EMPLOYEES STATE INSURANCE CORPORATION versus M/S. APEX ENGINEERING PVT. LTD.

Citation: [1997] SUPP. 5 S.C.R. 57 · Decided: 06-11-1997 · Supreme Court of India · Bench: S.B. MAJMUDAR · Disposal: Appeal(s) allowed

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Judgment (excerpt)

EMPLOYEES STATE INSURANCE CORPORATION 
A 
v. 
MIS. APEX ENGINEERING PVT. LTD. 
NOVEMBER 6, 1997 
[S.B. MAJMUDAR AND M. JAGANNADHA RAO, JJ.] 
B 
Labour Laws : 
Employees' State Insurance Corporation Act, 1948 : 
c 
Section 2 sub-sections (9), (! 2) (! 5), (! 7) and (22)- "'Employee"-
Managing Director of Private Limited Company-Appointed on 
remuneration-Engaged in administration work-Wages within the 
permissible limit-Corporation treating him as an employee of the company-
Insurance Court and High Court held the Managing Director not an employee 
within the meaning of Section 2(9) of the Act-Held, Managing Director was D 
an employee of the Company-Not a principal employer-Not to be treated 
on par with a partner of a partnership firm-Can have dual capacity as a 
Managing Director and also an employee of the Company. 
The respondent was a private limited company engaged in the 
manufacture of motor seats. The Board of Directors of the respondent-
E 
Company resolved to elect 'D', one of its Directors, as the Managing Director 
of the Company on an annual remuneration of Rs. 12.000 for rendering 
services as Managing Director. 'D' as the Managing Director of the Company 
was authorised to borrow, invest and lend money. The appellant-Corporation 
included 'D' along with other 19 employees engaged for wages for the F 
purpose of covering the company as a factory under sub-section (12) of 
section 2 of the Employees State Insurance Corporation Act, 1948. The 
respondent-company moved an·application under section 75 read with section 
76 of the Act before the Employees' State Insurance Court. The Insurance 
Court, while allowing the application, held that 'D' could not be treated as 
an "employee" of the company; and as the company had only 19 employees, G 
it was not covered by sub-section (12) of section 2 of the Act. The appeal was 
dismissed by both the Single Judge and Division Bench of the High Court. 
Hence the present appeal. 
The contention of the appellant was that the relevant provisions of sub- H 
57 
58 
SUPREME COURT REPORTS [1997] SUPP. 5 S.C.R. 
. 
A section (9) of Section 2 and sub-section (12) of section 2 of the Act were not 
correctly interpreted by the courts below. It was also contended that even 
assuming that 'D', the Managing Director, was a principal employer, there 
was nothing illegal in treating him simultaneously as an employee if he 
satisfied all the requirements of section 2(9) of the Act. 
B 
Allowing the appeal, this Court 
HELD: I. 'D' the Managing Director, was an employee of the company 
and as such could be added to the list of remaining 19 employees so as to 
make a total of 20 for covering the establishment under sub-section (12) of 
C section 2 of the Employees' State Insurance Corporation Act, 1948. The 
High Court erred in taking the view that 'D,' as Managing Director of the 
company, was not an employee within the meaning of sub-section (9) of 
section 2 of the Act. [ 62-A-Cj 
2.1. Before a person can be said to be an employee the following 
D characteristics must exist qua his service conditions :-
E 
F 
G 
(i) He should be em ployed for wages. This would pre-suppose 
relationship between him as employee on the one hand and the 
independent employer on the other; 
(ii) Such employment mu~t be in connection with the work of the 
factory or establishment to which the Act applies; 
(iii) He must be directly employed by the principal employer on any 
work of, or incidental or preliminary to or connected with work of, 
the factory or establishment; 
(iv) In the alternative he should be employed by or through an 
immediate employer on the premises of factory or establishment or 
under supervision of principal employer or his agent; 
(v) He should be employed for wages on any work connected with the 
administration of the factory or establishment or any part, department 
or branch thereof. 
(vi) The wages of the person so employed excluding remuneration for 
overtime should not exceed such wages as prescribed by the Central 
Government. [64-D-H; 65-A-BJ 
· 
H 
2.2. All the requisite conditions for applicability of the term 'employee' 
... 
E.S.l.C. v. APEX ENGINEERING PVT. LTD. 
59 
as defined by section 2(9) of the Act stood satisfied in the case of' D', the. A 
Managing Director. He was entrusted with the work of Managing Director 
on remuneration and in view of this remuneration he had to discharge his 
extra duties as Managing Director. Thus he was receiving this remuneration 

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