Workers Engaged To Execute Interior Fit-Out Construction Works Not Liable To Be Covered Under ESI Act: Kerala High Court
The Kerala High Court said that the functional unity and integrity between two units of an establishment could not be decided with reference to the pre-operative fit-out construction works in a unit which is yet to be started.
Justice M.A. Abdul Hakhim, Kerala High Court
The Kerala High Court held that the workers who are engaged by the employer to execute interior fit-out construction works are not liable to be covered under the Employees’ State Insurance Act, 1948 (ESI Act).
The Court held thus in an Insurance Appeal preferred by the Regional Director and Deputy Director of ESI Corporation, challenging the Order by which the refund of ESI contribution was ordered by the Employees’ Insurance Court (EI Court).
A Single Bench of Justice M.A. Abdul Hakhim observed, “The premises of the Respondent No.3 are not a factory to attract the said exception clause. Hence, the workers engaged by the Respondent No.3 through the Applicant to execute the interior fit-out construction works are not liable to be covered as they are exempted as per Ext.A9 Instruction during the relevant time.”
The Bench said that the functional unity and integrity between two units of an establishment could not be decided with reference to the pre-operative fit-out construction works in a unit which is yet to be started.
Advocate T.V. Ajayakumar appeared for the Appellants while Senior Advocate Benny P. Thomas, Advocates Terry V. James, and Prem Kanth appeared for the Respondents.
Brief Facts
The Corporate Office of the Respondent (before the EI Court) at Mumbai was an establishment covered under the ESI Act during the relevant period. The Applicant (before the EI Court) was not an establishment covered under the ESI Act which owned a building constructed for Information Technology (IT) business, IT enabled services, and other related services and amenities pursuant to a Sanction Order issued by the Development Commissioner, Infopark Special Economic Zone (SEZ), Kochi. The Respondent took lease of the 7th, 8th and 9th floors of the said building from the Applicant for starting a new unit. As per the Lease Deed, the handover of the premises by the Lessor to the Lessee was to start the fit-out works.
Even before the execution of deed, the Respondent awarded a contract in favour of the Applicant to do the interior fit-out works in the premises as per Contract/Work Order. Since the burden to meet the ESI contribution was on the Applicant, the Respondent deducted an amount from the value of the contract payable to the Applicant and remitted the same to the ESI Corporation. The contract contained a clause that it is the Applicant who was to comply with all the labour laws. The Applicant sought a refund, arguing that the workers engaged in construction sites are exempted under the ESI Act. The EI Court declared that the workers employed by the Applicant for executing pre-operative fit-out works of the Respondent are not employees under Section 2(9) of the ESI Act and hence, no contribution is payable on their behalf. Hence, the matter was before the High Court.
Issue for Consideration
The following substantial question of law was formulated by the Court –
Whether Section 2(9) of the ESI Act covers the workers engaged for pre-operative fit-out works by the employer requiring contribution to be paid as per the aforesaid Act?
Reasoning
The High Court after hearing the contentions of the counsel, noted, “While doing the fit-out works in the premises, the establishment was not existing and hence the fit-out construction works cannot be termed as a preliminary or an incidental one for the purpose of the establishment of the Respondent No.3 at Kochi. In relation to the Corporate office of the Respondent No.3 at Mumbai, which was a covered establishment at the time of executing the fit-out works, the works are outside the premises of such establishment. Only if there is functional unity and integrity between the Corporate Office and the new unit at Kochi, the ESI Corporation can rope in the fit-out construction works in the new unit under ESI coverage. The functional unity and integrity between two units can be assessed only if both the units are existing.”
The Court added that since construction works are not the business of the Respondent, there could not be functional unity and integrity between the two units of the Respondent with reference to the construction fit-out works.
“Lastly, it is contended by the Counsel for the Appellant that the Refund Application was not made before the commencement of the benefit period corresponding to the contribution period in which the contribution was paid as required under Regulation 40 of the ESI (General) Regulations, 1950. The contribution was remitted by the Respondent No.3 on 29.03.2008, and the additionally demanded contribution was remitted on 16.05.2011. It is the Respondent No.3 who had remitted the contribution using the amount belonging to the Applicant”, it said.
The Court observed that the Applicant had no control over the payment of the contribution made by the Respondent to the ESI Corporation, as it is the liability of the Applicant to meet the burden to pay ESI Corporation as per the contract.
“If it were the Applicant who had to pay the contribution, the Applicant could have refused to pay the contribution, disputing the liability, and could have instituted litigation with respect to the same. The only remedy available to the Applicant is to claim return of the amount to it after effecting payment of the same by the Respondent No.3 as per the contract”, it further noted.
Conclusion
The Court was of the view that in case the Applicant proves that there is no liability to pay the contribution under the provisions of the ESI Act, the Applicant is entitled to get the said amount from the ESI Corporation.
“… if the ESI Corporation is allowed to keep the money belonging to the Applicant, which is remitted by the Respondent No.3, it is an undue enrichment to the ESI Corporation. ESI Corporation is liable to restore the benefit of such undue enrichment back to the person eligible for the said benefit”, it also observed.
Accordingly, the High Court dismissed the Appeal and answered the substantial question of law in the negative and against the Appellants.
Cause Title- The Regional Director, ESI Corporation & Anr. v. M/s. L&T Tech Park Ltd & Anr. (Neutral Citation: 2025:KER:62281)
Appearance:
Appellants: Advocates T.V. Ajayakumar and Rimju P.H.
Respondents: Senior Advocate Benny P. Thomas, Advocates Terry V. James, Prem Kanth, V. Abraham Markos, Binu Mathew, and Tom Thomas.
