# 11 v. THE EMPLOYEES INSURANCE COURT & ANR

- **Citation:** [1978] 2 S.C.R. 345
- **Court:** Supreme Court of India
- **Decided:** 1977-12-02
- **Case number:** Civil Appeal No. 652 of 1976
- **Bench:** V. R. Krishna Iyer, P. S. Kailasam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/11-v-the-employees-insurance-court-anr-7379
- **Pages:** 8

## Headnote

Employees State Insurance Act 1948-Sec. 2(9) & 2(11), 38-Whether
employees not working in the factory but employed in connection with the work
of the factory are covered by the act.
B
The appellant Company has a tactory situated at Sanatnagar where asbestos
sheets are manufactured. The Company has zonal sales offices
in
various
cities. In the State of Andhra Pradesh they have such zonal offices at Vijaya~
C
wad.a and Vizagapatnam. There are employed in the zonal office at Vijayawada
who do the work of canvassing for the sale of products manufactured in the
factory located at Sanatnagar. The appellant contended that the zonal offices
are establishmentS and are not factories and, as such, do not fall within the
scope of the Employees State Insurance Act, 1948. The High Court negatived
the contention of the appellant.
.
The appellant in an appeal by certificate granted by the High Court conten4ed that the Act makes a distinction between· a factory and an establishment and
D
that the zonal offices and branch offices are in the nature of establishments
and cannot be brought within the purview of factories. In order to bring an
employee within the scope of the Act it was submitted he should not only be
an employee within the meaning of section 2(9) of the Act but also he should
be an employee of the factory as defined in section 2(12) of the Act. The
scheme of the Act and particularly section 38, which is the charging it was submitted section would indicate that the Act was intended to cover only employees
in factories and employees who are connected with the work of the factory.
E
The respondents supported the judgment of the High Court.
Dismissing the appeal held :
1. The object of the -enactment is to provide for certain benefits to employees
in case of sickness, maternity and employment injury and to make provision for
certain other matters in relation thereto. Section 2(9) defines employee to
mean any person employed for wages in or in connection with the work of a
factory or establishment to which the Act applies and
includes any person
F
employed for \Vages on any work and includes factory .or establishment or any
part, department or branch thereof or with the purchase of raw materials for
or the distribution or sale of the products of the factory or establishment. The
latter part of the definition was added by the Amending Act 44 of 1966.
[348 B, F, G, 349 Cl
Nagpur Electric Light & Power Co. Ltd. v. Regional Director Eniployees
State Insurance Corporation Etc. [1967] 3 SCR P. 92 E1nployeei State Insurance
G
Corporation with its Regional Office at Coimbatore v. Ganpathia Pillai and Ors.
A.J.R. 1961 Mad. 176, referred to.
2. The amendment was made for the purpose of covering cases which were
held to be outside the scope of section 2(9) by the decisions of Bombay and
Madras High Courts. The amended section includes any person employed for
wages on •any work connected with the adininistration of the factory or any
part department or branch thereof or with the purchase of raw materials or 'for
the distribution or sale of products of the factory. It is clear that the work
H
connected with the administration of the factory, the purchase of raw materials
and the distribution of sale of products are brought within the scope of the
definition.
[353 H, 354 A-BJ
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346
SUPREME COURT REPORTS
[1978] 2 S.C.R.
3. The court negatived the contention that only employees who are employed
in the factory are required to be insured and not employees employed in connection with the work of the factory. The court held that employees employed
for administrative purposes or for purchase of raw materials, or for sale of ·the
finished goods if employed in connection with the work of the factory are included within the definition of en1ployees.
[352 A-D]

## Text

)
~I
345
HY.DERABAD ASBESTOS CEMENT PRODUCTS LTD.
A
11:-
v.
THE EMPLOYEES INSURANCE COURT & ANR.
December 2, 1977
[V. R. KRISHNA IYER AND P. S. KAILASAM, JJ.]
Employees State Insurance Act 1948-Sec. 2(9) & 2(11), 38-Whether
employees not working in the factory but employed in connection with the work
of the factory are covered by the act.
