Employees' State Insurance Corporation, Bangalore Vs. the Mysore Lamp Works Limited, Bangalore (23.01.2001 - KARHC) - Court Judgment

SooperKanoon Citationsooperkanoon.com/380239
SubjectLabour and Industrial
CourtKarnataka High Court
Decided OnJan-23-2001
Case NumberMiscellaneous First Appeal No. 3385 of 1998
JudgeManjula Chellur, J.
Reported in[2001(91)FLR511]; ILR2001KAR4116; 2001(4)KarLJ360; (2001)IILLJ965Kant
ActsEmployees' State Insurance Act, 1948 - Sections 2(9), 2(22), 38, 39, 45-A and 46(1); Apprentices Act, 1961; Employees' State Insurance (General) Regulations, 1950
AppellantEmployees' State Insurance Corporation, Bangalore
RespondentThe Mysore Lamp Works Limited, Bangalore
Appellant AdvocateSri M. Papanna, Adv.
Respondent AdvocateSri S.N. Murthy, Adv.
Excerpt:
labour and industrial - contribution - employees' state insurance act, 1948 - appellant contended finding of lower court that respondent not liable to pay contribution in respect of omitted wages by virtue of settlement between management and employees erroneous - criteria to decide coverage under act status of employee at commencement of contribution period and subsequent changes during contribution period will not affect status as employee so far as that particular contribution period concerned - respondent liable to pay contribution to those employees whose wages exceeded by virtue of settlement - appeal allowed. - mines and minerals (regulation and development) act (67 of 1957) section 15 & karnataka minor mineral concession rules, 1969, rules 24a & 26: [p.d.dinakaran, c.j. & v.g. sabhahit, j] mining lease application for renewal pending application found to be defective by authorities and petitioner was directed to comply with defects held, unless said application is completed and statutory requirements are duly complied with, petitioner cannot be permitted to carry on mining operation invoking statutory right under rule 24a. - therefore the presumption is that the wages were paid to the employees under megala electricals by the applicant-company and hence the contributions have to be made on such wages as well. 10. the 'employee' as defined under section 2(9) for the purposes of insurance scheme is a status enjoyed by the recruits of theestablishment whereby they could secure the benefits under the employees' insurance scheme. as such the recruits of the company between january 1, 1981 and june 30, 1981 who have enjoyed such status of an 'employee' could not deem to be so i.1. this appeal is directed against the order of the employees' state insurance court in employees' state insurance application no. 106 of 1990 disposed of on 6-5-1998.2. in brief the facts that led to the filing of this appeal are as under:the applicant is mysore lamp works limited which is a state government undertaking engaged in the manufacturing of electrical lamps employing about 1,500 employees covered under the employees' state insurance act ('the act' for short). the respondent is the applicant before the employees' state insurance court. the contribution period applicable to the employees of the respondent was from 1-4-1988 to 30-9-1988. it is also an admitted fact that the respondent-company deducted contributions from the employees for the period 1-4-1988 to 30-6-1988 on the ground that at the relevant point of time they fell under the definition of employee by virtue of drawing less than rs. 1,600/- per month as wages. the contention of the applicant before the corporation was that by virtue of a settlement which came into existence on 22-8-1988, the wages of employees in question crossed rs. 1,600/- per month with effect from 1-3-1988 and therefore they stopped paying contribution in respect of such employees from 1-7-1988. it is also the case of the applicant that medical reimbursement was given to those employees in spite of the stoppage of the contribution from 1-7-1988. the appellant also contended that the amount paid to megala electricals was in respect of certain work carried out by a contractor outside the premises of the company and no employees' state insurance contribution could be demanded in respect of such wages.3. this was contested by the respondent-corporation contending that during the inspection it revealed that the applicant had not covered certain employees and in fact did not pay contributions in respect of them for the period from 1-7-1988 to 30-9-1988, though it was mandatory on the part of the company to cover such employees. it further contended that the denial of liability on the part of the employer to pay contribution on the ground that the concerned employees have gone out of the purview of contribution with effect from 1-3-1988 due to increase in their wages by virtue of a settlement was untenable because the revision of wages was announced only in august 1988. it is their specific defence that at the commencement of the contribution period the exact wages of the employee is the criteria to decide whether they are covered or not for the benefits provided under the act. therefore, according to the corporation the respondent-company was due to pay the contributions from 1-7-1988 to 30-9-1988. it is further urged that the details of the contract given to megala electricals were not furnished. therefore the presumption is that the wages were paid to the employees under megala electricals by the applicant-company and hence the contributions have to be made on such wages as well.4. after looking into the records and hearing the applicant the order was passed by the corporation under section 45a of the act which was challenged by the applicant before the employees' state insurance court. before the employees' state insurance court also the above mentioned pleadings were canvassed by both the parties. based on the above pleadings, following four issues were raised:(1) whether the applicant proves that by virtue of settlement entered into between the management and the employees, the total salary of each employee crossed rs. 1,600/- per month w.e.f. 1-3-1988 and therefore no esi contribution is payable on their wages.