Pranab Kumar Chattopadhyay, J.
1. The petitioner company runs a hospital and according to the petitioners, service rendered by the petitioner company is patient health care service and such service is not covered by any notification of the Employees' State Insurance Act, 1948 (hereinafter referred to as ESI Act).
2. The respondent authorities however, arranged inspections of the units of the petitioner company. Considering the inspection report submitted by the Inspector, concerned authority of the respondent Employees' State Insurance Corporation decided that both the units of the petitioner company should be treated as 'factory' within the purview of Section 2(12) of the ESI Act w.e.f. October 02, 1997 and the decision of the said respondent authorities regarding: coverage of the establishment of the petitioner company under ESI Act was communicated to the petitioner company by written communication dated November 23, 1998.
3. The respondent Deputy Regional Director by another written communication dated December 1, 1998 asked the petitioner company to submit declaration forms in respect of all its employees. The respondent authorities of the ESI Corporation also issued show- cause notice to the petitioner company on August 4, 1999 proposing determination and recovery of the amount of Rs. 4,78,228/- towards the contributions payable in respect of the employees of the establishment of the petitioner company.
4. Ultimately, by the order dated February 16, 2000 the Assistant Director of the ESI Corporation assessed the contributions and interests payable by the petitioner company and directed the petitioner company to pay the total sum of Rs. 5,09,748/- in this regard.
5. The petitioners herein have challenged the aforesaid decisions of the respondent authorities in this writ petition on the ground that the establishment of the petitioner company is a hospital and the same cannot be brought within the purview of the factory in absence of any valid notification under the ESI Act.
6. In the notification dated February 16, 2000, the Assistant Director specifically mentioned that the establishment of the petitioner company being a factory is covered under the ESI Act, 1948 and was required to pay the contributions in accordance with Section 40 of the said Act read with Regulations 29 and 31 of the ESI (General) Regulations framed under the said Act. It was also mentioned in the said notification that the ESI Inspector recommended provisional coverage in respect of the establishment of the petitioners w.e.f. October 02, 1997. The said Assistant Director in the aforesaid notification also held that the organisation like the establishment of the petitioner company is covered under Section 2(12) of the ESI Act, particularly in terms of the ESI Corporation Head Quarters' Order No. T-11/14/37/1997- INS.IV, dated June 19, 1997.
7. The said order dated June 19, 1997 as quoted in paragraph 18 of the writ petition is reproduced hereunder:
'Employees State Insurance Corporation Order No. T- 11/14/37/1/97-INS.IV Dated, June 19, 1997
I am directed to apprise that the Hon'ble High Court of Gujarat at Ahmedabad in the case filed by the Association of Pathological & Microbiologists against the Director, Food & Drugs and the State of Gujarat has held that Human Blood is drug and the activities of its tapping, collecting, cross-matching and keeping in bottles amounts to manufacturing of blood.
In the context of the said judgment it has been decided that the Pathological Laboratories (other than those located in the Hospitals) and meeting the requirements of patients admitted in the hospital having above activities to be covered as factory as defined under Section 2(12) of the Act (ESI Act, 1948) with effect from July 1, 1997. Coverage of Pathological Laboratories is already effected in any case need not be responded.
By order
Sd/- (Daya Ram)
Junior Director'
8. Admittedly, the aforesaid order was issued by the Headquarters' of the ESI Corporation pursuant to the judgment of the Hon'ble Gujarat High Court in the case of Subodh S. Shah and Ors. v. Director, Food and Drugs, Food and Drugs Control Office, Ahmedabad and Anr., reported in : AIR1997Guj83 .
9. According to the learned Advocate of the petitioners, the establishment of the petitioner No. 1 being a hospital remains outside the purview of the ESI Act. Mr. Arunava Ghosh, learned counsel of the petitioners submits that the establishment of the petitioner No. 1 is a hospital under Rule 11(II) of the West Bengal Clinical Establishment Rules, 2001.
10. Referring to the aforesaid ESI Corporation Headquarters' Order dated June 19, 1997, which was issued on the basis of the judgment of the Hon'ble Gujarat High Court in the case of Subodh S. Shah & Ors. (supra), Mr. Ghosh submitted that the hospitals cannot come within the purview of the ESI Act and it is only the pathological laboratories other than those located in hospitals which should be regarded as factory under the provision of Section 2(12) of the ESI Act.
