M/S QUALITY INN SOUTHERN STAR versus THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION

Citation: [2007] 12 S.C.R. 790 · Decided: 03-12-2007 · Supreme Court of India · Bench: ARIJIT PASAYAT · Disposal: Appeal(s) allowed
Open in Lexace · Ask the AI about this case
Judgment (excerpt)

A 
B 
MIS QUALITY INN SOUTHERN STAR 
v. 
THE REGIONAL DIRECTOR, EMPLOYEES' STATE 
INSURANCE CORPORATION 
DECEMBER 3, 2007 
[DR. ARIJIT PASA YAT AND P. SATHASIV AM, JJ.J 
Employees' State Insurance Act, 1948-s. 2(22)--Service charges 
C collected by the management of the hotel from customers on behalf 
of employees in lieu of direct tips and later paid to their employees-
Held: Does not constitute wages-Memorandum No. P-1113197-lns. 
IV dated 6.11.2002. 
D 
The question which arose for consideration in the instant matter 
was whether the service charges collected by the hotel management 
from the customers and distributed amongst the employees 
amounted to 'wages' within the meaning of section 2(22) of the 
Employees' State Insurance Act, 1948. 
E 
The ESI Court held that the service charges were not directly 
paid by the customers to the employees but formed part of the bills 
which the customers were obliged to pay without any option and the 
amount so collected was paid or distributed to the employees equally 
once in three months; and that the appellant, running a three star 
F hotel had total control and power of distribution of the amount and 
thus, was distinguishable from 'tips' and was covered by the 
expression 'additional reimbursement'. High Court upheld the order. 
Hence the present appeal. 
G 
H 
Allowing the appeal, the Court 
HELD: Subsequent to the judgment of the High Court, the 
Corporation issued an Office Memorandum bearing No.P-1113/97-
Ins.IV dated 6.11.2002 which stated that the service charges 
collected by the management of the hotel on behalf of their 
790 
" 
M/SQUALITYINNSOUTHERNSTARv. REG.DIRECTOR, 791 
1 
EMPLOYEES' STATEINSU. CORPN. [PASA YAT,J.] 
employees in lieu of direct tips which was paid to the employees at A 
a· later date does not constitute wages under section 2(22) of the 
Employees' State Insurance Act, 1948. In view of the memorandum 
issued and the view taken by the High Court in Sathianathan 's case, 
the orders of the ESI Court and the High Court cannot be maintained 
and are set aside. [Paras 5, 8 and 10] 
B 
Sathianathan N. and Sons Pvt. Ltd. and Ors. v. E.S.1 Corporation 
and Anr., (2002)-11 LLJ 1002, approved. 
The Rambagh Palace Hotel, Jaipur v. The Rajasthan Hotel 
Workers' Union, Jaipur, (1976] 4 SCC 817, referred to. 
c 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1250 of 
2001. 
i 
From the Judgment and final Order dated 29.7.1999 of the High 
Court of Kamataka at Bangalore in M.F .A 1497 of 1992. 
D 
Shyam Divan, Akhil Pal Chhabra, Sudha Malla and Rajan Narain 
for the Appellant. 
C.S. Rajan, V.J. Francis and Anupam Mishra for the Respondent. 
DR. ARIJIT PASAYAT, J. 1. Challenge in this appeal is to the E 
judgment of the learned Single Judge of the Karnataka High Court 
dismissing the appeal filed by the appellant. Challenge was to t.li.e order 
of the Employees' State Insurance Court (in short 'ESI Court') in ESI 
application No.123/89. The appeal was filed under Section 82(2) of the 
F 
Employees' State Insurance Act, 1948 (in short the 'Act'). Order passed 
by the ESI Court was on the petition filed under Section 75 of the Act. 
2. Background facts are as follows: 
A show-cause notice was issued by the respondent on the report 
G 
of the ESI Inspector on 9.1.1981 calling upon the appellant to contribute 
.i 
premium for the period November, 1986 to November, 1987 in respect 
of service charges collected by it. Not being satisfied with the explanation 
offered, order was passed under Section 45-A of the Act determining 
amount of contribution payable. The order was challenged by the appellant 
H 
792 
SUPREME COURT REPORTS 
[2007] 12 S.C.R. 
A by an application under Section 75 of the Act. This application was 
contested by the respondent and the ESI Court on consideration of the 
evidence brought before it and it came to hold that the order under Section 
45-A of the Act suffered from no infirmity. 
3. According to the appellant, the basic question was whether the 
B service charge collected by the hotel management from the customers 
and distributed amongst the employees amounted to "wages" within the 
meaning of Section 2(22) of the Act. According to the appellant this did 
not constitute wages. The respondent contended that the appellant runs· 
a three-star hotel and the establishment is covered under the Act. 
C Undisputedly, 10% of the total bill amount is compulsorily collected as 
services charges and is included in the bills. The service charges
Excerpt shown. Read the full judgment & AI analysis in Lexace.