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K. Chandru, J.—W.P. No. 17572 of 2010 was filed by Dindigul District Co-operative Milk Producers Union seeking to challenge an order
of the first Respondent State Government made in G.O.(D) No. 335, Labour and Employment Department, dated 08.06.2010, wherein and by
which the State Government had refused to grant exemption to the Petitioner District Co-operative Milk Producers Union from the provisions of
the Employees'' State Insurance Act, 1948 (for short ESI Act) for a period from 1.4.2005 to 31.3.2010. The power was exercised in terms of
Section 88 read with Section 91A of the ESI Act. When the said writ petition came up on 5.8.2010, private notice was ordered. Pending notice,
this Court had granted an interim stay on 6.9.2010. Subsequently, the interim stay was further extended for a limited period. On notice from this
Court, the first Respondent State has filed a counter affidavit, dated 03.03.2011 and that the ESI Corporation has filed a counter affidavit, dated
21.12.2010.
Even while the said writ petition was pending, Sivagangai District Co-operative Milk Produers Union filed the other three writ petitions, i.e.,
W.P. Nos. 5186, 5187 and 10143 of 2011 challenging three different orders of the State Government which is as follows:
W.P. No. 5186 of 2011 - G.O.(D) No. 557, L&E Department, dated 15.10.2010
W.P. No. 5187 of 2011 - G.O.(D) No. 587, L&E Department, dated 15.11.2010
W.P. No. 10143 of 2011- G.O.(D) No. 77, L&E Department, dated 08.03.2011.
In W.P. No. 5186 of 2011, the Government by an order dated 15.10.2010 had rejected the grant of exemption for the society from the ESI
Act for a period from 1.4.2008 to 31.3.2010. In W.P. No. 5187 of 2011, the rejection was for the period from 01.4.2006 to 31.3.2008. In these
two writ petitions, notice was directed to be taken by the Standing Counsel for the ESI on 03.03.2011. Pending that notice, an interim injunction
was granted. In W.P. No. 10143 of 2011, the State Government had rejected the request for exemption for a period form 1.4.2010 to
31.3.2011. That writ petition was admitted on 21.4.2011. In these writ petitions, no counter affidavit has been filed. In view of the common
question of law involved, these writ petitions were grouped together and a common order is passed.
In the petition filed by Dindigul District Co-operative Milk Producers Union, the stand of the Petitioner society was that the trade union
functioning the society was seeking for payment of medial allowance on ground that the medical facilities extended by the ESI could not be availed
by the milk vendors since time of working does not suit to the functioning of the ESI dispensary. Therefore, they wanted to continue the extension
of medical allowance. Similar requests were also made by the extension workers attached to the society. They also mentioned that the allowance
given by the society was far advantageous to the workmen. Because of the request made by the workmen of the society, the society sent a
representation dated 10.5.2005 seeking for exemption of the society from the application of the ESI Act.
The State Government ordered notice to the parties to appear on 17.10.2006. Thereafter by G.O.(D) No. 622, L&E Department, dated
28.8.2007, the State Government had granted exemption from the application of the ESI Act for a period from 1.4.2004 to 31.3.2005 exercising
power u/s 88 read with Section 91A of the Act. In doing so, the State Government had imposed certain conditions, i.e., directing the employer to
submit certain returns and that employees continue to be entitled to receive the benefit. Thereafter, the Petitioner society sent a letter dated
12.10.2007 seeking for extension of exemption. In the exemption application, it was stated that the society is registered under the Tamil Nadu Co-
operative Societies Act. The employees in the society were entitled for medical allowance and other benefits as applicable to the Government
servants and that facilities on par with the Government servants were extended to them without collecting any contribution from the employees
except for Family Benefit Fund. Their employees are enjoying higher benefits than the benefits available under the ESI Scheme. Therefore, the
Petitioner society sought for exemption from 1.4.2005 to 31.3.2008. They also referred to the desire of their workmen to continue to keep the
existing medical benefits instead of coming under the ESI Act. Corresponding annexures were also enclosed along with application showing the
relative merits of the two schemes available to the employees.
After several reminders were sent including the letter from the then District Collector-cum Special Officer, dated 10.4.2008, the State
Government after sitting over the file for nearly three years and after getting an opinion from the ESI Corporation had passed the impugned G.O.
