Author: Shagun Shrivastava is a 3rd-year student of B.A.LL.B (Hons) at Hidayatullah National Law University, Raipur.
The article is a case analysis of Transport Corporation of India v. Employees State Insurance Corporation. It is important to understand the applicability of the act on a particular establishment and its regional offices. It also helps establish the relationship between a principal employer and an immediate employer. The concept of ‘appropriate government’ for a particular establishment which operates from multiple states is also explained in the case.
INTRODUCTION
The present case is the analysis of the judgment of the Supreme Court in this case, which challenged the decision of the division bench. In this case, the question is whether a Company with a branch office in another state is subject to notification by the competent authority in the state where its registered office is located. The dispute revolves around choosing the “appropriate government” for a branch office of an establishment and discussing the idea of an extraterritorial realm of authority for a state government. The Hon’ble Supreme Court dwells into some important definitions to solve the issue. It focused upon the definition of ‘employee’, ‘principal employer’, and ‘immediate employer’. In addition to the statutory portion, the court also considered the goals of the Employers State Insurance Act, 1948 (“Act”) in coming to its decision. We could use S.B. Majumdar J.’s observation as a test to determine the solution to the fundamental problem on looking into it closely.
BACKGROUND OF THE CASE
In the present case the appellant i.e., Transport Corporation of India, is a public company whose registered office is located at Secunderabad, Andhra Pradesh with a branch office situated at Bombay, Maharashtra. The dispute arose between the appellant and the respondent i.e., Employee State Insurance Corporation (hereinafter referred to as ESIC) on the issue of contribution to be made by the branch office of the appellant situated at Bombay to the ESIC. The Deputy Regional Director of ESIC, Bombay served the appellant with a notice on July 29, 1986, questioning, why he should be exempted from making contributions to ESIC for a period of May 1981 to November 1985. The appellant put forward his contention that his branch office in Bombay was not covered for the relevant period, as the notification to cover it was brought by the State of Maharashtra on the 10th of March 1989. He also contended that notification by the State of Andhra Pradesh does not extend to the branch office of the appellant and is restricted only up to its registered office situated in Andhra Pradesh. In September 1988, the Deputy Regional Director passed an order, assessing contribution for the said period of 1981-1985 at Rs. 2,09,914 along with interest, from the appellant, claiming that as soon as the appellant’s registered office is included in the notification by the State of AP, the appellant’s branch office in Mumbai is also included. The matter went before the Single Judge bench of the Bombay High Court which ruled in the favour of the appellant but the order was reversed before the division bench of the High Court.
ISSUES
- “Whether the notification issued by the State of Andhra Pradesh under Section 1(5) of the Act covering the transport undertakings of the appellant, whose registered head office was situated in Secunderabad in the State of Andhra Pradesh, could automatically cover its branch located at Bombay in the State of Maharashtra?” and
- “Whether for the purpose of applicability to the appellant’s Bombay branch, a separate and independent notification was required to be issued by the State of Maharashtra under Section 1(5) of the Act?”
ANALYSIS
The primary contention put forward by the appellant consisted of the issue that the notification issued by the Andhra Pradesh government cannot be automatically applied to the branch office of the appellant located in Maharashtra, as the ‘appropriate government’ for the branch office is the State of Maharashtra. If it were allowed to be applied, it would defeat the power and purpose of the State of Maharashtra to exclude that particular establishment from its scope, for that time being, with its reasoning, it would amount to extra-territorial jurisdiction of the Andhra Pradesh government. He also tried to distinguish between the work of both offices, trying to disassociate their function from each other.
The Honorable Court carefully considered all of these arguments and responded to each one with relevant cases, legislation, and analysis to reach its decision. The court was of the view that the Employees’ State Insurance Act, 1948 is a Central legislation that delegates the authority to the State government to apply the provisions of the Act. Consequently, having a pan-India operation that, from the start, covered factories located everywhere in India. The Act is silent as to the definition of an ‘establishment’ due to which the definition of an ‘employee’ should be considered, which shares a close connection with the term ‘establishment’. To reach a clear conclusion, the Hon’ble court constructed a close nexus between the definition of ‘employee’, ‘immediate employer’, and ‘principal employer’ which suggested that-
“If the control and supervision of the branch office lie in the hands of the head office, the employee working in the branch office can be considered as an ‘employee’ working under the supervision of ‘principal employer’”.
The Court posed a question before the appellant on the matter of the transfer of employees from the head office to the branch office, which the appellant asserted they may be transferred if they so choose. Drawing from this fact and putting it together with the objective of the Act, the court remarked that it would be unfair for an employee, if on transfer, whether done with his consent, he is disbarred from the social security benefits he was getting in the head office. Referring to the case of The Buckingham and Carnatic Co. Ltd. v. Venkatiah and Anrthe court ruled that if there are two potential interpretations of a clause, the one that advances the legislative intent should be chosen above the one that subverts it. Thus, reading S. 2(9)(i) of the Act with S. 38 of the Act which talks about Contributions to be made by the employer and employee to the corporation, the court remarked that whether an employee working in the head office or the branch office, he is entitled to be insured as per the beneficial provision of S. 38. Court also referred to find a nexus between both the establishments, it stated that the main work of the appellant-Corporation is the transportation of goods, which is facilitated by its various branches across country including Bombay branch, thus it is directly connected with the main activity of the principal office and working under its complete control and supervision.
Summing up all the above conclusions, the Court stated that even though, at the branch office, employees are employed by the immediate employer, who is a local agent of the principal employer, the principal employer cannot escape from his liability to pay contribution. Owing to the extra-territorial application of the notification issued by the Andhra Pradesh government the court relied upon Kirloskar Brothers Ltd v. Employees State Insurance Corporationto conclude that, as this is a central legislation that covers branches of such establishments operating outside the State but are an integral part of the same establishment if the Act is applied to a factory in one State, it will immediately apply to its branch office in another State. Thus, once the registered office is covered, all its branch offices would be covered by it, which would not amount to extra-territorial application by the State government but instead conform to the objective of the Act, which is the social security of the employees. Thus, the Supreme Court confirmed the judgment of the division bench. The appeal was dismissed with a cost of Rs. 20,000.
OBSERVATION
Drawing from the analysis made by the court, a 4 point-test can be framed to ascertain the automatic application of the notification by the State Government: –
- Whether or not there exists a relationship of immediate employer and principal employer between the employer of both offices.
- Whether or not the head office holds a supervisory right over the branch office.
- Whether or not the branch office is associated with the main activity of the head office and working under its supervision and control.
- Whether or not the employee of the branch office is an employee of the principal employer within the definition of its definition.
Answering these questions could help to solve the dispute of the appropriate government for an establishment having branches in several other states.
CONCLUSION
The court while interpreting the law was very careful of the objective of the legislation. It was of the view that it would be inappropriate to construct social security legislation in a technical or a narrow sense. When making a decision, the court should place special emphasis on the employee, who would suffer the most if the matter were to be decided strictly on technical grounds. The 4-point test suggested in the article is a summarization of the grounds on which the court decided the matter. These four questions coupled with the objective of social security would help to reach the answer to the issue of dispute.
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