Judgment:
V. Ramkumar, J.
1. In this appeal filed under Section 82(2) of the Employees State Insurance Act, 1948 (hereinafter referred to as 'the Act' for short), the Employees' State Insurance Corporation (hereinafter called 'the ESI Corporation'), challenges the order dated November 26, 2004 passed by the Employees Insurance Court (EI Court for short), Kollam allowing the application under Sections 75 to 77 of the Act filed by the respondent/employer and holding that the ESI Corporation has failed to establish that Mas Hotel run by the respondent is a 'factory', within the meaning of Section 2(12) of the Act and that the respondent-employer is not liable to pay contribution under the Act.
The facts leading to the impugned order can be summarised as follows:
(A) On January 16, 1997, three Inspectors of the appellant/Corporation visited the Mas Hotel together with the restaurant and annexe building situated near the Chettikulangara Temple, Thiruvananthapuram. A head count of the employees taken showed that there were 12 employees working in the hotel and lodge on that day. Exhibit B-1 is the list of employees prepared by the Inspectors and duly signed by the respondent/employer. The Inspectors also prepared Exhibit B-3 preliminary inspection report to the affect that Hotel Mas near Chettikulangara Temple, Overbridge, Sreekandeswaram Temple, Thiruvananthapuram belonging to the respondent, P. Asokan who was the holder of Corporation licence and using a deep freezer-and a grinder of 10 litre capacity, and which employed 12 employees on 16.1.1997 was a 'factory' which was recommended for coverage with effect from January 16, 1997 provisionally.
(B) The respondent-employer was, therefore, called upon to register the factory under Section 2-A of the Act, read with Regulation 10-B of the General Regulations and to pay the contribution payable under the Act. Since there was non-compliance of the notices sent to the respondent, he was served with a notice dated June 8, 1998 proposing to provisionally determine and recover the contribution payable by the respondent and giving him an opportunity to show cause against the proposal. Since no cause was shown, the ESI Corporation as per final order dated August 11, 1998, fixed a sum of Rs. 23,748/- as the contribution payable by the respondent for the period from January 16, 1997 to September 30, 1997 treating him as the 'principal employer' and calling upon the respondent to pay the amount within 15 days failing which he was informed that the same will be recovered by recourse to Sections 45-C to 45-1 of the Act.
(C) Thereupon, the respondent filed I.C. No. 14 of 2000 before the EI Court under Sections 75 to 77 seeking a declaration that his establishment is not covered by the Act and that he is not liable to pay contribution under the Act. The main contention in the said application was that he was running only Hotel Mas which was a lodge and that Abhaya restaurant and the Annexe building called Mas Lodge had been leased out to one Sudhan with effect from May 1, 1997 and subsequent periods. He also contended that the establishment run by him by name Hotel Mas was not a factory. He also contended that the Act was not applicable to Hotel Mas, Hotel Mas Annexe or Abhaya restaurant either as separate units or put together as a whole since the number of persons employed for wages was below 10 and also since power was not used for manufacturing food items in the restaurant leased out by him.
(D) The said application was opposed by the appellant/Corporation contending inter alia that the respondent herein was the licensee in respect of Hotel Mas, Mas Annexe and Abhaya restaurant and that he was also the owner of the said establishments. The appellant further contended that the contention of the employer that no power was used for manufacturing food items in the unit, was not correct, that a grinder of 10 litre capacity and a deep freezer were electrically operated in the premises for the preparation and preservation of various food items, in the hotel Section for serving the customers.
(E) On the side of the respondent/employer who was the applicant before the EI Court, he examined himself as A.W. 1 and got marked Exhibits A-1 to A-24. On the side of the appellant/Corporation, one of the Inspectors was examined as R.W. 1 and Exhibits B-1 to B-4 series were got marked.
(F) The EI Court as per the impugned order dated November 26, 2004 rejected the contention of the respondent/employer that he had employed only less than 10 employees on January 16, 1997, but upheld his contention that the Corporation failed to establish that the hotel was a 'factory' within the meaning of Section 2(12) of the Act. Hence this appeal by the Corporation.
2. The following is the question of law formulated in the memorandum of appeal:
Whether in the facts and circumstances of the case the El Court was right in holding that the respondent/applicant hotel is not attracted coverage under the ESI Act and the applicant is not liable to pay the contribution as claimed by the appellant in spite of the decision of the Hon'ble Supreme Court of India in G.L. Hotels Limited and Ors. v. T.C. Sarin and Anr. : (1993) 4 SCC 363 : 1994 II LLJ 883.