B
The appellant Company has a tactory situated at Sanatnagar where asbestos
sheets are manufactured. The Company has zonal sales offices
in
various
cities. In the State of Andhra Pradesh they have such zonal offices at Vijaya~
C
wad.a and Vizagapatnam. There are employed in the zonal office at Vijayawada
who do the work of canvassing for the sale of products manufactured in the
factory located at Sanatnagar. The appellant contended that the zonal offices
are establishmentS and are not factories and, as such, do not fall within the
scope of the Employees State Insurance Act, 1948. The High Court negatived
the contention of the appellant.
.
The appellant in an appeal by certificate granted by the High Court conten4ed that the Act makes a distinction between· a factory and an establishment and
D
that the zonal offices and branch offices are in the nature of establishments
and cannot be brought within the purview of factories. In order to bring an
employee within the scope of the Act it was submitted he should not only be
an employee within the meaning of section 2(9) of the Act but also he should
be an employee of the factory as defined in section 2(12) of the Act. The
scheme of the Act and particularly section 38, which is the charging it was submitted section would indicate that the Act was intended to cover only employees
in factories and employees who are connected with the work of the factory.
E
The respondents supported the judgment of the High Court.
Dismissing the appeal held :
1. The object of the -enactment is to provide for certain benefits to employees
in case of sickness, maternity and employment injury and to make provision for
certain other matters in relation thereto. Section 2(9) defines employee to
mean any person employed for wages in or in connection with the work of a
factory or establishment to which the Act applies and
includes any person
F
employed for \Vages on any work and includes factory .or establishment or any
part, department or branch thereof or with the purchase of raw materials for
or the distribution or sale of the products of the factory or establishment. The
latter part of the definition was added by the Amending Act 44 of 1966.
[348 B, F, G, 349 Cl
Nagpur Electric Light & Power Co. Ltd. v. Regional Director Eniployees
State Insurance Corporation Etc. [1967] 3 SCR P. 92 E1nployeei State Insurance
G
Corporation with its Regional Office at Coimbatore v. Ganpathia Pillai and Ors.
A.J.R. 1961 Mad. 176, referred to.
2. The amendment was made for the purpose of covering cases which were
held to be outside the scope of section 2(9) by the decisions of Bombay and
Madras High Courts. The amended section includes any person employed for
wages on •any work connected with the adininistration of the factory or any
part department or branch thereof or with the purchase of raw materials or 'for
the distribution or sale of products of the factory. It is clear that the work
H
connected with the administration of the factory, the purchase of raw materials
and the distribution of sale of products are brought within the scope of the
definition.
[353 H, 354 A-BJ
!/'
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B
c
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E
F
346
SUPREME COURT REPORTS
[1978] 2 S.C.R.
3. The court negatived the contention that only employees who are employed
in the factory are required to be insured and not employees employed in connection with the work of the factory. The court held that employees employed
for administrative purposes or for purchase of raw materials, or for sale of ·the
finished goods if employed in connection with the work of the factory are included within the definition of en1ployees.
[352 A-D]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 652 of 1976.
From the Judgment and Order dated 5-12-1975 of the Andhra
Pradesh High Court in Writ Petition No. 2907 /74 and
Civil Appeal No. 1314 of 1977
Appeal by Special Leave from the Judgment and Order dated
9-11-1976 of the Calcutta High Court in Matter No. 631 of 1973 and
Civil Appeal No. 900 of 1977
From the Judgment and Order dated 21-6-1976 of the Andhra
Pradesh High Court in Writ Appeal No. 286/76 and·
CMP Nos. 8014/76 and 7030, 7853, 7854 and 12195 of 1977.
Sachin Choudhary and Naunit Lal for the Appellant in CA 652/76.
Shanker Chose and D. N. Gupta for the Appeallant in CA 1314/77.
Naunit Lal, Kai/ash Vasudev and Miss Manju Jetley for the Appelfant in C.A. 900 of 1977.
G. P. Pai, O. C. Mathur and D. N. Mishra for the Jntervcner-Voltas.
Sachin Choudhary, Anil Diwan, 0. C. Mathur and D. N. Mishra for
the Intyrvener in Hindustan Lever.
0. C. Mathur, D. C. Shroff and D. N. Mishra for lntervener-Rallia
India Ltd.
