Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2415 OF  2003

DELHI GYMKHANA CLUB LTD.       ..Appellant

VERSUS

EMPLOYEES STATE INSURANCE CORPN.           ..Respondent

J U D G M E N T

R. BANUMATHI, J.

Short point falling for consideration in this appeal is  

whether  kitchen  of  the  appellant-club  and  catering  section  

thereon  come  within  the  meaning  of  “factory”  and  

“manufacturing  process”  as  defined  in  Employees’  State  

Insurance Act, 1948 (for short ‘ESI Act’).

2. The appellant-Delhi  Gymkhana Club is a member  

club,  duly  registered under  the  Companies  Act.   Appellant-

Page 2

club has a  kitchen to  cook food items to  provide  food and  

refreshment to its members.   On 20.03.1975, a notification  

was  issued  by  the  Delhi  Administration,  in  exercise  of  the  

powers conferred under  Section 1(5)  of  the ESI Act,  stating  

that  the  provisions  contemplated  under  the  Act  shall  be  

extended  to  the  establishments  specified  in  the  Schedule  

thereon.  In  furtherance  of  the  said  notification,  the  

respondent-ESI Corporation sought to apply the provisions of  

the  Act  on  the  appellant-club,  on  the  ground  that  the  

preparation of food items amounts to “manufacturing process”  

and that the appellant–club is a factory/establishment covered  

under the provisions of the ESI Act.  After issuing the show  

cause notice, ESI Corporation passed the order on 4.8.1986  

under Section 45-A of the ESI Act,  holding that M/s. Delhi  

Gymkhana Club Limited is  covered under  the  provisions of  

Employees State Insurance Act, directing the appellant to pay  

Rs.6,82,655.40 as a contribution of  insurance in respect of  

employees for the period from 1.02.1980 to 31.08.1985, along  

with interest @ 6% per annum.  

2

Page 3

3. Aggrieved, the appellant filed a petition in the ESI  

Court which, by a judgment dated 25.11.1986, while allowing  

the  petition  of  the  appellant-club,  held  that  preparation  of  

eatables  does  not  fall  under  “manufacturing  process”  and  

hence, ESI Act is not applicable to the appellant-club and the  

appellant was not liable to pay contribution.   Aggrieved by the  

same, respondent-corporation preferred appeal before the High  

Court.  The High Court allowed the appeal and held that the  

kitchen is  an integral  part  of  the  club and that  cooking  of  

foodstuffs amounts to ‘manufacturing process’  falling within  

the  meaning of sub-section (14AA) of Section 2 of the ESI Act,  

thereby falling within the meaning of ‘factory’ as defined under  

Section 2(12) of ESI Act.  Being aggrieved, the appellant-club  

is in appeal before us.

4. Contention of  the  appellant  is  that  the  Club is  a  

non-profit  organization,  exclusively  rendering facilities  to  its  

members and that the ESI Act is not applicable to them.  It is  

contended  that  social  security  perks,  better  than  the  ones  

contemplated under the ESI Act, are already put in place for  

the benefit of employees.   Contending that preparation of food  

3

Page 4

items does not  amount to ‘manufacturing process’  and that  

provisions  of  ESI  Act  are  not  applicable  to  the  club,  the  

appellant  placed  reliance  on  the  decision  of  this  Court  in  

Indian Hotels Co. Ltd. Vs.  I.T.O. (2000) 7 SCC 39, wherein it  

was  held  that  preparation  of  foodstuffs  in  hotel  kitchen  is  

merely processing of food to make it edible and that there is no  

manufacturing process.

5. Per  contra,  learned  counsel  for  the  respondent  

submitted  that  the  purpose  is  to  extend  the  benefit  of  the  

scheme to the employees working in the appellant-club and  

while doing so, the object of welfare legislations, like the ESI  

Act,  ought  to  be  kept  in  mind.  Refuting  the  appellant’s  

contention that preparation of foodstuffs in the kitchen does  

not amount to ‘manufacturing process’, the respondent placed  

reliance on the decision of this Court in  G.L. Hotels vs.  T.C.  