3. I heard the learned Counsel appearing on either side.
4. The learned Counsel appearing for the respondent/employer made the following submissions in support of the impugned order:
Hotel Mas is not a 'factory' within the meaning of Section 2(12) of the Act since no power was used for manufacturing purpose. It is true that Exhibit B-3 report mentions that a deep freezer and a grinder having 10 litre capacity were used. But the details of the grinder and deep freezer have not been mentioned. So also, Exhibit B-3 report is silent as to the site of the said gadgets and also whether they were operated using power. The two Inspectors who prepared Exhibit B-3 report have not been examined. Instead, R.W.1 who was examined was not the Inspector who inspected the establishment on 16.1.1997. It is true that the applicant examined as A.W.1 deposed before Court that electricity is being consumed in the premises. But he has clarified that the said consumption was not for manufacturing purpose but for operating the electrical fixtures such as lights, fans etc. If so, the finding recorded by the EI Court does not call for any interference. There is no substantial question of 5 law justifying this appeal.
5. I am afraid that I cannot agree with the above submissions made on behalf of the employer. Even though Exhibit B-3 Preliminary Inspection Report specifically 5 mentions that a grinder having 10 litre capacity and a deep freezer were used in the premises, no exception whatsoever had been taken to the said statement in Exhibit B-3 report either in the application filed before the EI Court or in the deposition of the employer examined as A.W. 1. Exhibit B-3 report has been prepared by the Inspectors in exercise of their statutory power under the provisions of the Act and the Rules and General Regulations. It is in the report so prepared after inspecting the premises that we find that a deep freezer and grinder of 10 litre capacity were used. There is always a presumption that public officials would, discharge their duties honestly and in accordance with the Rules of Law. See -- Organo Chemical Industries v. Union of India and Ors. : AIR 1979 SC 1803 : (1979) 4 SCC 573 : 1979 II LLJ 416. The employer examined as A.W.1 has no case that officials of the ESI Department had any grouse against him. Hence, there was no reason to discard the statement in Exhibit B-3 report prepared by the Inspectors. It is true that R.W.1 is not the Inspector who prepared Exhibit B-3 report but she has definitely stated that she inspected the establishment. There is no contra evidence to show that she did not inspect the establishment in question.
6. In Exhibit B-4 letter, admittedly sent by the employer to the Corporation, he has categorically admitted that he is the owner of Hotel Mas and Abhaya restaurant with the annexe building situated near the Chettikulangra Temple, Thiruvananthapuram. He has further admitted that Hotel Mas is having 15 rooms and a restaurant to serve coffee tea and snacks to the occupants of the rooms till January 30, 1997. The inspection of the said hotel was on January 16, 1997. He has not denied the statement in Exhibit B-3 report that the Corporation licence for Hotel Mas is in his name. In paragraph 12 of the application filed as I.C. No. 14/2000, he has admitted that even though he had leased out Mas Lodge, Mas Annexe and Abhaya Restaurant, a consolidated attendance register is kept for the sake of convenience. Exhibits A-7 and A-8 are the documents of lease in respect of Mas Annexe and Abhaya Restaurant. They are dated April 23, 1998 and November 30, 2002 respectively. Both the said dates are long after the inspection conducted on January 16, 1997. Even assuming that Hotel Mas and Abhaya Restaurant had been leased out by the respondent-employer who is admittedly the owner, by virtue of Section 93-A of the Act he would continue to be the person bound to pay the contribution. When the grinder with 10 litre capacity and the deep freezer were stated to be used in the premises of the employer, who was admittedly running a hotel and restaurant, the only legitimate inference is that those gadgets were used for the purpose of preservation or manufacture of food items. It is now well settled that preparation of food items in the kitchen or preservation or storage of food articles in the cold storage etc. using power would amount to 'manufacturing process' within the meaning of Section 2(12) of the Act (See--ESI Corporation v. Jalandhar Gymkhana Club : 1993 I LLJ 477 (P & H) and G.L. Hotels Ltd. and Ors. v. T.C. Sarin and Anr. (supra)). In ESI Corporation v. Garden Cafe, Tike, Nandyal : 2000 I ILJ 1557 (A.P.), the Andhra Pradesh High Court has taken the view that when the provisions of the Act do not oblige the ESI Inspector to give the size, width or height of the grinder used by any hotelier or allied establishment, the EI Court was wrong in holding that failure on the part of the Inspector to note the size of the grinder used was fatal to his case. The EI Court below was therefore wrong in holding that the Corporation failed to establish that power was used for manufacturing process in the Hotel belonging to the respondent-employer. It was a matter for inference that the grinder of 10 litre capacity and deep freezer found installed in the hotel were operated for the preparation and preservation of various food items and they could be operated only on power and therefore the establishment was a 'factory' within the meaning of Section 2(12) of the Act. Even assuming that the lease put forward by the respondent-employer in respect of Mas Lodge, Annexe and Abhaya restaurant were true, still he could not escape from the liability for the contributions due up to the respective dates by virtue of Section 93-A of the Act. On that score also the order passed by the EI Court is unsustainable.
7. This is a case in which the Court below has not drawn the proper legal inference on the evidence before Court. It amounts to an error of law satisfying the requirement of a substantial question of law. The impugned order is accordingly set aside and I.C. No. 14 of 2000 shall stand dismissed. This appeal is allowed as above. No costs.