Case Brief: Employees’ State Insurance Corporation vs. Tata Engineering & Locomotive Co. Ltd.

CASE NAME	Employees’ State Insurance Corporation vs. Tata Engineering & Locomotive Co. Ltd.
CITATION	AIR 1976 SC 66
6COURT	The Supreme Court of India
BENCH	Justice P.K. Goswami, Justice A. Alagiriswami, Justice N.L. Untwalia
PETITIONER	Employees’ State Insurance Corporation
RESPONDENTS	Tata Engineering & Locomotive Co. Ltd.
DECIDED ON	Decided on October 8, 1975

INTRODUCTION

The Supreme Court of India heard the case “The Employees State Insurance Corporation and Another vs. The Tata Engineering & Locomotive Co. Ltd. And Another on October 8, 1975”. It addresses a significant question about whether the “Employees’ State Insurance Act, 1948 (ESI Act) applies to apprentices. The key question is whether an apprentice fits the definition of an ’employee’ as outlined in Section 2(9) of the ESI Act. The Employees State Insurance Corporation (ESIC) tried to make Tata Engineering & Locomotive Co. Ltd. (TELCO) responsible for special contributions under the ESI Act concerning its apprentices”. TELCO disputed this assertion, arguing that under the Act, apprentices are not considered employees.

The case originated from the Industrial Tribunal, which accepted TELCO’s appeal. The Patna High Court upheld this ruling. The ESIC subsequently lodged an appeal with the Supreme Court, aiming to obtain a definitive clarification of the term ’employee’ in relation to apprentices and the ESI Act’s applicability. This case ruling clarifies the legal status of apprentices concerning labour welfare legislation in India, particularly regarding the distinction between contracts of apprenticeship and contracts of service or employment.

FACTS

The dispute arose when the appellant, “Employees State Insurance Corporation (ESIC), sought to hold the respondent, The Tata Engineering & Locomotive Co. Ltd. (TELCO), responsible for a special contribution under Chapter VA of the Employees’ State Insurance Act, 1948 (ESI Act). The claim for the contribution was made for employees working as apprentices in TELCO’s factory located in Jamshedpur, Bihar. TELCO, a public limited company, has its registered office located in Bombay. TELCO’s factory was subject to the ESI Act. TELCO utilized two categories of apprentices: graduate apprentices, who underwent a two-year training period, and trade apprentices, who had a three-year training duration.

During their training, the apprentices received payments called stipends. In the first year, graduate apprentices received a monthly stipend of Rs. 250.00, which increased to Rs. 300.00 in the second year. During their apprenticeship, trade apprentices received daily allowances of Rs. 2.00, Rs. 2.50, and Rs. 3.00 for the first, second, and third years, respectively. The report notes that the company did not provide the apprentices with any emoluments besides these daily allowances or stipends”. An apprenticeship was formalized through a deed of apprenticeship involving three parties: the apprentice, his surety (typically the father or guardian), and the company. The conditions outlined in these documents are standard for both types of apprentices, except for the stipend amount and duration. They stipulate that the company will provide combined theoretical and practical training in its factory for the agreed-upon period.

The apprentice dedicated himself to “serving the company” solely to obtain this training in return. One of the key terms in the contract, mentioned in Clause (7), stated that while a successful apprentice could be considered for absorption as a skilled worker after training, there was no legal obligation for the company to do so. Additionally, the contract included provisions regarding punishment in the course of the apprenticeship. The basis of the ESIC’s case was the assertion that these apprentices qualified as “employees” under the ESI Act, which TELCO denied. “The Industrial Tribunal initially granted TELCO’s prayer against ESIC’s claim under Section 73B of the Act”, and this decision was upheld by the Patna High Court, resulting in an appeal to the Supreme Court.

ISSUE RAISED

• Whether a person undergoing apprenticeship training qualifies as an “employee” according to the definition in “Section 2(9) of the Employees’ State Insurance Act, 1948”.
• Whether the apprenticeship agreement’s terms and conditions establish a master-servant relationship between the company and the apprentice. 
• What is the legal meaning and importance of the phrase “serve the company” as used in the apprenticeship deed when assessing whether an employment relationship exists under the ESI Act? 
• The role of legislative history, especially the inclusion of apprentices in the definition of “workman” within the “Industrial Disputes Act of 1947” and subsequent legislation like the “Apprentices Act of 1961, in determining the meaning of “employee” in the ESI Act of 1948”.