(D) No. 335, L&E Department, dated 08.06.2010 and rejected the request of the Petitioner society. In paragraph 4 of the impugned order it was
stated that the benefits provided by the ESI Corporation are superior in nature and more beneficial to the employees. Therefore, the request was
rejected.
It was the contention of the Petitioner society that no personal hearing was given to the Petitioner society as required u/s 88(3) of the ESI Act.
Having granted earlier exemption for a period from 1.4.2004 to 31.3.2005, there are no other compelling reasons to refuse the exemption by the
impugned order. In essence, the reasons weighed by the Government for passing an order for the period from 1.4.2004 to 31.3.2005 continues to
exist. Therefore, there is no reason to refuse to grant such exemption now. In this context, they had also referred to the exemption orders granted
in favour of various Co-operative milk producers union from the Districts of Ramand, Virudhunagar, nilgiris and Dharmapuri. It was also stated
that the society is having its chilling unit at Kodaikanal. The provisions of the ESI Act have not been extended to Kodaikanal unit. It was further
stated that the medical benefits conferred by them is on par with the Government servants and no corresponding contributions were collected from
them.
In the counter affidavit filed by the ESI Corporation it was stated that an opportunity of personal hearing is not contemplated u/s 88(3).
Exemptions granted for the earlier period will not enure to their benefit automatically for subsequent years. The reference made to the Kodaikanal
unit is not relevant as they are not covered by the said exemption. Insofar as the allegation made in paragraph 9(I) of the affidavit regarding
exemption granted to other Districts Co-operative Milk Producers Society, the counter affidavit is silent.
Even in the counter affidavit filed by the Respondent State, there is no denial over the exemptions granted to other milk producers societies in
the State. It was also stated that there is no necessity to grant any personal hearing u/s 88(3) unless the Petitioner sought for such hearing. It was
further stated that by virtue of amendment made by Central Act 18/2010, the ESI Act has undergone change. Section 91-A of the ESI Act by
which State Government can grant exemption either prospectively or retrospectively, the word ""retrospectively"" has been deleted. Therefore, no
retrospective exemption can be granted by the State Government with effect from 1.6.2010. Nowhere in the counter affidavit, there is any
reference as to why the State Government was sitting over the exemption request made by the society all these years without passing any order.
In the other three writ petitions, Sivagangai District Co-operative Milk Producers Union had raised similar contentions. But there has been no
reply from the side of the Respondent State on these writ petitions.
But in respect of Sivagangai District Co-operative Milk Producers Union, the State Government by G.O.(D) No. 872, L&E Department,
dated 11.12.2006 had granted exemption for a period from 1.4.2004 to 31.3.2006 and thereafter for a further period, it has refused. Assailing the
action of the State Government, Mr. S. Jayaraman, learned Counsel for the Petitioners stated that inasmuch as the other District Milk Producers
societies were granted exemption, Sivagangai District Co-operative Milk Producers Union as well as Madurai societies are concerned, it is clearly
discriminatory and violative of Article 14 of the Constitution. The Respondent State had failed to see that the Petitioner''s societies are manned by
the Special Officer who are non other then District Collectors of respective revenue Districts. The service conditions of employees working in the
societies have been statutorily recognized. Therefore, leaving out some societies is a clear smack of vindictiveness by the Respondent State. He
further submitted that the State Government failed to note that employees were receiving medical benefits on par with the State Government
without getting contributions from the employees. This fact was not taken note of by the State.
The learned Counsel also stated that what weighed with the State Government to grant exemption in the earlier order continues to remain in
operation and in the light of no change in the circumstances, there was no reason to refuse exemption. If directed to be covered by the Act, the
Petitioner society will have to incur heavy expenditure including payment of damages and interest apart from meeting the existing obligation of
medical expenditure incurred by employees. The learned Counsel also stated that the Government was sleeping over the matter without passing
any order on their request for over a period and thereafter rejected the same by placing reliance upon the subsequent statutory amendment was
really unfortunate and that the amendment will have no effect. With reference to pending application for the past period, the amendment is
prospective and at the relevant time since the State Government had power to grant exemption, the power does not get dried or exhausted by
virtue of the amendment for the earlier periods.
Per contra, Mr. R. Ravichandran, learned Additional Government Pleader submitted that each exemption must stand on its own and merely
because the societies were earlier exempted , that is not a ground for subsequent exemptions.
Mr. G. Bharadwaj, learned Counsel appearing for the ESI Corporation had adopted the stand of the learned Additional Government Pleader
and also submitted that there was no necessity to give any personal hearing in matter of exemption.
