Restrictive Interpretation Of Coverage Of ESI Act Defeats Objects Of Beneficial Legislation – Supreme Court

Mr. Santosh Krishnan appeared on behalf of the Appellants and Mr. Parthiv K Goswami appeared on behalf of the Respondent.

The Village Tarapur is subdivided into many segments and a part of the village area falls within the Silchar Municipal Corporation and other parts fall within the Silchar Revenue Circle. The Respondent Company set up its factory at Ramnagar, Village Tarapur.

In 1999, the notification was issued under Section 1(3) of the ESI Act, notifying that in about 10 days, certain provisions of the ESI Act will be brought into operation in certain areas falling under the Silchar Revenue Circles, including the village of Tarapur.

Subsequently, the Regional Director of the Employees State Insurance Corporation informed the Respondent about the notification and that the provisions of the ESI Act were made applicable and the Respondent's factory at Ramnagar, Village Tarapur would be covered under the ESI Act. The Respondent failed to comply and take necessary steps for registration under the ESI Act, and also did not pay the requisite contribution for the employees. Therefore, a show cause notice was issued to the Respondent to remind the contribution for 6 months on ad hoc basis. This was followed by a notice by the competent authority for recovery of a sum of money from the Respondent.

The Respondent then moved to the Employees Insurance Court, Guwahati, to challenge the show cause notice and the consequent steps for recovery of contribution. The Respondent primarily contended that the area in which the factory is located was not covered by the 1999 notification. The ESI Court opined that notification extends to Tarapur and therefore, the factory of the Respondent which is located in Tarapur, has to be brought under the coverage of the ESI Act. Accordingly, the Respondent was directed to comply with the provisions of the ESI Act.

The Respondent then preferred an appeal under Section 82 of the ESI Act, before the Guwahati High Court, where the Court concluded that the factory of the Respondent was not covered by the notification, on the grounds that the statutory notification was intended to cover only those areas falling within the jurisdiction of the Silchar Municipal Board.

Aggrieved, the Appellants moved to the Supreme Court.

On appraisal of the notification, the Supreme Court opined that the notification while stating that it applies to areas under the Silchar Municipal Corporation, also goes on to specifically name additional areas/villages, including the village of Tarapur. The Court further opined that "It is therefore not difficult to comprehend that the notification would extend to areas well beyond the limits of the Silchar Municipal Corporation. If the area of coverage of the ESI Act was intended to be restrictive, there was no need to mention other areas by name in the said notification. The logical interpretation would then be that the entire village area of Tarapur is notified for coverage as the name of Tarapur village is mentioned twice in the notification. The significance of this must be given due weightage."

Relying on the case of National Highways Authority of India vs. Pandarinathan Govindarajulu and Anr., the Court further opined that if the words used are unambiguous, then the cardinal principle of interpretation is that effect has to be given to every word in the subject notification.

Assailing the judgment of the High Court, the Supreme Court held that if the interpretation of the High Court was to be accepted, then that would lead to departure from the cardinal principle of interpretation of giving full effect to every word of the notification. The Court held that "it needs to be said that the name of village Tarapur is mentioned twice in the 21.7.1999 notification and therefore a strained interpretation is not at all necessary to bring the establishment of the respondent, within the ambit of coverage of the ESI Act. The respondent's failure to conform to the requirement of the ESI Act may perhaps invite penal action envisaged by the legislation. But this by itself does not persuade us to interpret the statutory notification in a particular manner, to suit the purpose of the respondent."

Therefore, the Supreme Court held that the High Court had adopted a faulty interpretation, which could not be countenanced. To that end, it was held that the Respondent's factory was covered by the purview of the ESI Act, and the order and judgment of the High Court were set aside.