PETITIONER’S ARGUMENTS

The Employees State Insurance Corporation, who is the appellant, argued emphatically that TELCO’s apprentices should be classified as ’employees’ according to “Section 2(9) of the ESI Act, 1948”. Their principal argument was grounded in the provisions of the apprenticeship agreement itself. The ESIC pointed out clauses that mandated the apprentice to “serve the company” loyally throughout their training period, interpreting this as proof of a service contract and thus an employer-employee relationship. They contended that the apprentices’ presence in the factory environment, their adherence to company rules and regulations, and the financial remuneration despite being referred to as stipends were sufficient indicators of employment in connection with the factory’s operations.

Additionally, the ESIC advocated for a broader, welfare-oriented interpretation of ESI Act coverage, emphasizing that the social security protective umbrella should include individuals like apprentices who are part of the industrial setup and may be exposed to similar workplace hazards as regular workers. In effect, their argument was that the actual practical involvement of the apprentices in the company’s business operations surpassed the nominal label of ‘trainee’ in determining their position under the Act.

RESPONDENT’S ARGUMENTS

Tata Engineering & Locomotive Co. Ltd., the respondent, presented a compelling argument against classifying apprentices as ’employees’ under the ESI Act. The foundation of their argument was the inherent nature and purpose of apprenticeship, which they asserted was distinct from regular employment. TELCO emphasized that the primary aim of the apprenticeship contract was to provide and receive training in a craft or trade, rather than to establish a master-servant relationship for work at the company in exchange for payment. They contended that remittances provided to apprentices were maintenance allowances intended for their subsistence during training, rather than wages for economic work in the conventional sense.

TELCO argued that the phrase “serve the company” merely expressed the need for the apprentice to commit to the training process within the context of the company’s business situation, without implying the establishment of an employment relationship. Furthermore, they underscored the legislative context: the specific inclusion of apprentices in the definition of “workman” in the “Industrial Disputes Act of 1947 was sharply at odds with their intentional exclusion from the definition of “employee” in the subsequent ESI Act of 1948”. TELCO asserted that this demonstrated a clear legislative intent to exclude apprentices from the scope of the ESI Act.

JUDGEMENT

After meticulously examining the ESI Act, apprenticeship contract, and relevant legal principles, the Supreme Court dismissed the appeal and determined that apprentices do not qualify as ’employees’ under Section 2(9) of the Act. The Court underscored that the defining characteristic of apprenticeship is the predominant aim of providing and obtaining training. It ruled that factors such as stipend payment, adherence to discipline, or the apprentice’s obligation to “serve the company” for training purposes do not alter the relationship into one of master-servant or wage employment. The Court determined that the primary purpose of the apprenticeship agreement was to exchange and acquire both theoretical and practical knowledge.

The Court relied on the Legislative intent inferred from a comparison of the “Industrial Disputes Act, 1947 (which explicitly included apprentices as ‘workmen’) and the ESI Act, 1948 (which excluded them from the definition of ’employee’)”. The Court reached a firm conclusion that apprentices are not covered by the “Employees’ State Insurance Act of 1948” due to this intentional exclusion and the unique nature of apprenticeships, which are intended for training rather than providing work for pay within the company.

CONCLUSION 

The Supreme Court’s ruling in the case represents a significant interpretation of the “Employees’ State Insurance Act, 1948”, establishing a clear distinction between the legal statuses of apprentices and employees. The ruling is based on the premise that an apprenticeship fundamentally involves training and learning, which is different from a master-servant employment contract involving work for wages. The Court scrutinized the wording of the apprenticeship agreement and determined that phrases like “serve the company” were tailored to the training purpose and did not constitute an employment bond as legally required under the ESI Act. It was considered that the payment of stipends constituted an allowance for maintenance during the training period, rather than wages for work in the context of employment.
The Court found significant comfort in the legislative history, highlighting Parliament’s deliberate choice to encompass apprentices within the definition of ‘workman’ in the Industrial Disputes Act of 1947, while excluding them from the definition of ’employee’ in the “ESI Act of 1948”, which was passed just one year later. This selective inclusion and exclusion were seen as a clear indication of the legislative intent to treat apprentices differently under various labor laws, acknowledging their primary status as trainees for social security contribution purposes under the ESI Act. 

The ruling affirmed that the extent of welfare legislation is defined by exact statutory definitions and the true nature of the relationship between the parties. In the case of apprentices under the ESI Act, this was determined to be a training relationship rather than one involving wage employment. This ruling has become a prominent precedent in cases concerning the rights and responsibilities of apprentices under various Indian labour laws, distinguishing them as a separate category from ordinary employees in certain statutory contexts.