M.S. Abdulla Basha and Company vs Regional Director, Employees State Insurance Corporation

Srinivasan, J.—The Petitioners are a company doing business as tanners and exporters of hides and skins. The tanning work consists of a number of operations carried on wholly by manual labour. In October 1959, the Regional Director, Employees'' State Insurance Corporation, called for certain information from the Petitioner with a view to take, action under the Employees'' State Insurance Act, 1948. The Petitioners replied that power, either mechanical or electrical was not being used in any of the process involved in the manufacture. The Respondent again asked for information intimating the Petitioners that failure to furnish particulars could render the Petitioners liable to prosecution. The Petitioners again reiterated their earlier statement that since the tannery was not using power in any of the processes of tanning, the question of the application of the Act did not arise. However, the particulars called for were furnished. On the request of the Petitioners, one of the Inspectors attached to the Respondent�s office inspected the premises. There was further correspondence. The Respondent� desired to know whether a well situated at a distance of 30 yards from the tannery belonged to the Petitioners and whether the pumpset installed at the said well was utilised for supplying water to the tannery. The Petitioners replied that neither the well nor the pumpset belonged to them and that they obtained the water on payment of Rs. 20 per month to the owners of the well. Following upon this, the Respondent demanded contribution under the Act and sought to recover a sum of Rs. 297. Distress proceedings were threatened. The Petitioners again addressed the Respondent, contending that the Act did not apply and their representative even had a personal interview explaining the position. The plea of the Petitioners was not heeded and even without any specific orders in the matter, the Respondent apparently asked the Tahsildar to recover a sum of Rs. 686 as contribution for the period 1st July 1958 to 31st December 1960.

In these circumstances, the Petitioners have approached this Court contending that the order directing the payment of any sum is illegal, as, on the facts, the premises of the Petitioners do not conform to the definition of a factory in the Employees'' State Insurance Act. It is claimed that basing himself on an erroneous interpretation of the relevant provision, the Respondent has proceeded to make the demand; and that no enquiry of any description has been attempted by the Respondent which would enable him to scrutinise the objections and to reach a proper conclusion thereon. In these circumstances a writ of mandamus to restrain the Respondent from enforcing the demand is sought.

On behalf of the Regional Director, it is stated that more than twenty persons are employed in the tannery of the Petitioners, and that power is used for pumping water from the well and the water so pumped is used in the manufacturing process, namely, tanning, and, therefore, the above factory is liable for coverage under the Act. According to the counter-affidavit, the report of the Inspector revealed that the well and the pumpset are situated within the factory premises, including the precincts thereof. It is urged that whether the pumpset is owned by the factory or not or is hired from a third party is immaterial. It is also claimed that according to the Factories Act, pumping of water is itself a manufacturing process. The use of power in so pumping water, which water is used in connection with other manufacturing processes, invites the application of the Employees'' State Insurance Act. It is further claimed that a Special Tribunal constituted u/s 77-B of the Act can decide such questions and disputes regarding the applicability of the Act, which the Petitioners could have resort to, and that there being another adequate remedy, a writ should not issue.

In a reply affidavit filed by the Petitioners, the statement of the Respondent that the well and the pumpset are situated within the tannery is denied. Ho copy of the report of the Inspector in this regard was furnished to the Petitioners and the point in dispute between the Petitioners and the Respondent whether the well and the pumpset were situated within the precincts of the factory was not determined in any appropriate manner. It is claimed that the water is taken through a channel starting from the site of the pump-set and that the water is used for cleaning skins and hides by manual operation only. It is again asserted that no form of power, either electrical or mechanical, is used in any of the process of tanning. The pump-set belongs to a third party and what the Petitioners pay is only a sum of Rs. 15 per month for the supply of the water.

On a question of fact, it does not appear to be denied that what the Petitioners pay is for the supply of water. Paragraph 2 of the counter-affidavit of the Respondent is by no means a precise statement. What is stated therein is:

The Insurance Inspector, who was deputed to inspect the premises in respect of the location of the well, reported that the well and pump-set are situate within the factory premises (including the precincts thereof).

What the factory premises are, what the distance is between the premises and the precincts referred to and where the well is located are not clearly set out in this statement. In the petition, it was specifically alleged that the well is situate at a distance of 30 yards well outside the Petitioners� tannery. The Petitioners informed the Respondent that the well and the pump-set did not belong to them and that they obtain water on payment to the owners of the well. When such a clear statement was made in the petition, the Respondent should have specifically dealt with that aspect of the matter. In paragraph 5 of the counter-affidavit again it is stated:

It is immaterial, it is submitted, whether the pump-set is owned by the factory or hired from a third party.

