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Andhra High Court · body

2010 DIGILAW 817 (AP)

Regional Director v. Vasavi Cold Storage

2010-08-26

L.NARASIMHA REDDY

body2010
Judgment The respondent is a private limited company and has established a cold storage unit at Nellore. The Inspector of the appellant Corporation visited the cold storage unit on 01.12.1997. He found that eight persons were shown as having been employed. However, he treated the Managing Director and Director of the respondent company also as employees, since they were being paid salary. On that basis, he initiated proceedings to bring the respondent under the purview of the Employees State Insurance Act, 1948 (for short ‘the Act’) and accordingly, notices were issued on 23.01.1998, requiring it to pay a contribution of Rs.53,914/- for the period from April 1995 to March 1998. The same was challenged by the respondent before the Court of the Senior Civil Judge, Nellore by filing O.P.No.76 of 1998 under Section 75 of the Act. Through its order, dated 28.09.2001, the trial Court allowed the O.P. Hence, this appeal under Section 82 of the Act. Sri B.G.Ravindra Reddy, learned counsel for the appellant, submits that the view taken by the trial Court that the Managing Director and the Director of the respondent company cannot be treated as employees is not correct. He contends that as long as they too were paid salary from the funds of the company, there is nothing in law which prohibits them from being treated as employees. Sri Vedula Srinivas, learned counsel for the respondent, on the other hand, submits that the very approach of the appellant in proposing to treat even the Managing Director of the respondent company as an employee is perverse and erroneous. He further submits that the Managing Director and the other Directors of the company answer the description of ‘employers’ and by no stretch of imagination, they can be treated as ‘employees’. It is a matter of record that only eight persons were employed by the respondent in the cold storage unit. The appellant, however, took the view that the Managing Director and the Director were also receiving salary and that they also deserved to be treated as employees. The trial Court repelled the contention of the appellant and allowed the O.P. An important question of law, namely whether the Corporation can treat an individual who answers the description of ‘employer’ as an ‘employee’ for the purpose of bringing an establishment under the purview of the Act. The Act maintains a clear distinction between employers and employees. The trial Court repelled the contention of the appellant and allowed the O.P. An important question of law, namely whether the Corporation can treat an individual who answers the description of ‘employer’ as an ‘employee’ for the purpose of bringing an establishment under the purview of the Act. The Act maintains a clear distinction between employers and employees. The words ‘employee’ and ‘principal employer’ are defined under Section 2 (9) and 2 (17) respectively in the Act. Their purport is very clear. Similar expressions are defined under the Industrial Disputes Act, Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 etc. There is hardly any difficulty in discerning the difference between employer and employee. In case it is a propriety concern, an employer may be an individual and he, in turn, pays salaries to the employees. Where, however, the employee is a partnership firm, or an incorporated company, it would comprise of Managing Partner and Partners or Managing Director and Directors, as the case may be. In respect of a company, the connotation may be wider than the collective body of the Managing Director and the Directors. The reason is that the shareholders possess substantial interest in it. The mere fact that a Managing Partner and Managing Director or Partners and Directors are paid remuneration in return, for their spending and sparing time in the administration of the firm, or company, as the case may be, does not render them employees. Further, the payment of amount or salary cannot, by itself, be a factor for deciding the status of an individual vis-à-vis an establishment. An employee is paid salary for doing the work related to manufacture or allied activities, whereas a Director is paid remuneration or honorarium for managing the company or establishment. Therefore, the approach of the appellant in treating the Managing Director of the respondent company as an employee cannot be sustained in law. A serious anomaly would come into existence, if such an approach is adopted. If one takes the instant case itself as an example, it would be evidence that ten employees, according to the appellant, would include the Managing Director and the Director of the respondent company also. If any violation of the provisions of law taken place, the proceedings are to be initiated against the Managing Director, who incidentally is treated as employee. If one takes the instant case itself as an example, it would be evidence that ten employees, according to the appellant, would include the Managing Director and the Director of the respondent company also. If any violation of the provisions of law taken place, the proceedings are to be initiated against the Managing Director, who incidentally is treated as employee. In other words, the violation is in respect of the same individual when he is treated as an employee, and the person liable to be proceeded against, would be the same individual, in the capacity of the Managing Director. At one and the same time, the individual would answer the description of employer and employee. That would be the height of perversity. The Act contemplates such absurd situations. The trial Court has taken the correct view of the matter and this Court is not inclined to interfere with the same. Hence, the appeal is dismissed. There shall be no order as to costs.