Anil Diwan, D. C. Shroff and 0. C. Mathur for the Inlerl'encrMerch Shop & Dhome of India.
D. C. Shroff and I. N. Shroff for the Intervener-LC.I. (India) P.
Ltd.
.
S. N. Kacker, Sol. Genl., K. N. Bhat and Girish Chandra for
Respondent No. 2 in CA 652/76 and RR in CA No.
1414 and
900/77.
G
The Judgment of the Court was delivered by
u
KAILASAM, J. These appeals l'l!ise the same question of Jaw and
may be dealt with together and can be disposed
of by a common
judgment.
Civil Appeal No. 652 of 1976 is filed by the Hyderabaci Asbestos
Cement Products Ltd. by certificate granted by the High Court
of
Andhra Pradesh by an order dated 2nd April, 1976. The appellant
company is a factory situated at Sanatnagar where asbestos sheets are
1. manufactured.
The company has Zonal Sales Offices in various States
)
HYDERABAD ASBESTOS v. E.l.C. (Kaiu1sam, J.)
34 7
and in th~ State of Andhra Pradesh they have such Zonal Offices at
A
Vijayawada and Visakhapatnam.
We are concerned with the Vijaywada Zonal Office.
There are employees in tlie Zonal Office who do
the work of canvassing for the sale of products manufactured in the
factory located at Sanatnagar. It is contended that the Zonal Offices
.are establishments and are not factories, and as such do not fall within
the scope of the Employees' State Insurance Act, 1948.
The High
Court negatived the contention of the appellant.
B
Civil Appeal No. 900 of 1977 is by a certificate granted by the
Andhra Pradesh High Court' to the appellant, M/s. Foods, Fats &
Fertilisers Ltd., Tadepalligudem, West Godavari District.
The appelfant is having a factory at Tadepalligudem in West Godavari distrist
where rice bran oil, alvitone and cattle food etc. are being manufactured.
The appellant is :llso having an administrative and export office at No.
C
115-B.N. S. C. Bose Road, from where rice bran, textile yarn etc. are
·exported to foreign countries. The administrative work is also carried
·on in. the Madras office in relation to the business of the company. It
was contended that the employees of the company at the Madras office
.are not employees under_ the Employees' State. Insurance Act, 1948.
The High Court of Andhra Pradesh following its decision in W.P. No.
2907 of 1974 against which Civil Appeal No. 652 of 19?6 is preferred,
D
·dismissed the petition and granted a certificate.
Civil Appeal No. 1314 of 1977 is an appeal by M/s. Union Carbide
.(India) Ltd. agaiiist the decision of a Bench of the Calcutta High Court
in Matter No. 631 of 1973 by special leave granted by this Court. The
appellant is a public limited company carrying on business in the
manufacture and sales o.f diverse consumer products such as finished
E
·batteries, flashlights, Arc carbons, Chemicals and Plastics and also in
pesticide and proce6sing and export of shrimp. For carrying on the
business of the company the company operates· factories all over India.
Right of the manufacturing units have been placed under the Calcutta
General Office which is situate at I-Middleton Street, Calcutta. According to the appellant, the Calcutta General Office of the company is
concerned with managing the affairs of the company in general and with
F
laying down the broad policie.t in respect of the business of the ei1zht
factories and falls within the meaning of West Bengal.
Shops & Establishments Act.
The High Court rejected the plea of the appellant hvlding that the employees in question fall under the Employees' State
Insurance Act.
Apart from the three appellants, several companies, Valtas Ltd..
G
Hindustan Lever Ltd., Rallis India Ltd., Merck Sharp and Dahme of
India Ltd., and Indian Chemical Industries were all permitted to appear
as interveners.
The main contentions that were put forward in these appeals are
that the Act maintains a distinction between a factory and an establishment and that the Zonal Offices and Branch Offices with which we are
H
concerned in these appeals are in the nature of establishments and cannot
be brought within the purview of factories.
It was next contended that
in order to bring an employee within the scope of the Employees' State
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348
SUPREME COURT REPORTS
[1978] 2 S.C.R.