In the light of the above rival contentions, it has to be seen whether the impugned orders are liable to be interfered with by this Court?
Before going into the merits of the impugned order, it must be noted that the two Petitioners societies are the District Co-operatives Milk
Producers Union and registered under the Tamil Nadu Co-operative Societies Act, 1983. In the absence of any election to the society, they are
manned by the Special Officer who are none other than the District Collectors of respective revenue Districts. The service conditions of employees
working in the Co-operative societies will have to be framed in terms of Rule 149 of the Tamil Nadu Co-operative Societies Rules with prior
approval of the State Government. Further all the Co-operative societies are governed by the directions/circulars issued by the State Government
and the Registrars of the Co-operative societies from time to time. In the present case, it is the definite stand of the Petitioners societies that they
had extended the medical benefits applicable to the Government servants without getting any contribution from the employees. The trade union of
employees themselves have also requested for continuance of the medical benefits. They are also affiliated to the State level federation, i.e., Tamil
Nadu Co-operative Milk Producers Federation (TCMPF). In the application for exemption, the societies have pointed out the relative merits of
the existing scheme as opposed to the ESI Scheme and that has not been dealt with by the impugned order.
Further, the service conditions of the employees were not changed since the earlier order of the Government granting exemption to the
societies. The Government had not given any special or new reason to refuse the exemption. The fact that the other District Co-operative Milk
Producers Union functioning in Ramnad, Virudhunagar, Nilgiris and Dharmapuri Districts have been exempted till date was not denied. When all
the District Co-operative Milk Producers Unions are functioning under the same Act, under the same management and with the same service
conditions, it was not open to the State Government to refuse exemption in respect of some societies. Refusing exemption in respect of the
societies like the Petitioners, it clearly smacks of arbitrariness and violative of Article 14 of the Constitution.
When the Petitioners have raised a specific plea of discrimination on the basis of exemptions granted to other District Co-operative Milk
Producers Union, the Respondent State has not denied the same in the counter affidavit. It makes this Court to think that the State Government
had not applied its mind in the matter of the grant of exemption. Though exemption is always in relation to a particular establishment, but when
those establishments are cluster of societies functioning under the same Act and manned by the Special Officers appointed by the State and have
same service conditions framed under Rule 149 of the Co-operative Societies Rules, the Government should have applied its mind and must have
taken note of the relevant considerations. The discretion vested with the State coupled with the benefits available to the beneficiaries, such
discretion can be refused only for the stated reasons and the Government cannot act either whimsically or arbitrarily even in the matter of grant of
exemption. Further the Government while granting exemption for the first period, cannot refuse to do so for the subsequent period unless there was
some change in circumstances which obliged them to reject the said request.
The contention that by virtue of amendment to Section 91A, the Government cannot give any retrospective exemption is concerned, such a
contention is valid only if an application was received on or after 1.6.2010. The said section cannot have any operation in respect of pending
applications or orders passed in respect of those applications. However, this Court is not inclined to directly order any exemption to the Petitioners
establishment, but at the same time the Respondent State must be directed to redo the exercise in deciding the matter after taking note of all
relevant circumstances including the circumstance that is set out herein and consider the case afresh. In doing so, the first Respondent State need
not be misguided by the fact that they do not have any jurisdiction to decide the applications which are pending before amendment was made u/s
91A. The State Government shall also give notice to the workmen also in the light of the judgment of the Supreme Court in State of T.N.
represented by Secretary, Housing Deptt., Madras Vs. K. Sabanayagam and Another, , wherein the Supreme Court had held that the
Government before grant of exemption must necessarily hear the workers, who are vitally interested in having the welfare legislation in their favour.
Though the said judgment arose under the Payment of Bonus Act, the law laid down by the Supreme Court will squarely apply to the case on
hand.
Further, the Supreme Court in Employees State Insurance Corporation Vs. Bhakra Beas Management Board and Another, has held that even
before the ESI Court while hearing a matter u/s 75 regarding the coverage, workers must be made as parties either in individual capacity or in a
representing capacity. It is necessary to refer to paragraphs 4 and 5 of the said judgment which is as follows:
This Court has recently held in Fertilizer & Chemicals Travancore Ltd. v. ESI Corporation as under: (SCC pp. 487-88, paras 5-10)
It may be noted that in its petition before the Employees'' Insurance Court, the Appellant herein only impleaded the Employees'' State Insurance
Corporation and the District Collectors of Alleppey, Palaghat and Cannanore as the Respondents but did not implead even a single workman as a
Respondent. Labour statutes are meant for the benefit of the workmen. Hence, ordinarily in all cases under labour statutes the workmen, or at least
some of them in a representative capacity, or the trade union representing the workmen concerned must be made a party. Hence, in our opinion
the Appellant (Petitioner before the Employees'' Insurance Court) should have impleaded at least some of the persons concerned, as Respondents.