Sarin (1993)  4  SCC 363,  wherein  it  was  held  that  cooking  

forms part of manufacturing process, as it alters and treats or  

otherwise adapts an article of food or substance with a view to  

its use, sale, delivery or disposal in the club. It was submitted  

that  the  High  Court  rightly  held  that  the  kitchen  of  the  

4

Page 5

appellant falls within the meaning of ‘factory’ as defined under  

Section 2(12) of the ESI Act.  

6. We have carefully considered the submissions and  

perused the materials on record.       

7. ESI Act is made applicable under Section 1(4) to all  

factories  including  factories  belonging  to  the  Government,  

other than seasonal factories. Proviso appended to Section 1(4)  

of  the  ESI  Act  carves  out  an exception.   Sub-section (4)  of  

Section  1  of  the  ESI  Act  shall  not  apply  to  a  factory  or  

establishment  belonging  to  or  under  the  control  of  the  

Government  whose  employees  are  otherwise  in  receipt  of  

benefits  substantially  similar  or  superior  to  the  benefits  

provided under this Act.

8. The provisions of Section 1(5) of the ESI Act enable  

the appropriate government to issue notification in respect of  

any other establishment or class of establishments, industrial,  

commercial,  agricultural  or  otherwise.   In  exercise  of  its  

powers  under  Section  1(5)  of  the  Act,  the  Delhi  

Administration  issued  the  notification  dated  20.03.1975  

extending the provisions of  the Act to certain  establishments.  

5

Page 6

Relevant portion of the said notification reads as under:

“1. Any  premises  including  the  precincts  thereof   whereon  ten  or  more persons but in any case less  than twenty persons, are employed  or were employed for wages on any  day of the preceding twelve months  and  in  any  part  of  which  a  manufacturing  process  is  being  carried on with the aid of power or  is  ordinarily  so  carried  on;  but  excluding  a  mine  subject  to  the  operation of the Mines Act 1952 (35  of 1952) or railway running shed or  an  establishment  which  is  exclusively  engaged  in  any  of  the  manufacturing process  specified  in  clause  (12)  of  Section  2  of  the  Employees  State  Insurance  Act,  1948 (34 of 1948).

In  the  Union  Territory  of Delhi.

2.  Any  premises  including  the  precincts thereof whereon twenty or  more persons are employed or were  employed for  wages on any day of  the preceding twelve months, and in  any part of which a manufacturing  process is being carried on without  the aid of power, or is ordinarily so  carried  on;  but  excluding  a  mine  subject to the operation of the Mine  Act, 1952 (35 of 1952) to a railway  running  shed  or  an  establishment  which is exclusively engaged in any  of  the  manufacturing  process  specified in clause (12) of Section 2  of  the  Employees’  State  Insurance  Act, 1948 (34 of 1948). 3…………..”  

In  the  Union  Territory  of Delhi.

In furtherance of the above notification, the ESI Corporation  

sought to apply the provisions of the Act to the appellant-club.

6

Page 7

9. The word “factory” has been defined in Section 2(12)  

of ESI Act as under:-

”2(12)  “factory”  means  any  premises  including   the  precincts  thereof whereon twenty or more persons are  employed or were employed for wages on any day of  the preceding  twelve months, and in any part of which  a  manufacturing process if being  carried  on with the  aid of power 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.”

The above definition is prior to the amendment Act 29/1989.  

In this appeal, we are concerned with the definition of “factory”  

as it existed prior to October 20, 1989.     