It is merely reiterated that the pump-set is located within the factory precincts and that the employees are having access to the well and particular reliance is placed upon the fact that water is an important and essential requisite for the manufacturing process.

In the light of the somewhat equivocal statements that appear in the counter-affidavit, I have to proceed on the basis that the specific contention of the Petitioner in this regard has not been controverted, that is to say, that neither the well nor the pump-set belongs to the Petitioners and the Petitioners only pay a monthly amount to the owners of the well and the pump-set for supplying water for the use of the Petitioners in their factory premises.

The Employees'' Insurance Act by section 38 provides that all employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act. Section 39 deals with contributions. Section 40 lays the liability upon the principal employer to pay both the employer''s contribution and the employees'' contribution. There is no dispute that the Petitioner�s establishment is a factory in the sense that manufacturing operations are carried on there. The contribution that is demanded by the Respondent is on the basis that it is a factory within the meaning of this Act. Factory has been defined by section 2(12) of the said Act to mean

any premises including the precincts thereof, wherein twenty or more persons are working or were working on any day of the preceding twelve months and in any part of which a manufacturing process is being carried on with the aid of power or is ordinarily being so carried on.

This definition is in two parts and the requirements covered by both the parts have to be fulfilled before an establishment can be brought within its ambit. Firstly, twenty or more persons should be working on any day of the preceding twelve months, and secondly, the manufacturing process should be carried on with the aid of power. Unless both conditions co-exist, the establishment would not be a factory within the meaning of this definition. While it is conceded by the Petitioners that they are employing twenty or more persons in the premises, including the precincts thereof, they deny that any manufacturing process is being carried on with the aid of power. The expressions manufacturing process and power have the meanings assigned to them in the Factories Act of 1948. u/s 2 of that Act, power means electrical energy or any other form of energy which is mechanically transmitted and is not generated by human or animal agency. Manufacturing process is defined in a variety of ways, two of which alone are relevant for our purpose : (i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking up, demolishing or otherwise treating or adapting any article or substance with a view to its future use, sale, transact, delivery or disposal; or (ii) pumping oil, water or sewage. In so far as the first definition above is concerned, the learned Additional Government Pleader relies upon the fact that what is undertaken by the factory is the cleaning of raw hides and skins with a view to its adaptation to subsequent sale or disposal. It is his contention that water is an essential article for the purpose of effecting this alteration or adaptation of the goods, and in so far as the factory brings the water into its premises and uses electrical energy, for so bringing it he claims that the manufacturing process of cleaning or adapting the articles must itself be said to be carried on with the aid of power. Vague reliance was also placed upon the second part of the definition of manufacturing process which includes pumping water and his contention is that so long as water is pumped, that itself being a manufacturing process, in the instant case, the definition of factory would be attracted.

Mr. A.N. Rangaswami, learned Counsel for the Petitioners, has referred to a decision of this Court in Writ Petition No. 691 of 1959, where, the question was whether a tannery is a factory within the definition of the Employees'' State Insurance Act. In that case the water used in the tannery was pumped with the aid of electrical power. Reliance was placed upon both the parts of the definition of manufacturing process which has been extracted above. It was established therein that the land where the electric pump was installed was not part of the premises of the tannery. In dealing with the first part of the definition, extracted above, the learned Judge observed thus:

The argument is this. In the tannery cleaning is done with the water pumped out from the well in the neighbouring land of the Petitioner with the aid of electric power. Water is an essential item in the process of tanning and when the process of tanning is carried on with the pumped out water, ipso facto it follows that the tannery is a factory, I am unable to accept this argument.

Proceeding further, the learned Judge observed that though cleaning is a manufacturing process, that by itself is not sufficient. He posed the question,

Can it be said that because water which is pumped out with the aid of power is used in the process of cleaning the hides and skins, cleaning is done with the aid of power?

He observed,

As I understand the definition, it is not sufficient to carry on cleaning with water pumped out from neighbouring premises or precincts with the aid of power. What is required by the definition is that the cleaning should be done with the aid of power.

He accordingly found that the definition of factory was not satisfied in the case before him.

I may observe that the facts of the present case are not very different and if the decision cited should govern the present case, the issue must be found in favour of the Petitioners. Nevertheless, the learned Additional Government Pleader has taken me through a long line of cases in support of his contention.

