Workers Engaged In Preliminary Interior 'Fit-Out' Work Not 'Employees', ESI Act Benefits Can't Be Extended: Kerala High Court

The Kerala High Court held that workers engaged in pre-operative/preliminary interior fit-out works are not covered under the definition of employee under Section 2(9)(ii) of the Employees' State Insurance Act and hence no benefits can be extended to them under the Act. For context, Interior Fit-out refers to those works required for making an interior space ready for occupation such as installing floors, ceilings or laying cables. Justice M.A. Abdul Hakhim delivered the judgment while dismissing an appeal by the ESI Corporation and upheld the order of the Employees' Insurance Court directing refund of contributions exceeding ₹26 lakh to L&T Tech Park Ltd.L&T Tech Park Ltd, which owned the premises, was contracted by Tata Consultancy Services Ltd., in 2007 to carry out extensive interior works before TCS commenced operations in April 2008. TCS deducted ₹23,68,66/- from L&T's contract value and remitted it to the ESI Corporation as contribution, later paying an additional ₹2,76,354/- following a further demand. L&T sought a refund on the ground that construction site workers were exempted under ESI Corporation's own circular dated June 14, 1999.When the ESI Corporation rejected the refund request, L&T approached the Employees Insurance Court, which ruled in L&T's favour in 2013, holding that workers involved in preliminary/pre-occupancy interior fit-out works were not “employees” under Section 2(9) of the ESI Act. The high court was thus considering: “Whether Section 2 (9) of the ESI Act covers workers engaged for pre-operative fit out works by the employer, requiring contribution to be paid as per the Act?”For context, Section 2(9)(ii) brings within its ambit employees hired through an immediate employer to work: on the premises of a factory or establishment, or under the supervision of the principal employer, on tasks that are part of, preliminary to, or incidental to the establishment's business.The Appellants claimed that TCS was the “principal employer” under Section 2(17) and L&T the “immediate employer” under Section 2(13). It was further contended that the fit-out works were part of activities incidental to the business of TCS, thereby attracting Section 2(9) (ii).It was also submitted that ESI instructions No. 4/99 dated 14.06.1999 which exempted workers engaged in construction sites from the provisions of the ESI Act, did not apply in the present case since the exemption was for workers in unorganised sector. The Respondents contended that TCS's Kochi unit commenced only on April 2, 2008, after completion of the fit-out works, hence there was no “establishment” in existence during execution. It emphasised that construction-related works, by their nature, are exempted under Instruction No. 4/ 99. It was also argued that neither functional unity nor supervision by TCS could be established, as TCS is engaged in IT services and had no role in directing construction activities. Deputy Director v B P L Cellular Ltd was relied on , which held that mistaken contributions cannot be retained by the Corporation to its unjust enrichment. The Court held that fit-out works were executed prior to April 2, 2008, the date on which TCS's Kochi unit commenced operations. As no establishment existed during execution, such works could not be categorised as “preliminary” or “incidental” to the work of an establishment under Section 2(9)The court observed that the works were carried out by L&T and its subcontractors. TCS's role was limited to post-completion inspection. The Mere acceptance or rejection of works could not amount to “supervision” within the meaning of Section 2(9). It noted that the instruction No. 4/99 issued by ESI Corporation in 1999, exempted construction site workers from coverage due to the peculiar characteristics of their employment. The court observed that in this instruction, the exception under Clause 3 (applicability to workers directly engaged in a factory) did not apply, as TCS's premises was not a factory.For context the exception states that construction workers who are engaged directly in a covered factory by the principal employer or through an immediate employer are to considered as 'employee' under Section 2(9) of the Act. “The premises of the Respondent No.3 (TCS) are not a factory to attract the said exception clause. Hence, the workers engaged by the Respondent No.3 through the Applicant to execute the interior fit-out construction works are not liable to be covered as they are exempted as per Ext.A9 Instruction during the relevant time,” the court noted. The Court rejected the ESI Corporation's claim that the new Kochi unit was an extension of existing covered units (Mumbai Corporate Office or Vismaya unit). Inspector's reports confirmed that the units were separate entities, operating under distinct schemes, with no functional or financial integrality.The Court observed that while Regulation 40 prescribes a time limit for refund applications, it applies only to the person who...

Workers Engaged In Preliminary Interior 'Fit-Out' Work Not 'Employees', ESI Act Benefits Can't Be Extended: Kerala High Court

Anamika MJ

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