(2) whether the applicant further proves that the contractor m/s. megala electricals have carried out the work outside the premises of the applicant-factory and therefore the wages paid by the contractor to its employees, are not coverable under tbe esi act.(3) whether the applicant proves that the order annexure-d demand notice and recovery notice claiming esi contribution of rs. 1,68,148-63 ps. from the applicant are therefore not sustainable and liable to be set aside.(4) to what order the parties are entitled?5. so far as first issue is concerned, it was held against the corporation. so far as second issue is concerned, employees' state insurance court held that such issue did not survive for consideration as the very show-cause notice issued by the corporation reflected that the employees referred to therein were the employees of the contractor and the name of megala electricals was also shown in the show-cause notice and admittedly, contributions were paid for those employees. so far as the 3rd issue is concerned, the employees' state insurance court held that the applicant is not liable to pay contribution as claimed on the amounts shown in items 1 to 3 and set aside the order passed under section 45a of the employees' state insurance act.6. aggrieved by this order, the corporation has filed the present appeal. in the present appeal it is contended that the finding of the court that the respondent-company was not liable to pay contribution in respect of omitted wages for the months june to august 1988 by virtue of the settlement between the management and the employees dated 22-8-1988 wherein the wages were enhanced with retrospective effect from 1-3-1988 was erroneous. it further contends that the salary of the employees at the commencement of the contribution period is the sole criteria to decide the coverage under the act and therefore by virtue of section 2(9) where the employee is defined and also by virtue of regulation where the contribution period and the benefit are specified, the respondent-company is liable to pay the contributions from 1-7-1988 till the end of contribution period.7. heard both the learned counsels. the learned counsel for the appellant sri m. papanna, submitted that irrespective of the revision ofwages by virtue of the settlement between the management and the employees one has to see only the quantum of wages paid at the commencement of the contribution period in order to decide the coverage. he has relied upon the decisions in mohamed ismail ansari v employees' state insurance corporation, bombay and regional director, esic, bombay v century spinning and weaving company limited, shakad. the learned counsel for the respondent-company argued that in the case referred to above i.e., regional director, esic, supra, the revision of wages was subsequent to the contribution period and therefore, the principle laid down in the said decision is not applicable to the facts of the present case. he further argued that the corporation is entitled to recover contribution on the revised wages also and therefore the corporation cannot be allowed to take two diverse contentions that the wages at the commencement of the contribution period as the criteria for deciding the coverage and again collect the contribution on the revised wages also for that contribution period. to this, the learned counsel for the appellant submitted that the proviso to section 2(9) creates a fiction and by virtue of that fiction as the employees' state insurance act is a beneficial legislation to protect interest of the employees and by virtue of the fiction they are entitled to collect the contribution on the actual wages payable.8. the point that would arise for this court's consideration is whether the company is absolved of the liability of paying contributions on omitted wages from 1-7-1988 to 30-9-1988 by virtue of settlement revising the wages of those employees exceeding rs. 1,600/- with effect from 1-3-1988.9. admittedly, the respondent-company is covered under the employees' state insurance act. it has about 1,500 employees. it is also not in dispute that for the contribution period from 1-4-1988 to 30-9-1988 the company paid contributions upto 30-6-1988. according to the learned counsel for the respondent-company there was proposal for settlement between the management and the employees, therefore, they stopped paying contribution from 1-7-1988 as they were definite that the proposed settlement would make certain employees go out of the ambit of definition of employee as defined under section 2(9) of the act. ultimately, the settlement arrived at on 22-8-1988. therefore, they are not liable to pay contributions for such employees who went out of the purview of definition of employee under the act by virtue of revision of wages.10. before proceeding further with reference to the facts of the present case, one has to see what exactly a contribution means when it commences and when the employee ceases to be an employee so far as payment of contribution is concerned? section 2(9) of the act defines three different criteria to attract a person within the definition of an employee. it also refers to persons who cannot be included in the purview of an employee under the act. section 2(9) of the act has a proviso which is relevant to be mentioned for the purpose of this appeal.'2(9) 'employee' means any person employed for wages in or in connection with the work of a factory or establishment to which this act applies and-(i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or(ii) who is employed by or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract or service;(and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment (or any person engaged as an apprentice, not being an apprentice engaged under the apprentices act, 1961 (52 of 1961) or under the standing orders of establishment, but does not include)-(a) any member of (the indian) naval, military or air forces; or(b) any person so employed whose wages (excluding remuneration for overtime work) exceed (such wages as may be prescribed by the central government) a month at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period'.admittedly, the limit of wages at that time was rs. 1,600a. in mohamed ismail ansari's case, supra, the question that arose for their lordships consideration before the high court of bombay was, proviso to section 2(9)(b), its scope and applicability. they discussed at length the proviso to section 2(9)(b), its scope and applicability. it was held at page 1012 as under:'the year is divided into two 'contribution' and 'benefit' periods each period consisting of six such months as are indicated in regulation no. 3 against each group of workers. the appellant belongs to 'b' set, his first period covers march to september, while second period covers october to february. the combined effect of section 2(9) and 2(22) is that his wages in a month go to determine if he was the 'employee' in that month. this firstly takes notice of the fact that the wages of the employee fluctuatefrom month to month depending on the fluctuating price index and further assumes that, a person can be an employee within the meaning of the act, during one month and ceases to be such an employee in the next month depending on his total wages earned by him in each month. wording of section 46(1)(c) suggests that, his wages during the month of the accident is determinative of his being entitled to the disablement benefits. this may result in depriving him of his right thereunder if his wages in the month of the accident exceeds rs. 500 and consequently make him not an employee. the above provision to section 2(9)(b) comes to his rescue in such a case in a limited manner. it enables him to continue to be an employee during the other five months of any contribution period, even if his actual wages, whether paid or payable in the first month of that period did not (? - ed.) exceed rs. 500/-within the meaning of the act. the proviso carves out an exception to benefit the workman, the vexed phraseology of the proviso 'a month at any time after (and not before) the beginning of the contribution period' in our opinion is intended to make the wages of the first of the concerned contribution period, determinative of his claim to be an employee within the meaning of the act. this, no doubt, is a fiction introduced in the proviso to protect the workmen to enable them to reap the benefits of the contributions made by them in earlier periods. dr. kulkarni's extreme contention that the employee gets benefit of this provision, even if his wages do not (? - ed.) exceed rs. 500/- in any month of the contribution period is not tenable. equally untenable is the contention of mr. jayakar that wages of the worker in the month of the accident alone are determinative of his such entitlement. in view of our finding as to his total wages in the month of november being rs. 349, the appellant is not required to rely on this proviso, though his wages for the month of october could not have enabled him to rely on this proviso. this much, however, is clear to us that the proviso cannot operate to his disadvantage. in view of our above finding, the appeal deserves to be allowed'.from the above decision, it makes clear that an employee who was an employee at the commencement of the contribution period, continues to be an employee till the end of contribution period irrespective of increase in wages during the subsequent months of the contribution period. in other words, the status of an employee who happens to be an employee as per the definition of section 2(9) continues to be an employee even if his wages exceed the limit provided in the proviso to section 2(9)(b) of the act. their lordships have discussed at length what is the contribution period and benefit period and how one year is divided between the two periods under the act. they have also discussed at length how it would affect an employee to reap the benefits accrued to him on account of the contribution at the beginning of the contribution period. the employees' state insurance act is a beneficial legislation and the intention was not to disable an employee to reap the benefit provided to him under the act. therefore, i am totally in agreement with the decision inmohamed ismail ansari case, supra, that the actual determinative factor to get the benefits under the act would be the wages at the commencement of the contribution period- the case before the lordship was a situation where the wages of an employee fluctuated from month to month.11. the other case referred to above i.e., regional director, esic, bombay, was a case where the contribution period was 1-1-1981 to 30-6-1981 and by virtue of the settlement between the management and the employees dated 2-9-1981 the wages of the employees came to be revised with effect from 1-1-1981 the beginning of the contribution period. thereby the monthly wages of the employee exceeded rs. 1,0007- from that date and they were not falling under the ambit of definition of 'employee' under section 2(9) of the act. the management took a contention that as on the date of contribution period the employees cease to be an employee by virtue of a settlement on account of revision of wages and therefore, the contributions that were already made by them had to be refunded by the corporation. the corporation rejected the said plea of the employer and the company approached the insurance court. the