10. Prior  to  Act  29/1989, in Section 2(12)  of  the ESI  

Act,  the  expressions  “manufacturing  process”,  “power”  shall  

have  the  meaning  respectively  assigned  to  them  in  the  

Factories  Act,  1948.   After  Act  29  of  1989,  a  separate  

definition for “manufacturing process” has been incorporated  

in sub-section (14AA) of Section 2 which practically has the  

same effect.  It is seen from the definition of “factory” that the  

following conditions are to be satisfied in order to make any  

premises including the precincts thereof a factory:

(1) in  the premises  including the precincts   thereof  twenty or more persons  are employed  or were  

7

Page 8

employed  for wages on any day  of the preceding  twelve months;

(2)  in  any  part  of  these  premises   or  precincts,   a  manufacturing process  is being carried on, and  

(3) such manufacturing process  must be carried on  with the aid of power, or is  ordinarily so carried  on.

11. “Manufacturing  process”  has  been  defined  in  

Section 2(k) of the Factories Act, 1948 as under:-

“2. (k) ‘manufacturing  process’  means process for –

(i) making,  altering,  repairing,  ornamenting,  finishing,  packing,  oiling,  washing,  cleaning,  breaking  up,  demolishing,  or  otherwise  treating  or adapting  any article or substance  with  a   view  to   its  use,  sale,  transport,  delivery or disposal; or

(ii) pumping  oil,  water,  sewage  or  any  other  substance; or

(iii) generating,  transforming   or  transmitting  power; or  

(iv) composing  types  for   printing,  printing  by  letter  press,  lithography,  photogravure  or  other similar process or book binding; or

(v) constructing,  reconstructing,  repairing,  refitting, finishing  or  breaking up ships or  vessels; or  

(vi) preserving  or  storing  any  article  in  cold  storage.”

For the purpose of  this appeal,  we are concerned only with  

Section 2(k) (i) of the Factories Act.   

12.  We need not go into the details of  the number of  

employees working in the  kitchen of the appellant-club, as  

8

Page 9

admittedly more than 20 persons are employed in preparation  

of foodstuffs and serving  in the kitchen-catering division and  

those  employees  are  paid  salary,  wages,  gratuity  etc.  

Admittedly, the club maintains a kitchen, refrigerator, geyser  

and other equipments are used in making and preparation of  

foodstuffs wherein power is used.  That food items are being  

prepared in the kitchen and being served in the kitchen of the  

appellant-club to appellant-club’s members and their guests  

for payment is not disputed.  

13. The object of the appellant-club is to promote polo,  

hunting, racing, tennis and other games, athletic sports and  

recreations  amongst  its  members.  Huge  contribution  is  

collected  for  becoming  members  of  the  club  and  only  the  

privileged  can  become  the  members  of  the  appellant-club.  

There are wide range of sports activities, recreations and big  

budget  is  involved.   The  kitchen  of  the  club  has  a  direct  

connection with the activities carried on in the rest of the club  

precincts.  The members and the guests of the members share  

the services of the kitchen.   The ESI Act is enacted to provide  

certain benefits to employees in case of sickness, maternity in  

9

Page 10

case  of  female  employees,  employment  injury  and  to  make  

provision in certain other matters in relation thereto.  We find  

no  reason  as  to  why  the  employees  of  the  appellant-club  

should be kept out of  the welfare coverage of  the beneficial  

legislation like ESI Act.   

14. Let  us  now  examine  whether  preparation  of  food  

items  in  the  kitchen  of  the  appellant-club  amounts  to  

“manufacturing process” bringing the club within the purview  

of the definition of ‘factory’.   It has been consistently held by  

this  Court  that  preparation  of  foodstuffs  in  hotels  and  

restaurants  amounts  to  manufacturing  process,  thereby  

invoking the applicability of the provisions of the ESI Act.  This  

Court in G.L. Hotels Limited and Ors. vs.  T.C. Sarin and Anr.,  

(1993) 4 SCC 363 has affirmed the views of the High Court  

that “since the manufacturing process in the form of cooking  

and  preparing  food  is  carried  on  in  the  kitchen  and  the  

kitchen is a part of the hotel or a part of the precinct of the  

hotel, the entire hotel falls within the purview of the definition  

of “Factory”.”     

