2010 (12) TMI 1073 - HC - Companies Law

Whether the director/managing director of the company is an employee within the meaning of section 2(9) of the Employees State Insurance Act, 1948 (for short the Act ) ? Whether the remuneration paid to the director/managing director of the company is wages in terms of section 2(22) of the Act ? Whether the director/managing director of the company is the principal employer or the company is the principal employer ? Held that - The question posed in the beginning is answered in affirmative in favour of the appellant-Corporation and it is held that (i) The director/managing director of the company, who is working for remuneration is an employee under section 2(9) of the Act (ii) The director/managing director of the company, who is not the owner or the sole occupier of the factory is not the principal employer (iii) the salary paid to the director/managing director of the company, who is working in the factory, is wages under section 2(22) of the Act. Appeal allowed.

Summary

Issues:
1. Whether the director/managing director of the company is an employee under the Employees' State Insurance Act, 1948?
2. Whether the remuneration paid to the director/managing director constitutes wages under the Act?
3. Whether the director/managing director is the principal employer or the company is the principal employer?

Analysis:
1. The appeal questioned the status of the director/managing director of a company under the Employees' State Insurance Act, 1948. The dispute arose from an order demanding contribution from the salary of the managing director, which was challenged by the respondent.
2. The Employees Insurance Court held that the managing director is not an employee under the Act and is considered the principal employer. This decision was based on a previous single Bench ruling.
3. The appellant cited a Supreme Court decision in the case of Employees' State Insurance Corpn. v. Apex Engineering (P.) Ltd., which clarified that a managing director receiving a salary is an "employee" and not the principal employer. The Supreme Court's ruling emphasized that the managing director must not be the sole owner or occupier of the factory to be considered the principal employer.
4. The definitions of "employee," "wages," and "principal employer" under the Act were crucial in determining the status of the managing director. The Act defines an employee as one employed for wages in connection with the work of a factory or establishment, while wages include all remuneration paid to an employee.
5. The Court noted that the managing director in question was authorized by the board of directors and not the sole occupier of the factory. The issue revolved around whether the managing director falls under the definition of an "employee" or should be considered the principal employer to avoid contribution payment.
6. Previous cases, such as Bombay Metal Works (P.) Ltd., had ruled in favor of considering managing directors as principal employers. However, the Supreme Court's decision in the Apex Engineering case clarified that managing directors receiving remuneration are employees under the Act.
7. The Court concluded that the managing director, working for remuneration, is an employee under the Act, and the salary paid to them constitutes wages. It was further established that unless the managing director is the sole owner or occupier of the factory, they cannot be considered the principal employer.
8. The judgment favored the appellant-Corporation, overturning the decision of the Employees Insurance Court. The Court set aside the previous order and allowed the appeal, emphasizing the managing director's status as an employee and the inclusion of their salary as wages under the Act.