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TMI Blog2012 (7) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... r of ESI Corporation sent a letter in the form C-11 on 26 June, 2001 and informed the Respondents that they are covered under the provisions of the factories act with effect from 1 January, 2001. The Applicants were involved in the manufacturing process and in the month of January, 2001, sixty two persons were employed in their establishment. So the demand of contribution of ₹ 53,679/- for the period from 1 January, 2001 to 30 September, 2002 was made under Section 45-A of the Employees State Insurance Act, 1948 (hereinafter referred to as the E.S.I Act ). It was challenged before the Employees State Insurance Court, Mumbai. The Employees State Insurance Court held that the activities carried out by the applicants is not Manufacturing Process, hence it is not a factory as defined under Section 2(12) of the E.S.I Act. It was held that the claimants are doing the commercial activities. The circular dated 22nd November, 2002 was issued under Section 1(v) of the E.S.I Act, 1948 by the Employees' State Insurance Corporation, New Delhi and certain commercial activities and services were covered under the Establishments and Shops Act. The demand for contribution was made for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in commercial and business activities were covered under the definition of Shop and covered under the E.S.I Act. 6. Learned Counsel for the Respondent in First Appeal No. 143 of 2012 argued that the E.S.I Court has rightly allowed the claim and cancelled the notice of demand of contribution sent by E.S.I Court. He submitted that his Company is not carrying out any activities of manufacturing process and even if the activities are carried out, the circular whereby the computer industries are taken out of the definition of manufacturing process is not applicable to the computer industries and any activity carried out with the help of computer cannot be considered within the definition of factory . He further submitted that his company was only concerned with rendering in-flight services to the air craft and is not indulged into any kind of manufacturing process. He pointed out that the circular dated 22 November, 2002, even if it is made applicable, the period of contribution is prior to the issuance of the circular. Hence, the order of E.S.I Court is valid and legal and is to be maintained. 7. Learned counsel for the Petitioner in First Appeal No. 307 of 2012 and for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .S.I.C, I.L.L.J;1986; 5. Employees State Insurance Corporation v. Tiecion Private Limited, I.L.L.J.1996 He argued that for the purpose of manufacturing process, it is not necessary that the process should end in substance being manufactured. What is required is that it should carry on manufacturing process. In support of his submission, he relied on Alkali Metals (P) Ltd. v. Employees' State Insurance Corporation, 1976 Lab.I.C.186 Mr. Mehta argued that the words used in the definition of manufacturing process, if taken into account, then the activities carried out by the Companies i.e the Petitioner and the Respondents are covered under manufacturing process. He relied on Gateway Auto Services, a Partnership Firm, Bombay-1 v. The Regional Director, Employees' State Insurance Corporation, 1981, LAB.I.C.49 Learned Counsel submitted that the impugned companies were carrying on manufacturing process therefore, they are factories and there is no question to give them opportunity to show cause as to why the E.S.I Act should not be applied to the said Companies. He argued that certain commercial activities carried out by the computer units are considered as a shop under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or part thereof, shall not be construed to make it a factory if no manufacturing process is being carried on in such premises or part thereof. Section 2(14-AA) of the said Act states that the definition of manufacturing process shall have the meaning assigned to it in the Factories Act, 1948 (63 of 1948). 10. The term manufacturing process is defined under section 2(k) of the Factories Act, 1948. Section 2(k) thereof reads as under:- 2(k) manufacturing process means process for- (i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal; or [(ii) Pumping oil, water, sewage, or any other substance; or] (iii) generating, transforming or transmitting power; or [(iv) composing types for printing, printing by letterpress, lithography, photogravure or other similar process or book-binding;][or] (v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels; or [(vi) preserving or storing any article in cold storage.] 11. Explanation II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circular under Section 1(v) of the E.S.I Act bringing certain activities and I.T related services under the definition of Shops, Commercial Establishments and a scope of factory in Section 2(12) of the E.S.I Act and the meaning of manufacturing process under Explanation II of Section 2(m) of the Factories Act look interlinked and alike, but they are separate issues and not to be mixed up. The law makers could distinguish between a mere use of the computers which does not lead to a manufacturing process. The software makes a computer functional. It is used for operating accounts, checking balances, listing, counting, tabling, charting, to give instructions and so on. Software is a bundle of commands or instructions. It is an application. Therefore, the issues are:- (i) Whether creation of software or development of software itself is a manufacturing process or not? (ii) Whether the premises where computers are involved in manufacturing process is a factory under the E.S.I Act? Both the parties have relied on the judgments as follows:- 1. Seelan Raj R. and P.O, I Addl. Labour Court and between Cholamandalam Software Ltd. and Presiding Officer, I Addl. Labour Court, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and has augmented industrial development to a great extent. By computerization, efficiency has been