Insurance Act, he should not only be an employee within the meaning
of section 2(9) of the Act but also that he should be an employee of
a factory as defined in section 2(12) of the Act. It was submitted
that the scheme of the Act and particularly the charging section, section
38. would indicate that the Act was intended to cover only employees in
factories and not employees who are connected with the work of the
factocy.
For appreciating the contentions of the appellants it is necessary to
set out the relevant provisions of the Employees' State Insurance Act.
. The object of the enactment is to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make
provision for certain other matters in relation thereto.
Section l, subsection (4) provides that the Act shall apply, in the first instance, to•
all factories (including factories belonging to the Government) other
than seasonal factories.
Section 1 (5) provides tliat the appropriate
Government may in consultation with the Corporation and where the
appropriate Government is a State Government, with the approval of
tlie Central Government, after giving six months' notice of its, intention
of so doing by notification in the Official Gazette, extend the provisions
of this Act or any of them, to any other establishment or class of
establishments, including) commercial, agricultural or otherwise. While
sub-section ( 4) to section 1 provides that the Act shall at the first
instance apply to all factories other than seasonal factories, sub-section
( 5) empowers the Government after giving six months' notice by
notification in the Official Gazette to extend the provisions of the Act
to any establishment or class of establishments. Before the Act is made
applicable to an establishment the procedure envisaged under subsection (5) will have to be followed.
It is admitted that the Government have not issued any notification as provided in sub-section ( 5)'
and therefore the Act is not made applicable to any establishment. TI1e
plea on behalf of the appellants is that in the circ:umsfances the word
"employee" should only be confined to employees who are employed in
factories and not to employees who are employed in establishments. The
submission is that .employees in Zonal Offices for sale of manufactured'
goods and employees in administrative offices are not employees. of the
factory.
·
Section 2(9) defines "employee" as follows :
"employee" means any person employed for wages, in or
in connection or with the work of a factory or establishment
G
to which this Act applies andH
(i) who is directly employed by the principal employer on any
work of or ncidental or preliminary to or connected with
the work of the factory or establishment, whether such work
is done by the employee in the factory or establishment or
eJSewhere; or
··
(ii)
x
x
(iii) whose services are temporarily lent or let on hire to the
principal employer by the person with whom the person
HYDERABAD ASBESTOS v. E.I.C. (Kailasam, J.)
349
whose services are so lent or Jet on hire has entered into
A
a contract of service;
and includes any person employed for wages on any work
connected with the administration of the factory or establishment or any part, department or branch thereof or with the
purchase of raw materials for, or the distribution or sale of
the products of, the factory or establishment; but does not
includex
x
x
x
x
The definition as it originally stood under clause (i) applied tci a person
employed for wages by a person directly employed by the principal
employer on any work of, or incidental or preliminary to or connected
with the work of the factory of establishment, whether such work is
done by the employee in the factory or establishment or elsewhere. By
an amendment by Act 44 of i 966 the words ".and includes any person
employed for wages on any work connected with the administration of
the factory or establishment or any part, department or branch thereof
or the purchase' olf raw m~terials for, or the distribution or sale, of the
products of, the factory or establishment; but does not include" for the
words "but does not include" were added to (iii). The scope of the
word "employee" as defined before the amendment came to be considered by the Sl!preme Court in Nagpur Electric Light & Power Co.,
Ltd. vs. Regioiwl Director Employees State Insurance
Corporation,
Etc.(') The company in that case, carried on the work of transforming
and transmitting electrical energy.
There was dispute between the
company and the respondent, Employees' State Insurance Corporation,
as to whether certain employ~s of the company like engineers, draughtsmen, clerks, accountants, e!c. were employees within the meaning of
section 2(9) of the Employees' State Insurance Act The c6urt held
that all the employees of the disputed categories clerks or otherwise
were employed in connection with the work of the factory. that is to
say, with the work of transforming and transmitting electrical power,
and a person doing non-manual work can be an employee if he is
employed in connection with the work of the factory and the duties- of
the administrative staff are also directlv connected within the work of
the factory. The court also held that few employees who worked outside
the factory but whose duties were connected with the work of the factory
were employees wthin the meaning of section 2(9) (i).