1

Page 11

15. In  Bombay  Anand  Bhavan  Restaurant vs.  Deputy  

Director,  Employees  State  Insurance  Corporation  And  Anr.,  

(2009) 9 SCC 61, the question for consideration was whether  

the  appellant-restaurant,  which  was  using  LPG  gas  for  

preparation  of  coffee,  tea  and  other  beverages,  is  covered  

under the ESI Act.  Observing that it is a settled position of  

law  that  cooking,  preparing  of  food  items  qualifies  as  

manufacturing process and that  the  use of LPG satisfies the  

definition  of power, this Court in paragraphs  (27) and (39)  

held as under:-        

27. Both the appellants prepare sweets, savouries and  other beverages in their establishments. It is a settled  position of law that cooking and preparing food items  qualifies as manufacturing process. In ESI v.  Spencer  & Co. Ltd.  (1978 Lab IC 1759 Mad)  the Madras High  Court held, while dealing with the case of a hotel run  by Spencer and Co., that preparation of coffee, peeling  of potatoes, making bread toast, etc. in a hotel, involve  “manufacturing process”. Similarly, the Bombay High  Court in Poona Industrial Hotel Ltd. v. I.C. Sarin (1980  Lab IC 100 Bom), held that the kitchen attached to  Hotel  Blue  Diamond  run by  the  petitioners  therein,  should be considered as a “factory” for the purpose of  the ESI Act. Hence,  it  is beyond doubt that there is  manufacturing process involved in the establishment  of the appellants. ……………… 39. In our view, the use of LPG satisfies the definition  of power as it is mechanically transmitted and is not  something  generated  by  human  or  animal  agency.  Since  the establishments of  the appellants involve a  manufacturing process with the aid of LPG, which can  

1

Page 12

now be  termed as  power,  the  establishments  of  the  appellants can be termed as factories, and therefore,  the ESI Act will apply to these establishments.”

16. On behalf of the appellant, it is contended that the  

above decisions are in respect of hotels and the appellant is  

only a club which has been running a kitchen and catering  

division only for the benefit of its members and the same is  

not for the purpose of making any profit and it should be held  

that the appellant-club does not fall  within the definition of  

“factory” under Section 2(12) of the ESI Act.  We find no merit  

in the above submission.    

17. The appellant-club is catering to the elite people of  

Delhi.  Appellant-club provides various services to its members  

and organizes several sports activities.  Wide range of activities  

of  the  club  are  associated  with  the  large  number  of  staff.  

Kitchen is an integral  part of the  club which  caters to the  

needs of its members  and their guests, on payment  of  money  

either in cash or by card,  where the food items are put for  

sale,  thereby  making  the  appellant-club  fall  within  the  

definition of ‘factory’ under Section 2(12) of the ESI Act.  All  

the  persons  employed  for  the  purpose  of  supply  and  

1

Page 13

distribution  of  food  prepared  in  the  kitchen  and  for  doing  

other  incidental  duties  in  connection  with  the  kitchen  and  

catering are to be regarded as employees of  the factory.   It  

hardly  matters  for  the  employee  whether  the  appellant’s  

kitchen is run with any profit making motive or not.

18.   The object of ESI Act is to provide certain benefits  

to  the  employees  in  case  of  sickness,  maternity  and  

employment  injury  and  also  to  make  provision  for  certain  

other matters in relation thereto. ESI Act is a beneficial piece  

of social welfare legislation aimed at securing the well-being of  

the  employees  and  the  court  will  not  adopt  a  narrow  

interpretation  which  will  have  the  effect  of  defeating  the  

objects of the Act.