The case of the Appellant was that, in fact, none of the persons concerned was its employee and it was difficult to identify them. In this
connection we may refer to Section 75(1)(a) of the Act which states that if any question or dispute arises as to whether any person is an employee
of the employer concerned, or whether the employer is liable to pay the employer''s contribution towards the said persons'' insurance, that is a
matter that has to be decided by the Employees'' Insurance Court. Hence, in our opinion, the person concerned has to be heard before a
determination is made against him that he is not an employee of the employer concerned.
The rules of natural justice require that if any adverse order is made against any party, he/she must be heard. Thus, if a determination is given by
the Employees'' Insurance Court that the persons concerned are not the employees of the Petitioner, and that determination is given even without
hearing the persons concerned, it will be clearly against the rules of natural justice. It may be seen that Section 75 of the Act does not mention who
will be the parties before the Insurance Court. Since the determination by the Insurance Court is a quasi-judicial determination, natural justice
requires that any party which may be adversely affected or may suffer civil consequences by such determination, must be heard before passing any
order by the authority/court.
In our opinion, wherever any petition is filed by an employer u/s 75 of the Act, the employer has not only to implead ESIC but has also to
implead at least some of the workers concerned (in a representative capacity if there are a large number of workers) or the trade union
representing the said workers. If that is not done, and a decision is given in favour of the employer, the same will be in violation of the rules of
natural justice. After all, the real parties concerned in labour matters are the employer and the workers. ESI Corporation will not be in any way
affected if the demand notice sent by it under Sections 45-A/45-B is quashed.
It must be remembered that the Act has been enacted for the benefit of the workers to give them medical benefits, which have been mentioned
in Section 46 of the Act. Hence, the principal beneficiary of the Act is the workmen and not ESI Corporation. ESI Corporation is only the agency
to implement and carry out the object of the Act and it has nothing to lose if the decision of the Employees'' Insurance Court is given in favour of
the employer. It is only the workmen who have to lose if a decision is given in favour of the employer. Hence, the workmen (or at least some of
them in a representative capacity, or their trade union) have to be necessarily made a party/parties because the Act is a labour legislation made for
the benefit of the workmen.
In the present case the workmen concerned were not made parties before the Employees'' Insurance Court, nor was notice issued to them by
the said court.
Neither the workers of Respondent 1 nor any one of them in representative capacity were impleaded either before the Employees'' State
Insurance Court or before the High Court. In our opinion, this is in violation of the principles of natural justice.
Hence the workmen will have to be necessarily heard before passing an order.
Though Mr. G. Bharadwaj, learned Counsel referred to the judgment of the Supreme Court in Regional Director, ESIC v. Narayan Chandra
Raj Khowa, (1997) 11 SCC 234, 1998 I LLJ 678 (SC) by stating that the parties must avail the remedy by way of Section 75(1)(g) of the ESI
Act, this Court is unable to agree with the said submission. The case referred to by the learned Counsel was when the ESI scheme was made
applicable, the workmen contended that they were receiving superior benefits than the ESI Scheme and also went before the ESI Court for
determination. It is in that context, the Supreme Court had upheld the power of the ESI Court to decide whether the workers are receiving similar
or superior benefits than what was conferred by the ESI.
In the present case, the impugned order shows that in the earlier notification, the State Government had refused to refund the amounts already
recovered from the Petitioners societies and it is the managements which went before the Government for an exemption u/s 88 read with Section
91A. Since the Government is standing in the way and since the Government had also not discharged its functions in terms of the provision, the
parties need not be driven to the ESI Court and that the fresh exercise must be undertaken by the State.
In view of the above, all the four writ petitions will stand allowed. The impugned orders stand set aside and the matters are remitted to the first
Respondent for fresh consideration in accordance with law and as per the above directions. However, there will be no order as to costs
Consequently, connected miscellaneous petitions stand closed.