In a judgment dated 9 May 2025, a Division Bench of the Andhra Pradesh High Court comprising Justice Ravi Nath Tilhari and Justice Challa Gunaranjan dismissed an appeal filed by the Regional Director of the Employees’ State Insurance Corporation. The Court upheld the Labour Court’s decision declaring K.S.R. Cotton Mills Pvt. Ltd. as a seasonal factory under Section 2(19A) of the Employees’ State Insurance Act, 1948, thereby exempting it from the Act’s coverage.
Background
The appeal arose from the order passed on 29 March 2007 by the Labour Court, Guntur, in ESI O.P. No.7 of 1998. The respondent, K.S.R. Cotton Mills Pvt. Ltd., had approached the Labour Court seeking a declaration that it was a seasonal factory, and hence, not covered under the ESI Act. The mill contended that its operations—primarily cotton ginning and pressing—were conducted only for 2 to 3 months a year and depended on the availability of ginned cotton.
The ESI Corporation, through a letter dated 15 October 1997, had informed the respondent that it was covered under the Act and subsequently demanded records. A formal notice was issued on 12 February 1999.
Labour Court’s Findings
The Labour Court found that the factory’s main activity was cotton ginning—a manufacturing process explicitly listed under Section 2(19A) of the ESI Act. It held that this rendered the factory seasonal in nature. The Court also noted that fewer than 10 workers were employed and those drawing wages above the prescribed ESI limit were exempt.
Arguments in Appeal
The ESI Corporation, in its appeal under Section 82 of the ESI Act, contended that:
- The factory was not exclusively seasonal as it also engaged in commercial activities like buying and selling ginned cotton.
- After the 1989 amendment to the ESI Act, the number of employees was no longer a relevant criterion for applicability.
They relied on multiple precedents, including M/s. Jayalakshmi Cotton & Oil Products (P) Ltd., Delhi Gymkhana Club Ltd. v. ESI Corporation, and Radhika Theatre.
Court’s Analysis
The High Court rejected the appellant’s arguments on both counts:
- On Seasonal Factory Classification:
Referring to Jayalakshmi Cotton & Oil Products, the Court reiterated that a factory is considered seasonal if its primary manufacturing process, such as cotton ginning and pressing, is seasonal—even if it engages in incidental or connected processes. The Court observed:
“The predominant activity is cotton ginning… merely because of sale of cotton lint, the factory would not lose its characteristic of ‘seasonal’ in nature.” - On Applicability of Section 1(6) of ESI Act:
The Court clarified that Section 1(6) only preserves ESI coverage for establishments already governed by the Act, even if employee numbers later fall below the statutory threshold. It stated:
“If the ESI Act was previously not applicable at all and for the first time it was being applied, the number of employed persons would be relevant, and if below 10, the ESI Act could not be applied.”
Citing the Radhika Theatre and Punjab State Electricity Board cases, the Court emphasised that Section 1(6) does not extend coverage to entities never previously under the Act.
Decision
The Court found no error in the Labour Court’s findings. It concluded:
“The respondent No.1-factory is a seasonal factory as held by the learned Labour Court and so out of the purview of the ESI Act.”
Accordingly, the appeal was dismissed, holding that no substantial question of law arose.
Case Title: The Regional Director, ESI Corporation vs K.S.R. Cotton Mills Pvt. Ltd. & Another
Case No.: Civil Miscellaneous Appeal No. 498 of 2008