Before dealing with these cases, I may express it as my view that the mere fact that water is brought into the premises with the aid of power is not by itself sufficient to establish that a manufacturing process is carried on with the aid of power. If what is adumbrated by the learned Additional Government Pleader is the sole test, it is easy to conceive of a situation where this argument may lead to somewhat startling results. Supposing the water required for the purpose of cleaning is secured from a source of municipal supply, that is, taken from a tap in the premises of the factory, can it be said, that since the municipality supplies the water by using power in its installation, the water so received by the Petitioner factory and used in some manufacturing process, the process itself is carried on with the aid of power? Another instance may be cited. Suppose water is pumped out of a well elsewhere than in the premises of the factory and the water is transported by a lorry or other means of mechanical propulsion to the factory site for the use in the cleaning operations which form part of a manufacturing process, can it then be said that though the cleaning operations themselves are not carried on with the aid of any power, the fact that the water is brought to the factory by such means as indicated above would bring the manufacturing process itself within the meaning of the category of one carried on with the aid of power? These illustrations would appear to indicate that the construction sought to be placed upon this expression by the learned Additional Government Pleader is somewhat strained. What is contemplated by the definition is that power should be used in the carrying on of the manufacturing process. As I understand the process involved, it consists in soaking raw hides and skins in water. It is not stated that any part of the cleaning operation is carried on with the aid of power, such as to say, by storing the water in the tanning vats by mechanical means with the aid of power or by the use of power in scraping the skins or the like associated operations. The solitary circumstance that water is pumped out of the well and stored in the vats is relied upon by the Respondent in his claim that the cleaning process itself must be said to be done with the aid of power. The correctness of this view requires examination.

In N.T.M. Cafe v. Inspector of Factories AIR 1956 Mad. 600 the question was whether the use of a refrigerator with the aid of power in the premises of the cafe would bring the premises within the meaning of the expression factory as defined in the Factories Act. It was found that the refrigerator was the only appliance that was driven by power in use in the restaurant, and the Court had to decide whether any manufacturing process was carried on with the aid of the refrigerator that is, with the aid of the power, that was needed to work that refrigerator. The learned Judge found that apart from the normal use to which a refrigerator is put, viz., the purpose of storage, the refrigerator was not used for the treatment or adaptation of any article with a view to its sale. He pointed out how icecream which could be manufactured by other means than by the use of power was being merely stored in the refrigerator. Such storage would not be part of the manufacturing process. But if, however, icecream was made with the aid of the refrigerator, then that would be a clear case of use of power in a manufacturing process.

16 In Re: A.M. Chinniah, Manager, 786 Sangu Soap Works Kattumavadi Road Arantangi, a person was employed in the soap works as carpenter for preparing packing boxes. The dispute was whether he could be termed a worker within the meaning of the Factories Act. The learned Judge had to consider in that connection whether a manufacturing process was being carried on in the premises. He observed that to constitute a manufacture, there must be a transformation, that mere labour bestowed on an article even if the labour is supplied by machinery will not make it a manufacture, unless it has progressed so far, that a transformation ensues and the article becomes commercially known as another and different article from that at which it begins its existence. In view, however, of the very wide manner in which manufacturing process has been defined, it does not appear to be necessary that there should be a transformation of the original article, in so far as the present case is concerned.

In Employees State Insurance Corporation v. Sriramulu ILR (1960) Mad. 322 the question whether where in one department a process incidental to a manufacturing process was being carried on, the entire premises could come within the definition of factory, was raised. The learned Judges noticed that the scope of the expression factory could not be decided on the basis of what the employer does for the sake of his own convenience by dividing the factory into various departments. If the statutory requirements of the number of persons employed and the carrying on of a manufacturing process with the aid of the power in any part of the premises are satisfied, then the entire premises would come within the scope of the Act. This decision does not however, directly touch upon the question whether, in the particular manufacturing process we are concerned with, there has been any use of power.

The decision of the Supreme Court in Ardeshir H. Bhiwandiwala Vs. The State of Bombay, gives no direct assistance in the matter. There, what had to be resolved was whether the expression premises should not be taken to cover open land as well. The premises concerned there were salt pans. In that case salt water was taken from the sea. It does not seem to have been disputed that in so far as the expression manufacturing process is concerned and the use of power in association therewith, the use of the pump in pumping salt water on to the pans was sufficient to lead to the conclusion that a manufacturing process was being carried on with the aid of power. The salt water pumped from the sea could be regarded as the raw material for initiating the manufacture and the use of power in pumping water could be regarded as a step in the process of manufacture for the purpose of

otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal.