Discussin~
the scope of the definition of the word "employee" the Court held that
the assistant engineers, supervisors, electricians, and overseers are
engaged in the erection and maintenance of the electricity supply lines
connected with transmission of power.
The cable jointer, mistries,
linemen, coolies and wiremen are employed for inspection of the supply
lines, digging pits, erecting poles, for laying distributioi: mains and service
lines ...... The attendants in-charge of the sub-stattons look after the
transformation and transmission of power. The motor drivers and
cleaners are employed for carrying materials and tower ladders in trucks
for maintenance of the supply lines .......... The telephone operators
attend to the telephone calls for all the. depa~tments. The_ menial staff
is required to do miscellaneous work mcludmg he
cleamn~ of the
-(ii"ft967]3 SCR P 97,
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350
SUPREME COURT REPORTS
(1978] 2 S.C.R.
office compound.
The motor car staff is employed to look aft~r die
cam employed in. the administration section.
All tl>ese employees,
clencal or otherwise, are employed in connection with the work of the
factory, that is to say, in connection with the work of transforming
and trans)llittin_g electrical power."
The Court proceeded to observe
that few employees who work outside the factory
have \he[r duties
connected with the work of the factory.
The Jaw therefore is clear
that any employee who is connected with the work of the factory would
be an employee under section 2 (9) whether he works within the factory
or outside its premises.
The question arose whether the employees whose work was t.i sell
the products of the. factory would be called employees of the factory
and as to whether pers.ons employed purely on the administrative side
of the Mills and sale of finished goods could come within the pu;vicw
of the definition, of "employee" under section 2(9) of the Act.
In
(Employees'
State
Insurance
Corporation, Bombay
vs. Raman
(Chittur Harihar Iyer) (1), Gajendragadkar J.,
as he then was, held
that to satisfy the requirement's of section 2(9) (i) it must be
shown that the employee was employed in any work of.
or
incidental or preliminary to,
or
connected
with
the work
of the factory.
As in the case. of the factory in the present cao<: the
work "began with the collection of raw materials and ended wit!' the
production of finished articles, it would be difficult (c· accede tc the
argument that the work of selling the products of t11e factory was connected with the work of the factory.
The work of selling canno~ be
said to be incidental or preliminary to the work of the factory.''
Jn
Employees' State Insurance Corporation with its Regional office at
Coimbatore vs. Ganpathia Pillai and Others("), a Bench of the Madras
High Court considered the question whether persons employed in
managing agent's office not connected with manufacturing process or
with work of factory can be deemed to be employees Iiubk for contributions under the Employees' State Insurance Act.
Chief
Justice
Rajamannar held following the decision of the Bombay High Court
reported in 1957 Vol. l, L.L.J. 267 (supra) that only persons who
are in some manner or other connected with the manufacturing process
cari be said to be employees within the meaning of the definition.
Adverting to the words "incidental or preliminary to" the learned Judge
l1eld that both the words have to be understood in conjunction with the
work of the factory. Accepting the affi!lavit filed on behalf of one of
the respondents that he was not attending to the accounts of the factory
and that his work was confined to the accounts of the managing agents
office, the learned Judge held it cannot be said in any sense th:it he
was employed in any work incidental or preliminary to the woric of
the factory.
The amendment to section 2.(9) introducing the inclusive definition
referred to above was enacted by Act 44 of 1966 which came. into force
on 28-1-1968. It may be noted that !he decisions of the Bombay •tnd
the Madras High Courts referred to above (supra) were rendered be!..ire
the amendment was in~oduced and it appears the amendment
'.vasi
(l) [19571 lLLJ P 267 (Born)
(2) A.l.R. 1961 Mad P. 176.
J
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HYDERABAD ASBESTOS v. E.I.C. (Kailasam, J.)
351
introduced for the purpos" of covering cases which were held to be
A
outside the scope of section 2(9) by the two decisions. The amended
section includes any perso.n employed for wages on any work connected
. with the administration of the factory or any part, department or branch
thereof or with the purchase of raw materials or for the distribution or
sale of products of the factory.