19. In the case of  Bombay Anand Bhavan Restaurant   

vs.  Dy. Director ESI Corporation & Anr.  (2009) 9 SCC 61  in  

paragraph 20 it has been held as under :-

“20. The Employees’ State Insurance Act is a beneficial  legislation. The main purpose of the enactment as the  Preamble suggests, is to provide for certain benefits to  employees of a factory in case of sickness, maternity  and  employment  injury  and  to  make  provision  for  certain  other  matters  in  relation  thereto.  The  Employees’  State  Insurance  Act  is  a  social  security  legislation  and  the  canons  of  interpreting  a  social  

1

Page 14

legislation  are  different  from  the  canons  of  interpretation  of  taxation  law.  The  courts  must  not  countenance any subterfuge which would defeat  the  provisions  of  social  legislation  and  the  courts  must  even, if  necessary,  strain the language of  the Act in  order to achieve the purpose which the legislature had  in placing this legislation on the statute book. The Act,  therefore, must receive a liberal construction so as to  promote its objects.”

The same  principle  was reiterated  in Transport Corporation  

of  India vs.  Employees’  State  Insurance  Corporation  &  Anr.,  

(2000) 1 SCC 332 and Cochin Shipping Co. vs.  ESI Corporation  

(1992) 4 SCC 245.

20. Even though the term “kitchen”, “catering” of a club  

may not be called a factory in common parlance, having regard  

to the definition of “manufacturing process” and that ESI Act  

is  a  beneficial  legislation,  a  liberal  interpretation  has  to  be  

adopted.   Therefore,  so  long  as  manufacturing  process  is  

carried on with or without the aid of power by employing more  

than  twenty  persons  for  wages,  it  would  come  within  the  

meaning of “factory” as defined under Section 2(12) of the ESI  

Act.   The contention that  the appellant-club is  a non-profit  

making organization would not take away the same from the  

purview of the Act.   

1

Page 15

21. In  The  Bangalore  Turf  Club  Ltd. vs.  Regional  

Director, Employees  State  Insurance  Corporation  reported  in  

(2014) Vol.9 Scale 177, the question  which was referred to  a  

larger  Bench was  “whether   the  Bangalore  Turf  Club  Ltd.  

being  engaged in organizing  sports  activities  which involves  

providing of service to the members of the Club and outsiders  

can be construed  as a “shop” for the purpose of extending  the  

benefits  under the ESI Act.”  Referring to Cochin Shipping Co.  

vs.  ESI  Corporation  (supra)  and  Bombay  Anand  Bhavan  

Restaurant vs. Deputy Director ESI Corporation & Anr.  (supra),   

in paragraphs (71) and (72), it was held as under:

“71. It  has  consistently  been  the  stand  of  the  Appellants-  herein  that  the  term  ‘shop’  must  be  understood in its ‘traditional sense’.  However, as has  been observed by this Court  in the case of  Bombay  Anand Bhavan Restaurant (supra), the language of the  ESI  Act  may   also   be   strained  by  this  Court,  if  necessary.  The scheme  and context of the ESI Act  must be given  due consideration by this  Court.   A  narrow meaning  should not be attached  to the words  used in the ESI Act.  This Court  should bear in mind  that  the  ESI  Act  seeks  to  insure  the  employees  of  covered establishments against various risks to their  life, health and well-being  and places the said charge  upon the employer.  

72. We  find  that  the  term  ‘shop’  as  urged  to  be  understood  and  interpreted  in  its  traditional  sense  would not serve the purpose of the ESI Act.  Further in  light   of  the  judgments  discussed   above  and  in  particular the  Cochin Shipping Case (supra)  and the  

1

Page 16

Bombay Anand Bhavan Case (supra), this Court is of  the  opinion  that   an  expansive  meaning  may  be  assigned to the word ‘shop’ for the purposes of the ESI  Act.   As has been found above,  the activities  of  the  Appellant-Turf Clubs is in the nature of organized and  systematic  transactions,  and  further  that  the  said  Turf  Clubs  provide  services  to  members  as  well  as  public  in  lieu  of  consideration.  Therefore,  the  Appellant-Turf  Clubs are a ‘shop’  for the purpose of  extending the benefits under the ESI Act.”        