employees' state insurance court held that the corporation has to refund the contribution by placing reliance on clause 40 of the regulations applicable at that time. this was challenged before the high court of bombay. their lordships have discussed in detail the wages paid as defined under section 2(22) of the act and ultimately held that the act which was meant for the welfare and benefit of the employees has to be remembered. they also held that the status of an employee has a significance which has to be determined with reference to the period of contribution, and at no point of time the said status can be permitted to be changed on account of negotiations in progress or subsequent settlement. in other words, the revision of wages with retrospective effect would never come in the way of the employees who were covered otherwise at the beginning of the contribution period. the relevant paragraphs 9, 10, 11 and 12 reads as under:'9. undisputedly during the period of contribution viz., january 1, 1981 till june 30, 1981, the recruits of the company were complying with the description of the term 'employee'. as per the term of the contract of employment as then in vogue, they have been paid wages as defined under sub-section (22) of section 2 of the act. and such payment would be decisive for the term 'employee' under section 2(9) and also for the purposes of sections 38 and 39. the wages payable as envisaged under section 38 and 39 are qua to a period when the employees and the employer are liable to make contributions towards the scheme. owing to subsequent settlement dated september 7, 1981, the wages have become payable with effect from january 1, 1981. however, it did not in any manner alter the term 'wages payable' during the period of contribution as per the contract of employment as then in vogue.10. the 'employee' as defined under section 2(9) for the purposes of insurance scheme is a status enjoyed by the recruits of theestablishment whereby they could secure the benefits under the employees' insurance scheme. status as an employee is an aspect of definite significance. it is to be ascertained as per the test, qua the period of contribution. it cannot be permitted to dwindle either according to the negotiations in progress or subsequent settlement. there could be prospective change in the status as a consequence of such settlement or agreement. however, such status once conferred cannot be altered or abrogated with retrospective effect. as such the recruits of the company between january 1, 1981 and june 30, 1981 who have enjoyed such status of an 'employee' could not deem to be so i.e., 'employee' during the said period as a result of revision of pay scales increasing their wages on september 7, 1981 even if made effective from january 1, 1981.11. the effect of the settlement is that the recruits would be entitled to a benefit as per the revision in pay scales with retrospective effect i.e., january 1, 1981. however, the status as an employee conferred on them for the purposes of the benefits under the insurance scheme would remain the same. the settlement in its result could not withdraw the status attached to the recruits for particular period.12. the insurance court has completely misdirected itself in placing reliance on clause 40(1) of the employees' state insurance (general) regulations, 1950. the insurance court lost sight that in recovering the contribution the corporation has neither committed any mistake nor the recovery was in any manner erroneous. as such resorting to the said provision by the company was wholly misplaced. in view of this, the impugned judgment of the insurance court suffers from patent illegality and the same is liable to be set aside'.12. the contention of the learned counsel for the respondent-company that the revision of pay scale in the case referred to above was subsequent to the contribution period is untenable in view of the fact that the change in the status of an employee will not affect the benefits that are applicable to him at the commencement of the contribution period if he was an employee as on that day.13. in the present case, admittedly for the entire contribution period i.e., 1-4-1988 to 30-9-1988 the contribution was made upto 30-6-1988. three months contribution was due in that contribution period. the settlement came into effect in august 1988 revising the wages of employee and by virtue of such revision the wages of certain employees exceeded rs. 1,600/-. as already stated above, the criteria to decide the coverage under the act is the status of the employee at the commencement of the contribution period and subsequent changes during the contribution period will not affect his status as an employee so far as that particular contribution period is concerned. therefore, the respondent-company is liable to pay the contribution to those employees whose wages exceeded rs. 1,600/- by virtue of the settlement with effect from 1-3-1988, upto the end of september 1988.14. the next argument is that the company is liable to pay contribution on the revised wages is urged by the respondent-company is also untenable because of the fiction in the proviso to section 2(9)(b) which is meant for the benefit of the employee. under these circumstances, the order of the employees' state insurance court is not sustainable in holding that the respondent-company was not liable to pay contribution from 1-7-1988 to 30-9-1988 in respect of those employees whose wages exceeded rs. 1,600/- with effect from 1-3-1988 by virtue of the settlement between the management and the employees arrived in august 1988. accordingly, the appeal of the corporation is allowed with costs throughout. the order of the employees' state insurance court is set aside and the application of the company before the employees' state insurance court is dismissed.
Judgment:

1. This appeal is directed against the order of the Employees' State Insurance Court in Employees' State Insurance Application No. 106 of 1990 disposed of on 6-5-1998.

2. In brief the facts that led to the filing of this appeal are as under:

The applicant is Mysore Lamp Works Limited which is a State Government undertaking engaged in the manufacturing of electrical lamps employing about 1,500 employees covered under the Employees' State Insurance Act ('the Act' for short). The respondent is the applicant before the Employees' State Insurance Court. The contribution period applicable to the employees of the respondent was from 1-4-1988 to 30-9-1988. It is also an admitted fact that the respondent-Company deducted contributions from the employees for the period 1-4-1988 to 30-6-1988 on the ground that at the relevant point of time they fell under the definition of employee by virtue of drawing less than Rs. 1,600/- per month as wages. The contention of the applicant before the Corporation was that by virtue of a settlement which came into existence on 22-8-1988, the wages of employees in question crossed Rs. 1,600/- per month with effect from 1-3-1988 and therefore they stopped paying contribution in respect of such employees from 1-7-1988. It is also the case of the applicant that medical reimbursement was given to those employees in spite of the stoppage of the contribution from 1-7-1988. The appellant also contended that the amount paid to Megala Electricals was in respect of certain work carried out by a contractor outside the premises of the Company and no Employees' State Insurance contribution could be demanded in respect of such wages.

3. This was contested by the respondent-Corporation contending that during the inspection it revealed that the applicant had not covered certain employees and in fact did not pay contributions in respect of them for the period from 1-7-1988 to 30-9-1988, though it was mandatory on the part of the Company to cover such employees. It further contended that the denial of liability on the part of the employer to pay contribution on the ground that the concerned employees have gone out of the purview of contribution with effect from 1-3-1988 due to increase in their wages by virtue of a settlement was untenable because the revision of wages was announced only in August 1988. It is their specific defence that at the commencement of the contribution period the exact wages of the employee is the criteria to decide whether they are covered or not for the benefits provided under the Act. Therefore, according to the Corporation the respondent-Company was due to pay the contributions from 1-7-1988 to 30-9-1988. It is further urged that the details of the contract given to Megala Electricals were not furnished. Therefore the presumption is that the wages were paid to the employees under Megala Electricals by the applicant-Company and hence the contributions have to be made on such wages as well.

4. After looking into the records and hearing the applicant the order was passed by the Corporation under Section 45A of the Act which was challenged by the applicant before the Employees' State Insurance Court. Before the Employees' State Insurance Court also the above mentioned pleadings were canvassed by both the parties. Based on the above pleadings, following four issues were raised:

(1) Whether the applicant proves that by virtue of settlement entered into between the Management and the employees, the total salary of each employee crossed Rs. 1,600/- per month w.e.f. 1-3-1988 and therefore no ESI contribution is payable on their wages.

(2) Whether the applicant further proves that the contractor M/s. Megala Electricals have carried out the work outside the premises of the applicant-factory and therefore the wages paid by the contractor to its employees, are not coverable under tbe ESI Act.

(3) Whether the applicant proves that the order Annexure-D demand notice and recovery notice claiming ESI contribution of Rs. 1,68,148-63 ps. from the applicant are therefore not sustainable and liable to be set aside.

(4) To what order the parties are entitled?