There is thus no discussion here which would help a determination of the issue in the present case.

Some reliance was placed upon a decision of the House of Lords in Long-hurst v. Guildford Water Board (1961) 3 All E.R. 545, 550. The question that the House of Lords had to consider was whether a pump-house was a factory. In that case the Respondent Water Board occupied a large area on which were located two buildings, a filter-house and a pump-house. Water was fed by gravity into the filter house and the cleaned water passed into a large tank where it was chlorinated. Thereafter, it was pumped and put under pressure and forced along the main either to the reservoir or direct to the consumers. One of the employees sustained an injury in the pump-house and in an action for damages, it was claimed that the whole premises was a factory within the meaning of the Factories Act, 1937. By reason, however, of a specific provision in that Act, it was held that while the filter-house would be a factory u/s 151(1961) 3 All E.R. 545, 550 of that Act, which contains a definition of manufacturing process analogous to that in our Factories Act, the pump-house, however, was excluded by Section 151(6) of the Act. That section stated that where a place is situated within the precincts forming a factory but is solely used for some purpose other than the process carried on in the factory, that place shall not be deemed to form part of the factory for the purpose of this Act, but shall if otherwise it would be a factory be deemed to be a separate factory. Notwithstanding that, some observations of the learned Lords in that judgment are relevant:

It was urged by analogy that the pumping of the water was a necessary incident to the filtering. In my opinion, that was a different and new process which was being carried on. It was not necessary to the filtering of the water that it should be pumped. All that was necessary was that it should run away by gravity from the filters. The pumping was necessitated by the fact that the reservoir was situated at a higher level than the pumping station. The pumping, in my opinion, was part of the distribution of the water and not incidental to its filtering.

It would be noticed that on this process of reasoning, if the pumping of the unfiltered water had been necessary for the purpose of supplying to the filter beds, then it would have been a proper part of the filtering process itself, that is to say, it would have been part of the manufacturing process. But the subsequent pumping after the manufacturing process had been completed was in the opinion of the learned Lords neither necessary nor incidental to the process of manufacture.

On behalf of the Petitioners, the decision Law v. Graham (1991) 2 K.B. 327 has been referred to. In that case, the premises were used for the purpose of washing bottles and bottling beer. The washing was effected by manual labour with the aid of mechanical power. Nothing was done to the beer itself in any way to alter its nature or character for the purpose of adapting it for sale. Beyond washing the bottles and bottling the beer, no process of any kind of manufacturing or otherwise, was carried on in the said premises, i Upon these facts, the question arose whether the premises could be said to constitute a factory. Substantially the definition in that English Act required precisely the same ingredients as in the definitions contained in the Factories Act. The learned Judge said:

It is true that the bottles must be clean and that the Respondents wash them, because they are going to put beer into them. But, in my opinion, that operation is not in aid of in the sense in which those words are used in the section. Therefore, though the case is near the line, I think the Justices were right.

That is to say, the decision was that the mechanical power was not used in aid of the manufacturing process carried on there.

In a decision of the Bombay High Court in Usha Prints (India) v. E.S.I.C. (1963) 2 L.L.J. 544 it was decided that mere use of steam or water cannot be regarded as a source of power, even if it is used for the manufacturing process. In that case, for the purpose of the manufacturing process of bleaching, dyeing and printing of cloth, steam was utilised from a boiler, and the point for decision was whether the manufacturing process could be said to be carried on with the aid of power. The learned Judges pointed to the definition of power in the Factories Act and observed that steam could not be regarded as power-What the provision required was that it should be energy which was being mechanically transmitted and the power that was used in the case before them was the case of the energy of heat which did not come within the scope of the definition in the section. Though this decision has no direct bearing upon the question, it is still of use in showing that merely for the reason that the piece of legislation that we are concerned with is one of social amelioration, the definition could not be enlarged to take in concepts which are wholly outside it.

