Kerala High Court | Pre-Operative Fit-Out Workers Not Covered Under Section 2(9) of ESI Act | Refund of Contributions Directed
Isabella Mariam
The Kerala High Court Single Bench of Justice M.A. Abdul Hakhim held that workers engaged for pre-operative interior fit-out works in leased premises prior to commencement of operations are not “employees” within the meaning of Section 2(9) of the Employees’ State Insurance Act, 1948. The Court ruled that contributions remitted by mistake in respect of such workers were not legally due, and directed refund of amounts deducted and paid to the Employees’ State Insurance Corporation (ESIC).
The appeal arose from proceedings before the Employees’ Insurance Court, Alappuzha, in which M/s L&T Tech Park Ltd. sought a declaration that contributions demanded by the ESIC in respect of workers engaged for pre-operative fit-out works executed for Tata Consultancy Services Ltd. (TCS) were not payable.
L&T Tech Park constructed a building named “Thejomaya” within Infopark Special Economic Zone, Kochi, sanctioned for IT and IT-enabled services. TCS entered into a lease deed dated 21 October 2007 for the 7th, 8th and 9th floors of the building. Even before the formal handover, L&T Tech Park had been awarded a work contract by TCS on 8 October 2007 for carrying out interior fit-out works to ready the premises. For this purpose, a 90-day rent-free period was allowed. The works were completed on 11 January 2008, and possession was handed over on 11 March 2008. TCS commenced operations in the premises on 2 April 2008.
Under the contract terms, L&T Tech Park bore responsibility for compliance with labour laws, including ESI. TCS deducted ₹23,68,366 from the contract value towards contributions on the wage element involved in the fit-out works and remitted the same to the ESIC on 29 March 2008. A further amount of ₹2,76,354 was later demanded and remitted on 19 May 2011.
L&T Tech Park subsequently sought refund of these amounts from the ESIC, citing Instruction No. 4/99 dated 14 June 1999 issued by the ESIC headquarters exempting construction workers from coverage on account of their migratory and unorganised character. Both L&T Tech Park and TCS confirmed that the contributions had been paid by mistake. When the request was rejected by order dated 16 March 2011, followed by a demand for additional contribution, L&T Tech Park approached the Insurance Court.
The Employees’ Insurance Court, after evidence, allowed the claim. It held that workers engaged by L&T Tech Park for interior fit-out works prior to the start of operations were not employees under Section 2(9) and therefore no contribution was payable. It directed refund of ₹23,68,366 and ₹2,76,354 with 12% interest from the date of the rejection order.
Aggrieved, the Regional Director and Deputy Director of ESIC filed the present appeal before the High Court.
The High Court framed the substantial question of law as: “Whether Section 2(9) of the E.S.I. Act covers the workers engaged for pre-operative fit-out works by the employer requiring contribution to be paid as per the aforesaid Act?”
The court observed: “The workers engaged by the contractor of the principal employer for doing works preliminary and incidental to the purpose of the establishment are covered by the definition. Here, the Respondent No.3 has employed workers through the Applicant in the premises of the establishment to do the fit-out works. Whether such fit-out work is a work preliminary or incidental to the purpose of the establishment of the Respondent No.3 or not is the question to be answered in this case.”
The court reviewed precedents cited by the appellants, including Supreme Court judgments in Associated Cement Companies Ltd. v. Workmen, Royal Talkies v. ESIC, South India Flour Mills v. ESIC, and Transport Corporation of India v. ESIC. While noting that these decisions provided guidance on the definition of “employee” and the scope of incidental work, the court distinguished them on the facts.
Regarding supervision, the court recorded: “The checking and verification of the work after completion of the work for processing the bill could not be termed as an element of supervision. The right of the principal employer to reject or accept the work after completion of the work cannot be treated as supervision of the work.”
On the question of whether the new unit was an extension of existing covered establishments, the court stated: “The functional unity and integrity between two units of an establishment could not be decided with reference to the pre-operative fit-out construction works in a unit which is yet to be started. Since construction works are not the business of the Respondent No.3, there could not be functional unity and integrity between the two units of the Respondent No.3 with reference to the construction fit-out works.”
The court also noted that the neighbouring unit of the lessee in the Vismaya building and the new unit in the Thejomaya building were separate and independent establishments, functioning under different schemes and without operational connection.
On the applicability of Instruction No. 4/99, the court observed: “The premises of the Respondent No.3 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.”
As to Regulation 40, the court held: “An Application for refund by a person other than who has made the contribution does not come under Regulation 40. Hence, the time limit prescribed under Regulation 40 is not applicable to the Application for refund by a person other than who has made the contribution. If the ESI Corporation is allowed to keep the money belonging to the Applicant, which is remitted by the Respondent No.3, it is an undue enrichment to the ESI Corporation.”
The High Court concluded: “The substantial question of law is answered in the negative and against the appellants.” Accordingly, it directed: “In view of the answer to the substantial question of law, the Appeal is dismissed without costs.”
Advocates Representing the Parties
For the Appellants: Shri. T.V. Ajayakumar, Kum. Rimju P.H.
For the Respondents: Sri. V. Abraham Markos, Shri. Abraham Joseph Markos, Shri. Benny P. Thomas (Sr.), Sri. Binu Mathew, Sri. D. Prem Kamath, Sri. Terry V. James, Sri. Tom Thomas
Case Title: The Regional Director, ESI Corporation & Another v. M/s. L & T Tech Park Ltd. & Another
Neutral Citation: 2025: KER:62281
Case Number: INS.APP No. 3 of 2014
Bench: Justice M.A. Abdul Hakhim
