and thus to that extent the amendment incorporated w.e.f. 20.10.1989 would apply prospectively and would not apply prior to the said amendment coming into force.

In the present case, the Court noted that the demand was raised for the period January 1981 to September 1986 and from January 1988 to May 1989. Thus, the demand pertain to the period prior to 20.10.1989 when the definition of 'manufacturing process' under section 2(14-AA) was inserted under the ESI Act.

Thus, it held,

"In view of the amended Act being prospective in nature, the definition of word 'manufacturing process' would not be the same as expansively assigned under the 'Factories Act' and would be governed by the normal definition of 'manufacturing process'. Word 'manufacturing process' has been expansively defined under the Factories Act even to include Printing Press activity as a manufacturing process where as in common parlance Printing Press cannot be termed as a 'manufacturing process'."

Allowing the petition, the Court court held that the applicability of the provisions of the Act on the petitioner would not be covered by Section 1(4) of the Act for the period prior to 21.10.1989 and thus, the demand was held to be unjustified, and unsustainable. The petition was accordingly allowed.

Case Title- U.P. Cooperative Federation Ltd v. The Employees State Insurance Corporation

Case citation: 2022 LiveLaw (AB) 204

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