increased adding to the national resources available for development. The legislature still thought more scope for the use of electronics and computer, and its contribution to the national development. Thus, in our view, giving priority to the laudable object of national prosperity, the legislature thought it proper to grant immunity to such units from application of welfare legislation, namely labour laws, so that such developmental projects can strengthen national growth without any hurdle or impediment. Of course, the statement of objects and reasons for bringing out the amendment, does not expressly say so, but, if read in between the lines, we derive the aforesaid scope from para 2 of the statement of objects and reasons. The Division Bench of the Madras High Court has held that any use of the computer or any work carried out with the help of the computer is taken out of the purview of Labour Laws. A Civil Appeal was filed against the Seelan Raj however, Supreme Court referred the case to a larger bench to consider the interpretation of Explanation-II of Section 2(m) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Single Judge of this Court in D.V Shetty v. Bombay Municipal Corporation, reported in 2003 (0) AIJ-MH 127679. In the said judgment, the Court has considered Explanation-II of Section 2(m) of the Factories Act, 1948 and held that the use of the data processing unit or installation of the computers cannot bring that particular premises within the definition of factory under the Factories Act. However, this judgment is distinguishable considering the application of different laws and facts of the present case. In Shetty's case (supra), the Petitioner failed to obtain requisite permit under the Mumbai Municipal Corporation Act, 1988 (the M.M.C Act) for running a factory therefore, a prosecution was launched against him under Section 390 of the M.M.C Act. So far as the applicability of Shetty's case (supra) is concerned, it is necessary to see the provisions of Section 390 of the M.M.C Act. The said section has been embodied in Chapter XV dealing with sanitary provisions which are enacted for the purpose of taking care of the nuisance, which is likely to be caused to the residents of that locality. It also deals with the density of the population in the neighbourhood of such f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be read necessarily in respect of the substance manufactured in the premises by any means or any method including the computer. The language of Explanation-II is to be read in a literal sense by applying rule of literal interpretation. No additional words can be read between the lines by referring to the purpose and object of the amendment. Therefore, the clause no manufacturing process is carried on is to be understood as it is covering any type of manufacturing process including related to the computer. It is erroneous to read the clause as no other manufacturing process is carried out (excluding the computers). The purpose of the Explanation is to clarify that merely because a computer or computers are installed, the place will not be treated as a factory if otherwise no manufacturing process is carried on. 19. Significantly, the definition of factory in Factories Act and E.S.I Act are not the same. Explanation II of Section 2(m) of the Factories Act is inserted in the Factories Act and not in the E.S.I Act. It marks difference in its interpretation and application. In the definition of factory under Factories Act the words worker working are used, while in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, milling, fitting welding, drilling, ironing, cooking, painting etc. are not specifically mentioned in the definition of manufacturing activities though these are considered as manufacturing process at various work places and covered under different verbs used in the definition of manufacturing process. Therefore, though computer related activities like development, programming, application are not mentioned in the definition and to that effect there is no amendment in the section; the definition takes care of activities like development and application. 21. In my considered view, if manufacturing process is carried out as contemplated under Section 2(12) of the E.S.I Act, then that particular unit cannot be made an exception to the application of the E.S.I Act. To borrow the meaning from the provision of Explanation II of Section 2(m) of the Factories Act, will be a mayopic view defeating the object and spirit of the E.S.I Act. The meaning of the term factory for the purpose of E.S.I Act is not to be understood in the context of Explanation II of Section 2(m) of the Factories Act. This is not a harmonious construction of the Statute. Application of E.S.I Act is not a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estern Outdoor Interactive Pvt. Ltd in First Appeal No. 143 of 2012 is engaged in the business of software development, maintenance of software, content management, creation and maintenance of designs, integration and development of applications for In-flight entertainment system which is available in the air craft. It includes development of games to be used in the In-flight Entertainment Systems. Thus, it was neither a Computer Training Centre nor a Dot Com Company, a host of e-services including online shopping. The circular was issued with an object to enhance the meaning of word shop and it was not with a view to restrict the meaning of manufacturing process which is one of the ingredients of the factory under the E.S.I Act. The record of the Respondent Company shows that 48 computers were installed and the work of development of the software was carried out in the said premises. If 48 computers would have been used only for the purpose of Computer Training Centers, then it would have been treated as a shop and the ESI scheme would have made applicable to the premises due to the impugned circular and if 48 computers would have been used only for calculation or charting etc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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