11. For the aforesaid reasons, the learned counsel of the petitioners urged before this Court that the establishment of the petitioner company being a hospital cannot be treated as a factory within the definition of Section 2(12) of the ESI Act and as such the learned counsel of the petitioners prayed for quashing of the decisions of the respondent authorities in respect of the establishment of the petitioner company as mentioned in the order dated November 23, 1998, show-cause notice dated August 4, 1999 and the order dated February 16, 2000 being Annexures 'A', 'D' and 'J' to the writ petition respectively.
12. The learned counsel of the respondents, however, opposed the aforesaid contentions of the petitioners and submits that the establishment of the petitioners has been rightly treated as factory within the meaning of Section 2(12) of the ESI Act and the petitioners are under an obligation and duty bound to make necessary payment as determined by the respondent authorities towards the contributions and interests as mentioned in the aforesaid order dated February 16, 2000 without any further delay.
13. The only question which has been raised before this Court is whether the establishment of the petitioner company can be treated as factory within the meaning of Section 2(12) of the ESI Act and therefore can be treated as covered under ESI Act, 1948.
14. Admittedly, the respondent authorities by the impugned notice dated November 23, 1998 held that the establishment of the petitioner company should be treated as factory and the same falls within the purview of Section 2(12) of the ESI Act, 1948. The provision of Section 2(12) of the ESI Act, 1948 is quoted hereunder:
'2(12). 'factory' means any premises including the precincts thereof-
(a) whereon ten or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily so carried on, or
(b) whereon twenty or more persons are employed or were employed for wages on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952) or a railway running shed;'.
15. In view of the aforesaid 'definition of the factory' as mentioned in Section 2(12) of the ESI Act it is now to be decided whether the activities of the petitioners can be treated as manufacturing process although manufacturing process has not been specifically defined in the ESI Act but Section 2(14-AA) of the said ESI Act prescribes that the definition of manufacturing process shall have the meaning assigned to it in the Factories Act, 1948. Manufacturing process has been defined in Section 2(k) of the Factories Act, 1948 which is reproduced hereunder:
'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 letter press, 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;'
16. According to the respondents, all the Clinical tests and Pathological tests carried on by the establishments of the petitioners involve manufacturing process.
17. The judgment of the Hon'ble Gujarat High Court has been referred to and relied upon by the learned counsel of both the parties. Admittedly, the Hon'ble Gujarat High Court in the aforesaid judgment was called upon to decide whether the human blood can be said to be drug and whether pathologists tapping blood from human beings are manufacturing 'drug' so as to incur liability to obtain licence under Section 18(c) of Drugs and Cosmetics Act, 1940.
18. In my view, the aforesaid decision cannot be made applicable in the present case in order to ascertain whether the activities carried on by the petitioner company in the pathological laboratories located in the hospital of the said company can come within the purview of the definition of manufacturing process as defined in Section 2(k)(i) of the Factories Act.
19. According to the learned counsel of the respondents, activities carried on by the petitioner company in the pathological laboratories located in its hospital involves manufacturing process and thus, the units of the petitioner company should be treated as factory within the meaning of Section 2(12) of the ESI Act. The learned counsel of the respondents have relied upon various judgments wherein pumping oil in petrol pump or peeling potatoes in hotel, tailoring shops etc. have been considered as manufacturing process.
20. The aforesaid arguments advanced on behalf of the respondent authorities cannot be disputed as the definition of manufacturing process under the Factories Act specifically treated the aforesaid activities as the manufacturing process. The learned counsel of the respondents specifically referred to and relied upon the decision of the Supreme Court in the case of Christian Medical College v. ESI Corporation, reported in 2001-I-LLJ-18 wherein the Supreme Court specifically held that repairing of the equipments with a view to use the same amounts to manufacturing process and, therefore, Equipment Maintenance Department of the Christian Medical College which maintains and repairs the equipments for the efficient use in the hospital comes within the definition of 'Factory' under the ESI Act.
21. Undoubtedly, repairing is covered by the definition of manufacturing process as mentioned in Section 2(k)(i) of the Factories Act but the pathological tests are not directly covered by the definition of manufacturing process.
22. The learned counsel of the respondents referred to and relied upon the following decisions in support of his arguments that the pathological tests performed in the pathological laboratories located in the hospital of the petitioner company are covered by the definition of the manufacturing process under the Factories Act.