5. So far as first issue is concerned, it was held against the Corporation. So far as second issue is concerned, Employees' State Insurance Court held that such issue did not survive for consideration as the very show-cause notice issued by the Corporation reflected that the employees referred to therein were the employees of the contractor and the name of Megala Electricals was also shown in the show-cause notice and admittedly, contributions were paid for those employees. So far as the 3rd issue is concerned, the Employees' State Insurance Court held that the applicant is not liable to pay contribution as claimed on the amounts shown in items 1 to 3 and set aside the order passed under Section 45A of the Employees' State Insurance Act.

6. Aggrieved by this order, the Corporation has filed the present appeal. In the present appeal it is contended that the finding of the Court that the respondent-Company was not liable to pay contribution in respect of omitted wages for the months June to August 1988 by virtue of the settlement between the Management and the employees dated 22-8-1988 wherein the wages were enhanced with retrospective effect from 1-3-1988 was erroneous. It further contends that the salary of the employees at the commencement of the contribution period is the sole criteria to decide the coverage under the Act and therefore by virtue of Section 2(9) where the employee is defined and also by virtue of regulation where the contribution period and the benefit are specified, the respondent-Company is liable to pay the contributions from 1-7-1988 till the end of contribution period.

7. Heard both the learned Counsels. The learned Counsel for the appellant Sri M. Papanna, submitted that irrespective of the revision ofwages by virtue of the settlement between the Management and the employees one has to see only the quantum of wages paid at the commencement of the contribution period in order to decide the coverage. He has relied upon the decisions in Mohamed Ismail Ansari v Employees' State Insurance Corporation, Bombay and Regional Director, ESIC, Bombay v Century Spinning and Weaving Company Limited, Shakad. The learned Counsel for the respondent-Company argued that in the case referred to above i.e., Regional Director, ESIC, supra, the revision of wages was subsequent to the contribution period and therefore, the principle laid down in the said decision is not applicable to the facts of the present case. He further argued that the Corporation is entitled to recover contribution on the revised wages also and therefore the Corporation cannot be allowed to take two diverse contentions that the wages at the commencement of the contribution period as the criteria for deciding the coverage and again collect the contribution on the revised wages also for that contribution period. To this, the learned Counsel for the appellant submitted that the proviso to Section 2(9) creates a fiction and by virtue of that fiction as the Employees' State Insurance Act is a beneficial legislation to protect interest of the employees and by virtue of the fiction they are entitled to collect the contribution on the actual wages payable.

8. The point that would arise for this Court's consideration is whether the Company is absolved of the liability of paying contributions on omitted wages from 1-7-1988 to 30-9-1988 by virtue of settlement revising the wages of those employees exceeding Rs. 1,600/- with effect from 1-3-1988.

9. Admittedly, the respondent-Company is covered under the Employees' State Insurance Act. It has about 1,500 employees. It is also not in dispute that for the contribution period from 1-4-1988 to 30-9-1988 the Company paid contributions upto 30-6-1988. According to the learned Counsel for the respondent-Company there was proposal for settlement between the Management and the employees, therefore, they stopped paying contribution from 1-7-1988 as they were definite that the proposed settlement would make certain employees go out of the ambit of definition of employee as defined under Section 2(9) of the Act. Ultimately, the settlement arrived at on 22-8-1988. Therefore, they are not liable to pay contributions for such employees who went out of the purview of definition of employee under the Act by virtue of revision of wages.

10. Before proceeding further with reference to the facts of the present case, one has to see what exactly a contribution means when it commences and when the employee ceases to be an employee so far as payment of contribution is concerned? Section 2(9) of the Act defines three different criteria to attract a person within the definition of an employee. It also refers to persons who cannot be included in the purview of an employee under the Act. Section 2(9) of the Act has a proviso which is relevant to be mentioned for the purpose of this appeal.

'2(9) 'Employee' means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and-

(i) who is directly employed by the principal employer on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or

(ii) who is employed by or through an immediate employer on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purpose of the factory or establishment; or

(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract or service;

(and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment (or any person engaged as an apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961) or under the standing orders of establishment, but does not include)-

(a) any member of (the Indian) naval, military or air forces; or

(b) any person so employed whose wages (excluding remuneration for overtime work) exceed (such wages as may be prescribed by the Central Government) a month at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period'.

