Safiya Malik

The Gujarat High Court, Single Bench of Justice Hemant M. Prachchhak, held that a charitable trust operating a pathology laboratory and dialysis center within a Government Civil Hospital does not prima facie satisfy the definition of "factory" under the Employees' State Insurance Act, 1948. Under the Act, a factory is defined as premises where ten or more persons are employed and a manufacturing process is carried on, a threshold the Court found the trust's purely diagnostic and medical service activities did not meet. The dispute arose after the Employees' State Insurance Corporation assessed contribution dues against the trust and confirmed the demand in appeal, without recording adequate reasoning. The Court quashed both the assessment order and the appellate order, along with consequential show-cause notices for recovery of interest and damages and remanded the matter to the concerned authority for fresh adjudication with full opportunity of hearing to all parties.

The trust had entered into a memorandum of understanding with a civil hospital to operate a pathology laboratory and dialysis services within the hospital premises at concessional or free rates. It contended that it was not engaged in any manufacturing activity and therefore did not fall within the definition of a “factory” under Section 2(12) of the Act.

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The respondent Corporation issued a notice under Section 45A determining contribution for a specified period. The petitioner preferred an appeal under Section 45AA after depositing part of the assessed amount, but the appellate authority confirmed the order. Subsequently, show-cause notices were issued demanding interest under Section 39(5) read with Regulation 31A and damages under Section 85B read with Regulation 31C. The petitioner challenged the coverage, the assessment orders, and the recovery notices, asserting that the establishment was not a “factory” and that the authorities had passed mechanical, non-speaking orders.

The Court examined Section 2(12) of the Act defining “factory” and recorded: “Section 2(12) : ‘factory’ means any premises including the precincts thereof whereon ten or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily so carried on, but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952), or a railway running shed ;]”

Upon considering the material, the Court observed, “From the bare perusal of the definition of ‘factory’, it appears that prima facie the activities carried out by the petitioner Trust does not fall under the provisions of Section 2(12) of the Act and though this fact was proved by the petitioner before the respondent authority by leading cogent material, however, without considering the same the respondent authority has passed a mechanical order.”

With respect to the adjudicatory process, the Court recorded, “On perusal of the order passed under Section 45A of the Act, it appears that it was not a speaking order passed by the respondent authority.” It further stated, “Even while going through the order passed under Section 45AA of the Act, it appears that there was no justifiable reasons recorded by the appellate authority while passing the order and thus, in mechanical manner, the order was passed by the concerned authority.”

The Court also reproduced the Supreme Court’s observation in Whirlpool Corporation, stating: “Under Article 226 of the Constitution of India, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction.” It further quoted that alternative remedy does not operate as a bar where there is violation of principles of natural justice or where proceedings are wholly without jurisdiction.

After considering these aspects, the Court recorded, “Thus, considering the decision of the Hon’ble Apex Court as well as this Court as aforesaid, this Court is of the opinion that the present petition is required to be remanded back to the concerned authority for deciding the issue afresh.”

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The Court directed: “In the result, the present petition is hereby partly allowed. he impugned orders under challenge as well as two show-cause notices each dated 21.01.2020 are hereby quashed and set aside. The matter is remanded back to the concerned respondent authority for deciding the issue afresh and the concerned respondent authority shall decide the same in accordance with law, after giving ample opportunity of hearing to all the concerned parties as expeditiously as possible. Rule is made absolute to the aforesaid extent. There shall be no order as to costs.”

Advocates Representing the Parties

For the Petitioners: Mr. Dipak R. Dave, Advocate

For the Respondents: Ms. Dimple A. Thaker, Advocate

Case Title: Surat Manav Seva Sangh Versus Employees State Insurance Corporation

Neutral Citation: 2026: GUJHC:6526

Case Number: R/Special Civil Application No. 6517 of 2020

Bench: Justice Hemant M. Prachchhak