It will be seen that the work connected
with the administration of the factory, the purchase of raw materials
and the distribution or salo of products are bro.11ght within the ·scope
B
of the definition. After the amendment therefore the plea tliat employment in connection with the administration of the factory or with the
purchase of.raw materials or distribution or· sale of products cannot be
contended to 'be as not falling within the definition.
· -
The contention of the learned counsel for the! appellants is that the
word "factory" is confined only to persons who are employed with the
. manufa.:turing process.
- .- - -
-
The definition of the word factory is as follows :-
. "factory" -means any premises including . the . precincts
· thereof whereon twenty or more persons are emplo; ed 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 does not include a mine subject to the operation
. of the Miiies Act, 1952 or a running shed;"
The ward factory is confined to the premises including the precin~ts
theroofwhere the manufacturing process is carried on. The submission ·
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OJI behalf of the appellants is that an employee of the factory should
E
not only be an employee falling within the definition of -the:· word
"employee" but also an employee of the factory i.e. of a factory as
defined in section 2(12). In; support of their plea reference was made·
to section 38 of the Act which requires that all employees of the factories
should be insured. Section 38 lays down that all employees in factories,
·or establishments to which this Act applies shall be insured in the
manner provided by this Act. It was submitted that to fall within the
charging section 38 employees should be employees in factories and
not employees connected with the work o.f the factory. · Anil Dewan.
appearing for the Indian Chemical Industries submitted that the words.
"employees in factories" are significqnt and that only employees who
are employed in the factory are required to be insured and not employees
who are employed in connection with the work of the factory.
The
learned counsel proceeded to point out that the amendment is confined
onlv to persons employed on any work connected with the administration
and not employed iri the factory and submitted that the_ :ioplicability
should be strictly confined to the employees in factories.
The contention put forward, it was pleaded, is more reasonable as the Act thrm1Qhout maintains a distinction between factory and establishments ar.d it
is aroinst the tenor of the Act to bring emoloyees in establisl=ents·
within the meaning of employees of the factories. The learned counsel
also pointed out that in various firms the employees themselves iire
al'ainst their being included within the scope of the Act and the resultant position will be that as between two establishments wl1ich
are
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352
SUPREME COURT REPORTS
[1978] 2 S.C.R.
functioning under' the, same conditions one establishment which is con·
nected with the sale of finished product of the factories will come within
the scope of the Employees' Stare Insurance Act whereas the other
establishment would be outside the purview of the Employees' State
Insurance Act.
On a careful consideration of section 2(9) section
2(12), section 38 and section J9 we are nnable to accept the restricted
interpretation sought to be put upon the words "employees in factories".
Even before . the amendment the word "employee" included persons
connected with the work of the factory. The Supreme Court has laid
down that a person employed in connecton with the work of the factory
would. fall within the definition as it stood before tl1e amendment and
it may not be open to the learned counsel to contend that it is only
employees that are employed in the factory that would fall witJ1in the
definition.
The definition before the amendment as welf as after the
amendment would include not only persons employed in the factory
but also in connection with the work of the factory. Thns section 39
of the Ac~ makes the position clear. It provides that the contribution
payable nnder the Act is in respect of an employee.
It is not confined
only to employees in factories.
We see no justification for reading
the words employees in factories in section 38 as meaning persons
employed in factories only. We we nnable to accept the contention
that the employees that are required to be insured under the Act are
only those employed in factories defined under section 2 (12) of the
Act.
It was submitted that the test as to whether an employee is an
employee "in a factory" is the test of not physical presence or absence
outside the precincts of the factory but the test is whether he is under
the control of the factory and is on the factory wage roll, or other
similar tests.
We are unable to accept the contention for on a reading
of the relevant sections it is clear that the word "employee" would
include not only persons employed in the factory bnt also persons connected with the work of the factory.
The employee may be workmg
within the factory or outside the factory or may be employed for administrative purposes or for purchase of raw materials or for sale of !lie
finished goods all such employees are included within the definition o[
"employee".
A recent decision of the Bench of the Madras High Court
in W.Ps 144-149 and 331 of 1971 dated 14th October, 1976 has also
taken a similar view. We a~ree with the view taken by the judgments
of the Andhra High Court and of the Calcutta High Court and dismiss
these appeals with costs.
P.H.P.
Appeals dismissed.
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