Admittedly, the limit of wages at that time was Rs. 1,600A. In Mohamed Ismail Ansari's case, supra, the question that arose for their Lordships consideration before the High Court of Bombay was, proviso to Section 2(9)(b), its scope and applicability. They discussed at length the proviso to Section 2(9)(b), its scope and applicability. It was held at page 1012 as under:

'The year is divided into two 'contribution' and 'benefit' periods each period consisting of six such months as are indicated in Regulation No. 3 against each group of workers. The appellant belongs to 'B' set, his first period covers March to September, while second period covers October to February. The combined effect of Section 2(9) and 2(22) is that his wages in a month go to determine if he was the 'employee' in that month. This firstly takes notice of the fact that the wages of the employee fluctuatefrom month to month depending on the fluctuating price index and further assumes that, a person can be an employee within the meaning of the Act, during one month and ceases to be such an employee in the next month depending on his total wages earned by him in each month. Wording of Section 46(1)(c) suggests that, his wages during the month of the accident is determinative of his being entitled to the disablement benefits. This may result in depriving him of his right thereunder if his wages in the month of the accident exceeds Rs. 500 and consequently make him not an employee. The above provision to Section 2(9)(b) comes to his rescue in such a case in a limited manner. It enables him to continue to be an employee during the other five months of any contribution period, even if his actual wages, whether paid or payable in the first month of that period did not (? - Ed.) exceed Rs. 500/-within the meaning of the Act. The proviso carves out an exception to benefit the workman, The vexed phraseology of the proviso 'a month at any time after (and not before) the beginning of the contribution period' in our opinion is intended to make the wages of the first of the concerned contribution period, determinative of his claim to be an employee within the meaning of the Act. This, no doubt, is a fiction introduced in the proviso to protect the workmen to enable them to reap the benefits of the contributions made by them in earlier periods. Dr. Kulkarni's extreme contention that the employee gets benefit of this provision, even if his wages do not (? - Ed.) exceed Rs. 500/- in any month of the contribution period is not tenable. Equally untenable is the contention of Mr. Jayakar that wages of the worker in the month of the accident alone are determinative of his such entitlement. In view of our finding as to his total wages in the month of November being Rs. 349, the appellant is not required to rely on this proviso, though his wages for the month of October could not have enabled him to rely on this proviso. This much, however, is clear to us that the proviso cannot operate to his disadvantage. In view of our above finding, the appeal deserves to be allowed'.

From the above decision, it makes clear that an employee who was an employee at the commencement of the contribution period, continues to be an employee till the end of contribution period irrespective of increase in wages during the subsequent months of the contribution period. In other words, the status of an employee who happens to be an employee as per the definition of Section 2(9) continues to be an employee even if his wages exceed the limit provided in the proviso to Section 2(9)(b) of the Act. Their Lordships have discussed at length what is the contribution period and benefit period and how one year is divided between the two periods under the Act. They have also discussed at length how it would affect an employee to reap the benefits accrued to him on account of the contribution at the beginning of the contribution period. The Employees' State Insurance Act is a beneficial legislation and the intention was not to disable an employee to reap the benefit provided to him under the Act. Therefore, I am totally in agreement with the decision inMohamed Ismail Ansari case, supra, that the actual determinative factor to get the benefits under the Act would be the wages at the commencement of the contribution period- The case before the Lordship was a situation where the wages of an employee fluctuated from month to month.

11. The other case referred to above i.e., Regional Director, ESIC, Bombay, was a case where the contribution period was 1-1-1981 to 30-6-1981 and by virtue of the settlement between the Management and the employees dated 2-9-1981 the wages of the employees came to be revised with effect from 1-1-1981 the beginning of the contribution period. Thereby the monthly wages of the employee exceeded Rs. 1,0007- from that date and they were not falling under the ambit of definition of 'employee' under Section 2(9) of the Act. The Management took a contention that as on the date of contribution period the employees cease to be an employee by virtue of a settlement on account of revision of wages and therefore, the contributions that were already made by them had to be refunded by the Corporation. The Corporation rejected the said plea of the employer and the Company approached the Insurance Court. The Employees' State Insurance Court held that the Corporation has to refund the contribution by placing reliance on Clause 40 of the Regulations applicable at that time. This was challenged before the High Court of Bombay. Their Lordships have discussed in detail the wages paid as defined under Section 2(22) of the Act and ultimately held that the Act which was meant for the welfare and benefit of the employees has to be remembered. They also held that the status of an employee has a significance which has to be determined with reference to the period of contribution, and at no point of time the said status can be permitted to be changed on account of negotiations in progress or subsequent settlement. In other words, the revision of wages with retrospective effect would never come in the way of the employees who were covered otherwise at the beginning of the contribution period. The relevant paragraphs 9, 10, 11 and 12 reads as under:

'9. Undisputedly during the period of contribution viz., January 1, 1981 till June 30, 1981, the recruits of the Company were complying with the description of the term 'employee'. As per the term of the contract of employment as then in vogue, they have been paid wages as defined under sub-section (22) of Section 2 of the Act. And such payment would be decisive for the term 'employee' under Section 2(9) and also for the purposes of Sections 38 and 39. The wages payable as envisaged under Section 38 and 39 are qua to a period when the employees and the employer are liable to make contributions towards the scheme. Owing to subsequent settlement dated September 7, 1981, the wages have become payable with effect from January 1, 1981. However, it did not in any manner alter the term 'wages payable' during the period of contribution as per the contract of employment as then in vogue.

10. The 'employee' as defined under Section 2(9) for the purposes of Insurance Scheme is a status enjoyed by the recruits of theestablishment whereby they could secure the benefits under the Employees' Insurance Scheme. Status as an employee is an aspect of definite significance. It is to be ascertained as per the test, qua the period of contribution. It cannot be permitted to dwindle either according to the negotiations in progress or subsequent settlement. There could be prospective change in the status as a consequence of such settlement or agreement. However, such status once conferred cannot be altered or abrogated with retrospective effect. As such the recruits of the Company between January 1, 1981 and June 30, 1981 who have enjoyed such status of an 'employee' could not deem to be so i.e., 'employee' during the said period as a result of revision of pay scales increasing their wages on September 7, 1981 even if made effective from January 1, 1981.

11. The effect of the settlement is that the recruits would be entitled to a benefit as per the revision in pay scales with retrospective effect i.e., January 1, 1981. However, the status as an employee conferred on them for the purposes of the benefits under the Insurance Scheme would remain the same. The settlement in its result could not withdraw the status attached to the recruits for particular period.

12. The Insurance Court has completely misdirected itself in placing reliance on Clause 40(1) of the Employees' State Insurance (General) Regulations, 1950. The Insurance Court lost sight that in recovering the contribution the Corporation has neither committed any mistake nor the recovery was in any manner erroneous. As such resorting to the said provision by the Company was wholly misplaced. In view of this, the impugned judgment of the Insurance Court suffers from patent illegality and the same is liable to be set aside'.

12. The contention of the learned Counsel for the respondent-Company that the revision of pay scale in the case referred to above was subsequent to the contribution period is untenable in view of the fact that the change in the status of an employee will not affect the benefits that are applicable to him at the commencement of the contribution period if he was an employee as on that day.

13. In the present case, admittedly for the entire contribution period i.e., 1-4-1988 to 30-9-1988 the contribution was made upto 30-6-1988. Three months contribution was due in that contribution period. The settlement came into effect in August 1988 revising the wages of employee and by virtue of such revision the wages of certain employees exceeded Rs. 1,600/-. As already stated above, the criteria to decide the coverage under the Act is the status of the employee at the commencement of the contribution period and subsequent changes during the contribution period will not affect his status as an employee so far as that particular contribution period is concerned. Therefore, the respondent-Company is liable to pay the contribution to those employees whose wages exceeded Rs. 1,600/- by virtue of the settlement with effect from 1-3-1988, upto the end of September 1988.

14. The next argument is that the Company is liable to pay contribution on the revised wages is urged by the respondent-Company is also untenable because of the fiction in the proviso to Section 2(9)(b) which is meant for the benefit of the employee. Under these circumstances, the order of the Employees' State Insurance Court is not sustainable in holding that the respondent-Company was not liable to pay contribution from 1-7-1988 to 30-9-1988 in respect of those employees whose wages exceeded Rs. 1,600/- with effect from 1-3-1988 by virtue of the settlement between the Management and the employees arrived in August 1988. Accordingly, the appeal of the Corporation is allowed with costs throughout. The order of the Employees' State Insurance Court is set aside and the application of the Company before the Employees' State Insurance Court is dismissed.