I may now refer to two cases of our High Court which have a direct bearing upon the question, and upon which great reliance has been placed by the learned Additional Government Pleader. In Appeal Against Order No. 150 of 1959, Ramachandra Ayyar J. as he then was, had to decide a similar question concerning a factory. The tannery involved had two sets of buildings separated by a private road. On one side of the road, there was a godown in which the raw skins were kept and adjacent to this godown there was a well from which water was drawn by electric power. This water was carried through pipes to the other side of the road to the buildings where the skins were tanned. The water was used for several of the purposes such as soaking, liming and otherwise cleaning the raw skins. The contention that was advanced by the Appellant in that case was that the premises where from the water was drawn was distinct from the one where the tanning was done. That being a separate premises, unless the requisite number of men were employed in those premises, it could not come within the description of a factory so it was contended. This contention was rejected on the basis of the decision Employees State Insurance Corporation v. Sriramulu ILR (1960) Mad. 322 to which reference has been made. The question whether by the use of the water derived by pumping with electric power, the manufacturing process itself could be said to be carried on with the aid of power was not dealt by the learned Judge, who observed thus:

Pumping of water is essential to the manufacturing process carried on the other side of the road. Between the two buildings, that is, one where the water is pumped out and the one where it is received, there is a pipe connection which should be sufficient to constitute the two buildings in one premises. There is therefore no substance in the contention of the Appellants that the two buildings are separate premises and that the Act would not apply to the Appellants� tannery.

As I understand the decision, it principally turned upon the question whether the two premises constituted a single unit. It was not decided as far as. I can see that the use of the water derived with the aid of the power would amount to the use of power in the manufacturing process itself.

A decision of Anantanarayanan J. in Ismail v. Regional Director ILR (1960) Mad 1064 comes nearer the question. The admitted facts in, this case were that electric power was employed by the tanners, the Appellants, for the pumping and storage of water, which water was subsequently used for several of the processes concerned in finishing the raw hides and skins. It was denied that the power was directly employed to transform or alter the products of the process at any stage. The learned Judge, however did not deal with this particular argument. He observed that the very pumping and storage of water in this establishment amounts by itself to a manufacturing process as defined in the Act. He also referred to Moosa Kazimi Vs. K.M. Sheriff and Another, where that view had been taken. The learned Judge accordingly purported to bring the case within the meaning of the definition of manufacturing process which includes pumping of oil, water or sewage. He proceeded to say:

Water is required for the manufacturing process, presumably, at a particular spot and in a particular flow or force. There is not merely a case of a small quantity of water being used in the ordinary way, for, in that event, the employer would not take the trouble to use electric energy to pump and store water in large quantities and at a height. But since the use of the electrical energy enables the employer to utilise water in such manner as is required in the manufacturing process itself, in effect, he is using power for conducting a part of that process. This is hence connected as cause and effect with the process itself, and it cannot be argued that the definition does not apply.

With great respect I am unable to follow this decision. Firstly, it seems to me that the various sub-clauses of the definition of manufacturing process are mutually exclusive. The first Sub-clause in Section 2(k), which defines manufacturing process is itself of very broad amplitude and covers a variety of processes, the carrying out of any one of which with the aid of power would make the process a manufacturing process. Sub-clause (2) which reads pumping of oil, water or sewage is in the context distinct and is intended to deal with mere pumping operations, for it might otherwise be contended that since pumping per se does not affect any alteration in the article, no process, of manufacture is at all involved. There are large pumping installations which deal with oil, water or sewage, which utilise power for the purpose of pumping and unless this part of the definition is available, such installations could not be brought within the category of factories Laxmibai Atmaram Vs. Chairman and Trustees, Bombay Port Trust, was a case of that kind. This sub-clause was not to my mind intended to take in an ancillary operation of pumping water as in the present case and to postulate the use of that power as covering use of power in aid of the manufacturing process itself. It is not the case of the department that water is required in a particular flow or force to serve the purpose of any of the manufacturing processes involved. Water in fact is required in a static condition, as it were, for the purpose of soaking the raw hides and skins to make them pliant and to facilitate the cleaning of the skins. Had it been a case where water had to be directed in a powerful flow which could be achieved only with the aid of power, and that this kind of flow was necessary for the purpose of cleaning or any of the associated processes of manufacture, then undeniably power could be said to be used in the process of manufacture. But where water is pumped for the purpose of securing its supply and nothing more and power is not used in the process of manufacture itself, it seems difficult to hold that this part of the definition would at all be attracted.

Giving the matter my careful attention, I am of opinion that unless power is directly used in the process of manufacture, the premises cannot come within the definition of factory in the Act. The use of power for pumping water, which water is used for subsequent manufacturing purposes, with nothing more, cannot justify the inference that the power is used in the process of manufacture.

The petition is accordingly allowed. There will, however, be no order as to costs.