Whether the Directors of respondent-Company, who are receiving remuneration, come within the purview of "employee" under sub-section (9) of Section 2 of the Employees' State Insurance Act, 1948 ('the ESI Act')? .
LET'S DISCUSS ABOVE QUESTION WITH HELP OF A DECIDED CASE
In EMPLOYEES STATE INSURANCE CORPORATION v. VENUS ALLOY PVT. LTD. [SC] Civil Appeal No. 1464 of 2019 [(arising out of SLP(C) No. 12812 of 2015].
SECTION 2(9) -The Employees' State Insurance Act, 1948
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 ordinari¬ly part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the pur¬pose 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 of 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 establishmentor any person engaged as apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), and includes such person engaged as apprentice whose training period is extended to any length of time 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:
Provided that an employee whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government] 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.
OBSERVATIONS AND DECISION OF THE APEX COURT
1. In the case of Employees' State Insurance Corporation v. Apex Engineering Pvt. Ltd. 1997 (77) F.L.R. 878, the Board of Directors of respondent-Company resolved to elect one of its Directors as Managing Director of the Company and to grant him annual remuneration of Rs. 12,000/- for rendering services as Managing Director.
2. The question was as to whether the said Managing Director was an "employee" within the meaning of Section 2(9) of the ESI Act? Though the High Court and the ESI Court had answered this question against the Corporation, but this Court allowed the appeal and, inter alia, held that the Managing Director, even when to be treated as principal employer, could also be an employee and could carry such dual capacity.
3. We are clearly of the view that what has been observed and held by this Court in Apex Engineering (supra), in relation to the Managing Director of a Company, applies with greater force in relation to a Director of the Company, if he is paid the remuneration for discharge of the duties entrusted to him.
4. It is noticed that in the present case, the appellant-Corporation in its impugned order dated 06.04.2005 specifically asserted that the Directors of the Company were paid remuneration at the rate of Rs. 3,000/- p.m. and they were falling within the definition of "employee" under the ESI Act and hence, contribution was payable in regard to the amount paid to them. Interestingly, even while seeking to challenge the aforesaid order dated 06.04.2005 by way of proceedings under Section 75 of the ESI Act, the respondent-Company chose not to lead any evidence before the Court.
5. Hence, there was nothing on record to displace the facts asserted on behalf of the appellant-Corporation in its order dated 06.04.2005; rather the factual assertions in the said order remained uncontroverted.
6. The order dated 06.04.2005 had been questioned by the respondent-Company only on the contention that the Directors do not fall within the category of "employee" but no attempt was made to show as to how and why the remuneration paid to its Directors would not fall within the purview of "wages" as per the meaning assigned by subsection (22) of Section 2 of the ESI Act? The ESI Court cursorily attempted to distinguish the decision of this Court in Apex Engineering (supra) only with reference to the fact that therein, the amount was being received by the Managing Director.
7. The High Court, on the other hand, overlooked the said decision of this Court and relied only on the decisions of the Bombay High Court though the propositions in the referred decisions of the Bombay High Court stood effectively overruled by the decision in Apex Engineering (supra) where this Court held in no uncertain terms that the High Court was in error in taking the view that the Managing Director of the Company was not an employee within the meaning of Section 2 (9) of the ESI Act.
8. The said decision directly applies to the present case and we have no hesitation in concluding that the High Court in the present case has been in error in assuming that the Director of a Company, who had been receiving remuneration for discharge of duties assigned to him, may not fall within the definition of an employee for the purpose of the ESI Act.
9. There had been no reason to interfere with the order dated 06.04.2005 as issued by the appellant- Corporation.
In the case of Employees' State Insurance Corporation v. Apex Engineering Pvt. Ltd. 1997 (77) F.L.R. 878.
THE SUPREME COURT BENCH
The Bench comprising of Justice Abhay Manohar Sapre and Justice Dinesh Maheshwari while setting aside the orders passed by the Employee's State Insurance Court and the High Court of Madhya Pradesh has taken into consideration the judgment passed by the Supreme Court of India in Apex Engineering Case and has held that what has been decided in the aforementioned judgment in relation to the Managing Director of a Company also applies to the Director of a Company if he gets remuneration for discharge of any duty. The bench ruled that if a Director of a Company is receiving remuneration for discharge of any duty then the Director will come under the definition of "employee" under Section 2(9) of the ESI Act, 1948.
The Bench has observed that the Employee's State Insurance Court was incorrect in observing that the decision given in Apex Engineering Case would not apply in this present case just because in the aforesaid judgment it was held that the Managing Director, who receive remuneration for the discharge of duty would come under the definition of "employees" under the ESI Act, 1948 and nothing was mentioned in the judgment with regards to applicability of the provisions of the ESI Act, 1948 on the amount received by the Directors of a Company.
The Bench has further observed that the Madhya Pradesh High Court has overlooked the decision Supreme Court of India in Apex Engineering Case and has relied on the Bombay High Court judgments which were overruled by the Supreme Court of India in the decision of Apex Engineering Case and has incorrectly concluded that the Directors of the Respondent Company do not come within the definition of "employee" under Section 2(9) of the ESI Act, 1948.
The Bench has also relied upon the decision of the Supreme Court in the case of Saraswath Films v. Regional Director, Employees' State Insurance Corporation, Trichurwhere the Court has expounded on the amplitude of the definition of "employee" provided under the Act by observing that "It includes any person employed for wages in or in connection with work of the establishment to which the Act applies and also includes any person employed by or through immediate employer on the premises of the establishment or under the principal employer or his agent of work which is ordinarily a part of the work of establishment or which is preliminary to work carried on in or incidental to the purpose of the establishment."
The Court has further considered the interpretation of Section 2(9) of the ESI Act, 1948 as provided by the Hon'ble Karnataka High Court in the case of Regional Director, ESI Corpn. V. Margarine & Refined Oils Co. (P) Ltd. where it was held that a Company is a legal person and can employ one of its Directors as Managing Director, thus, the Managing Director of a Company shall fall under the definition of "employee" under Section 2(9) of the ESI Act, 1948 and the remuneration paid to the Director shall amount to wages under Section 2(22) of the ESI Act, 1948.
From above decision of Apex Court , it can be concluded that the Directors of a Company who receives remuneration shall come under the purview of "employee" under Section 2(9) of the ESI Act, 1948. Hence, it has been well settled by the Apex Court in this judgment that the Companies which are covered under the ESI Act, 1948 shall make contribution with reference to the remuneration paid to its Directors.
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