Bombay High Court: In an appeal revolving around whether the use of refrigerator for storage of medicines amounts to manufacturing process, a Single Judge Bench of Jitendra Jain, J., while allowing the appeal, held that mere act of preserving or storing medicines in a refrigerator by a trader does not fall within the meaning of ‘manufacturing process’ under Section 2(14-AA) of the Employees’ State Insurance Act, 1948 (‘ESI Act’) read with Section 2(k)(vi) of the Factories Act, 1948 (‘Factories Act’). It was observed that the appellant would not be liable to be registered and to make contributions under the ESI Act.
Background:
The appellant was a trader involved in the business of distribution of medicines of several pharmaceutical companies. The medicines purchased from pharma companies were stored in the refrigerator till they were finally sold. On 8-9-2015, the ESI Court held that preservation and storage of medicines in the refrigerator would amount to process of manufacturing since the said process continued till the goods were disposed of by a person who was involved in the trade.
The appellant challenged the order and submitted that it was only a trader and by preserving the medicines in the refrigerator, it did not engage in the manufacturing of these medicines, and therefore, could not be made liable under the ESI Act. On the other hand, the respondent (‘ESI Corporation’) contended that on a conjoint reading of Sections 2-A, 2(12) and 2(14-AA) of the ESI Act with Section 2(k)(vi) of the Factories Act, 1948, the activity of storing and preserving medicines in cold storage came within the definition of ‘manufacturing process’. It was alleged that the very act of preservation constituted a manufacturing process, and that such a process need not result in the creation of a new product but could also include the maintenance of an existing one.
Analysis and Decision:
The Court noted that no question was framed on the number of persons employed and proceeded on the basis that the number of persons employed by the appellant satisfied the requirement provided under the ESI Act. The Court analysed Section 2(14-AA) of the ESI Act and Section 2(k)(vi) of the Factories Act which provided that manufacturing process meant any process for preserving or storing any article in cold storage. The Court observed that the act of preserving or storing is preceded by ‘process for’ preserving or storing any articles in cold storage and it is the process for preserving or storing which amounts to manufacturing process and not the mere act of preserving or storing.
The Court opined that if the legislature intended act of preserving or storing per se as a manufacturing process, the phrase would have been ‘process of’ and not ‘process for’. The Court observed that the appellant was only a trader and the act of mere act of preserving or storing medicines in cold storage would not fall within the ambit of ‘manufacturing process’, and therefore the appellant would not be liable to be registered and to make contribution under the ESI Act.
The Court clarified that the term ‘process’ connotes some continuous and regular action taking place or carried out in a different manner, and it is part of manufacturing. It is settled position that in a process, new product may not come into existence but in manufacturing a new product must come into existence. Processing is a part of manufacturing, and all processes need not amount to manufacture, but all manufacturing is a result of various processes.
The Court interpreted Section 2(k)(vi) of the Factories Act and explained that the phrase ‘any process for’ read with ‘preserving or storing any article in cold storage’, would contemplate that the factory or establishment should carry out some activities, though miniscule, on certain articles for the purpose of preserving or storing in cold storage. Thus, the phrase ‘process’ cannot be read in isolation but has to be read along with the words ‘any’ and ‘for’.
The Court referred to Delhi Cold Storage (P) Ltd. v. CIT, (1991) 4 SCC 239, where it was held that in a cold storage, articles may be stored and long storage may indicate loss of moisture, but that is not sufficient for holding that the stored articles have undergone a ‘process’. Applying this, the Court observed that merely because the medicines were kept in the refrigerator, the medicines did not undergo any process.
The Court noted that although the ESI Act is a welfare legislation, for an activity to be brought within its purview it must satisfy the applicability of provisions, and unless the activity passes the eligibility test, it cannot be brought within the ESI Act. Since there was no ‘process’ being carried out by the appellant, it could not be governed by the provisions of the ESI Act.
The Court observed that Section 2(k) of the Factories Act referred to preserving or storing any article in cold storage. But in the present case, medicines were stored in a 365 liters refrigerator. The Court differentiated between a cold storage and a refrigerator and opined that a cold storage referred to a large, insulated, mechanically cooled facility for longer duration under scientifically controlled conditions, while a 365 liters refrigerator was a domestic appliance used in residential premises and offices. The Court further noted that what should be considered as a ‘manufacturing process’ must be the main activity of the factory or establishment and not an incidental activity, and opined that the main and dominant activity was trading in medicines and storing them in a refrigerator was only an incidental activity.
Consequently, the Court allowed the appeal and held that the use of refrigerator for storage of medicines in a refrigerator does not amount to continuation of process of manufacturing. However, the Court stayed the operation of this order for 8 weeks to enable the ESI Corporation to take appropriate steps.
[Madhu Malti Enterprises v. ESI Corpn., First Appeal No. 291 of 2016, decided on 2-2-2026]
Advocates who appeared in this case:
For the Appellant: V.P. Vaidya i/by Mahendra Agavekar.
For the Respondents: Shailesh Pathak, Advocate.