1997 (11) TMI 514 - SC - Central Excise

Managing Director qualifies as employee under ESIC Act, company considered a factory. Court dismisses ESI Case.

The Supreme Court allowed the appeal, determining that the Managing Director qualifies as an 'employee' under Section 2(9) of the Employees' State ... Whether the Managing Director of the respondent-company is not an employee as defined in Section 2(9) of the Employees’ State Insurance Corporation Act, 1948? Held that:- The Division Bench of the High Court in the impugned judgment had erred in taking the view, on the facts of the present case, that Shri Dhanwate as Managing Director of the company was not an employee within the meaning of Section 2 sub-section (9) of the Act. On the other hand it must be held that he was an employee of the company and as such could be added to the list of remaining 19 employees so as to make a total of 20 for covering the establishment under Section 2 sub-section (12) of the Act which defines 'factory) to mean, 'any premises including the precincts thereof (a) ........; or (b) whereon twenty or more persons are employed or were employed for wages on any day of the proceeding twelve months, and in any part of which a manufacturing process in being carried on without the aid of power or is ordinarily so carried carried on'. Appeal allowed. Issues Involved:1. Whether the Managing Director of a company can be considered an 'employee' under Section 2(9) of the Employees' State Insurance Corporation Act, 1948.2. Whether the company can be covered as a factory under Section 2(12) of the Act if the Managing Director is included in the employee count.Detailed Analysis:1. Definition of 'Employee' under Section 2(9) of the Act:The primary issue revolves around whether the Managing Director, who receives remuneration, qualifies as an 'employee' under Section 2(9) of the Act. The court examined the following criteria to determine this:- Employment for Wages: The Managing Director was employed for a remuneration of Rs. 12,000 per year, fulfilling the condition of being employed for wages.- Connection with Work of the Factory: The duties performed by the Managing Director were in connection with the work of the factory, satisfying this requirement.- Direct Employment by Principal Employer: The Managing Director was directly employed by the company, meeting this criterion.- Work Connected with Administration: The Managing Director's duties, including borrowing and investing funds, were connected with the administration of the factory.- Wages within Prescribed Limits: The remuneration of Rs. 12,000 per year was within the permissible limits set by the Central Government.The court concluded that all conditions for being an 'employee' under Section 2(9) were satisfied in the case of the Managing Director.2. Principal Employer and Dual Capacity:The court addressed the argument that the Managing Director, being a principal employer, cannot simultaneously be an employee. Section 2(17) defines the 'principal employer' and includes the owner or occupier of the factory. The court noted:- Ownership and Occupation: The Managing Director is not the sole owner or occupier of the factory, which is controlled by the Board of Directors.- Dual Capacity: Referring to the Supreme Court judgment in Shri Ram Prasad v. Commissioner of Income-tax, the court held that a Managing Director could have a dual capacity as both a principal employer and an employee.The court rejected the High Court's reliance on the case of Regional Director Employees State Insurance Corporation Trichur v. Ramanuja Match Industries, which dealt with partners in a partnership firm and not directors in a company.3. Coverage as a Factory under Section 2(12):The inclusion of the Managing Director in the employee count was essential for determining if the company could be covered as a factory under Section 2(12) of the Act. This section defines a factory as a premises where twenty or more persons are employed for wages. By including the Managing Director, the total number of employees reached twenty, thereby meeting the requirement for coverage under the Act.Conclusion:The Supreme Court allowed the appeal, setting aside the judgments of the Division Bench and the Single Judge of the High Court, as well as the ESI Court. The court held that the Managing Director qualifies as an 'employee' under Section 2(9) of the Act, and thus, the company is covered as a factory under Section 2(12). The ESI Case No. 2 of 1974 filed by the respondent-company was dismissed. No costs were awarded.