22. In  Employees  State  Insurance  Corporation vs.  

Hyderabad Race Club, (2004) LLR 769 (SC)=(2004) 6 SCC 191,  

this Court has clarified that a club will be coverable under the  

ESI Act.

23. In  Cricket  Club  of  India,  Bombay vs.  Employees’  

State Insurance Corporation (1998) LLR 729 (Bombay HC), the  

Bombay High Court has held that ESI Act will apply to a club  

since there was no distinction between a hotel and a club. In  

Employees’  State  Insurance  Corporation vs.  Jalandhar  

Gymkhana Club, (1992) LLR 733 (P & H HC), the Punjab and  

Haryana  High  Court  considered  the  question  whether  

manufacturing process is being carried on in the kitchen of  

the club, rendering catering services to its members.  It was  

held  that a perusal of sub-clauses (i) to (vi) of Section  2(k) of  

1

Page 17

the Factories Act would make  it clear that  preparation of the  

items which are prepared in the kitchen and the preservation  

and storing of any articles in the cold storage would amount to  

a manufacturing process.  

24. The  counsel  for  the  appellant  claimed  exemption  

under Section 1(4) of the ESI Act,  contending that the club is  

already providing  medical facilities and that they have staff  

welfare  fund  out  of  which  employees  are  paid  in  cases  of  

death, funeral expenses and in case of illness and hence ESI  

Act is not applicable to them.  The provisions of ESI Act must  

be construed along the lines of the objects of the Act so that  

the benefits of welfare legislation are not curtailed.  ESI Act  

provides a kind of social security and employees are one of the  

most vulnerable and deprived section of the society, who are in  

the constant need of protection, security and assistance.  The  

social security system needs to be effective and constructive  

and should have more coverage areas.  Government has the  

obligation  to  protect  working  class  from  uncertain  

contingencies  so  that  they  can  happily  contribute  towards  

social security schemes. ESI Act and all the provisions of the  

1

Page 18

Act are significant and are meant to realize State’s obligation  

in  safeguarding  the  rights  provided  under  Part  IV  of  the  

Constitution.  The appellant’s contention regarding adequate  

social security benefits being already in place is not tenable.   

25. In the light of  the various decisions and the view  

taken by this Court in  G.L. Hotels  case, the High Court has  

rightly held that the  preparation of  food items in the kitchen  

of  the  appellant-club  amounts  to  “manufacturing  process”  

and that  the employees are covered  under the purview of the  

ESI Act.   Considering the activities of the appellant-club and  

that  the  kitchen  catering  forms  an  integral  part  of  the  

appellant-club, the High Court rightly held that  the appellant-

club falls within the purview of the ESI Act and we do not find  

any infirmity in the order passed by the High Court.     

26.  Learned  counsel  for  the  appellant-club  then  

submitted that the order under Section 45-A was passed in  

1986 and by this time the contribution amount payable would  

have accumulated and, therefore submitted that in case if the  

Court  holds  that  the  employees  of  the  appellant-club  are  

covered under the ESI Act, the contribution should be made  

1

Page 19

prospective from the date of the order passed by this Court.  

The  Act  being  a  beneficial  legislation,  the  above  contention  

cannot be countenanced.  ESI contribution ought to have been  

paid  when  the  demand  was  made  in  1986.  It  is  very  

unfortunate  that  the  appellant-club  has  not  paid  the  ESI  

contribution of its employees for more than three decades and  

is  not  justified  in  seeking  for  prospective  operation  of  the  

order.

27. The  impugned  order  of  the  High  Court  does  not  

suffer from any infirmity warranting interference.  We find no  

merit in the appeal and the same is dismissed.  

……………………………..J. (T.S. Thakur)

……………………………. J.  (R. Banumathi)  

New Delhi; October 28, 2014         

1