1) In Re: K.V.V. Sarma, Manager Gemini Studios, Madras : (1953)IILLJ29Mad
2) Baranagar Service Station v. Employees' State Insurance Corporation 1988 Lab I. C. 302
3) Employees' State Insurance Corporation v. Bhag Singh 1989-II-LLJ-126 (P&H;)
4) Gateway Auto Services, a Partnership Firm, Bombay v. Regional Director, Employees' State Insurance Corporation and Anr. 1980-II-LLJ-255 (Bom)
5) Alkali Metals Ltd. v. Employees' State Insurance Corporation 1976 Lab I.C. 186
6) P. Natarajan and Anr. v. Employees' State Insurance Corporation and Ors. 1973 Lab I.C. 747
7) Cricket Club of India Ltd. and Ors. v. Employees' State Insurance Corporation and Anr. 1998-III-LLJ (Suppl)-270 (Bom)
8) Regional Director, Employees' State Insurance Corporation v. Ram Chander : (1988)IILLJ141SC .
9) Abdulla Khan v. B. Miskin Saheb and Anr. : (1960)ILLJ55AP .
23. The activities carried on by the establishments mentioned in the aforesaid decisions are specifically covered by the definition of manufacturing process in terms of Section 2(k)(i) of the Factories Act but those decisions cannot be of any help in order to decide whether the pathological tests carried out in the laboratories can be said to be manufacturing process under the Factories Act.
24. The definition of manufacturing process was considered by the Supreme Court in the case of Collector of Central Excise, Madras v. Kutty Flush Doors and Furniture Co. (P.) Ltd., reported in AIR 1998 SC 1164 : 1988 Supp SCC 239 wherein SABYASACHI MUKHARJI, J. specifically held as hereunder:
'5. It may be worthwhile to note that 'Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more was necessary and there must be transformation; a new and different article must emerge having a distinct name, character or use .............'
25. In a subsequent decision reported in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Coco Fibres : 1991(53)ELT515(SC) the Supreme Court considered and explained the definition of the manufacturing process in the following manner:
'3. .......... Thus, by process of manufacture something is produced and brought into existence which is different from that out of which it is made in the sense that the things produced is by itself a commercial commodity capable of being sold or supplied ........'
'5. Therefore, the article that emerged, as a result of the process of manufacture must be a distinct and new article recognised or known as such in the commercial parlance for sale or supply ..........'
26. By the pathological tests nothing is manufactured and/or brought into existence which by itself is a distinct commercial commodity capable of being sold or supplied. Furthermore, no new article is also produced by the pathological laboratories which are recognised or known as such in the commercial parlance for sale or supply.
27. The aforesaid decision of the Gujarat High Court, which has been referred to and relied upon in the order dated June 19, 1997 issued by the ESI Corporation Headquarters, is clearly distinguishable in the facts of the present case and the same cannot be made applicable in order to bring the pathological laboratories within the definition of the factory under Section 2(12) of the ESI Act, 1948.
28. Various tests are performed in the pathological laboratories located in the hospital of the petitioner company in order to meet the requirements of the patients admitted in the said hospital and as such the said activities which are performed in the pathological laboratories located in the hospital of the petitioner company cannot be covered within the definition of factory in terms of Section 2(12) of the ESI Act as the said activities do not come within the definition of manufacturing process in terms of Section 2(k) of the Factories Act.
29. Furthermore, the ESI Corporation Headquarters' Order dated June 19, 1.997 which has been specifically referred to and relied upon by the respondent Assistant Director in the impugned order dated February 16, 2000 also does not include the pathological laboratories located in the hospital within the definition of factory as defined under Section 2(12) of the ESI Act, 1948.
30. In the aforesaid circumstances, neither the order issued by the ESI Corporation Headquarters' dated June 19, 1997 nor the provision of the ESI Act, 1948 brought the pathological laboratories located in the hospitals within the purview of the definition of factory as mentioned in Section 2(12) of the ESI Act, 1948.
31. For the aforementioned reasons, I am constrained to hold that the respondent authorities should not have treated the pathological laboratories located in the hospital of the petitioner company as factory and as such the said respondents are not entitled to demand any amount from the petitioner company towards the contributions and interests as principal employers.
32. Accordingly, the impugned orders dated November 23, 1998, August 4, 1999 and February 16, 2000 being Annexures 'A', 'D' and 'J' to the writ petition cannot be sustained and the same are therefore quashed.
33. The writ petition is thus allowed.
34. There will be, however, no order as to costs.
35. The parties are directed to act on the basis of the operative portion of the signed copy of the minutes of this dictated order on the usual undertaking.