Case BriefsSupreme Court

Supreme Court: In an insurance repudiation case the Division Bench of Ajay Rastogi and Abhay S. Oka*, JJ., held that where the insurance policy expressly defines a term the insurance company cannot rely on Statutory interpretation of the same to repudiate the insurance claim.  

The Court reversed National Consumer Disputes Redressal Commission’s (NCDRC) judgment by which it had held that the insurance company was justified in repudiating the claim.   

Factual Backdrop  

The appellant had taken Standard Fire and Special Perils Policy from the insurance company in respect of his Engineering Workshop and Plant. The total sum assured was Rs.26,00,00,000 under the policy covering the loss on account of fire, lightning, explosion, riots, strike etc.  

As per the claim made by the appellant, after midnight of 22-03-2010, about 50­60 antisocial people with arms and ammunition entered the factory premises of the appellant and caused substantial damage to the factory, machinery, and other equipment. The mob demanded money and jobs for local people. The appellant contended that the object of the incident was to terrorise the management of the appellant and workers in the factory by forcing them to pay a ransom to the miscreants. 

The appellant lodged a regular claim with the insurance company. The surveyor assessed the loss at Rs.89,43,422 while the appellant claimed that the insurance company was liable to make an interim payment of Rs.1.5 crores.   However, the insurance company repudiated the appellant’s claim relying on the Exclusion Clause of the policy regarding loss or damage caused by the acts of terrorism.  

Findings of NCDRC  

Therefore, the appellant approached NCDRC complaining about deficiency in the service offered by the insurance company. By the impugned judgment and order, the NCDRC held that because of the “Terrorism   Damage   Exclusion   Warranty”; i.e., the Exclusion Clause, the insurance company was justified in repudiating the claim of the appellant. The NCDRC held that the damage caused to the factory and equipment of the appellant was due to an act of terrorism. 

Analysis and Findings  

The Exclusion Clause of the policy defined the act of terrorism as—“the actions can be termed as acts of terrorism provided the same are committed for political, religious, ideological or similar purposes.   The words ‘similar purposes’ will have to be construed ejusdem generis.” 

Noticeably, the repudiation of the policy was based on the Preliminary Survey Report, Investigation Report, and the Final Survey Report.   However, the Court noted that the Survey Reports could not throw any light on the question whether there was an act of terrorism, the Investigation Report did not conclusively prove that the persons involved in the incident belonged to Maoist or similar groups. Similarly, the FIR and Closure Report did not refer to acts of terrorism as defined under the Exclusion Clause, rather it showed that the police had registered a case against 105 miscreants who could not be traced. 

Therefore, the Court held that the insurance company had not discharged the burden of bringing the case within the four corners of the Exclusion Clause.  

The insurance company had argued that since the police had invoked Section 17 of the Criminal Law (Amendment) Act, 1908 against the miscreants for unlawful association, the very fact that the provisions of the Amendment Act of 1908 had been applied showed that the loss caused to the appellant was due to a terrorist act. The Court, rejecting the contention of the insurance company held, 

“When the policy itself defines the acts of terrorism in the Exclusion Clause, the terms of the policy being a concluded contract will govern the rights and liabilities of the parties.  Therefore, the parties cannot rely upon the definitions of ‘terrorism’ in various penal statutes since the Exclusion Clause contains an exhaustive definition of acts of terrorism.” 


Thus, the Court concluded that the NCDRC had committed an error by applying the Exclusion Clause. The policy specifically covered the damage caused by riots or violent means. Hence, the Court held that the decision to repudiate the policy could not be sustained.  

Resultantly, the impugned order was set aside. However, noting that adjudication would have to be made on the quantum of the amount payable to the appellant after appreciating the evidence on record, including the valuation reports, the Court remanded the matter to the NCDRC for reconsideration. Further, relying on the expected damage estimated by the insurance company’s valuer, the Court directed the insurance company to deposit a sum of Rs.89,00,000 with the NCDRC with liberty to the appellant to make an application for withdrawal. 

[Narsingh Ispat Ltd. v. Oriental Insurance Co. Ltd., 2022 SCC OnLine SC 535, decided on 02-05-2022] 

*Judgment by: Justice Abhay S. Oka 

Appearance by:  

For the Appellant: Santosh Kumar, Advocate  

For the Insurance company: Santosh Paul, Senior Advocate  

Kamini Sharma, Editorial Assistant has put this report together  

Case BriefsSupreme Court

Supreme Court: The Division Bench comprising of Ajay Rastogi and Abhay S. Oka*, JJ., held that Irrigation Department was not a factory within the meaning of Factories Act, 1948 as there was no indulgence in manufacturing process in the Department. The Bench expressed,

“Even assuming that some of the employees may be doing the work of pumping of water, that is not sufficient to hold that Irrigation Department of the first appellant is carrying on manufacturing process.”

Factual Contours

Originally, the State had challenged the award made by the Labour Court by which the State was directed to reinstate the respondent in Rajghat Canal Project of the Irrigation Department. The respondent was initially appointed as a daily wage employee on the post of Helper in the Irrigation Department of the first appellant. However, his employment was terminated again after reinstating him in the year 2004.

Findings of Courts Below

The Labour Court held that Chapter VB of the Industrial Disputes Act, 1947 was applicable to the Irrigation Department and as compliance with section 25N of the ID Act was not made, the respondent was entitled to reinstatement.

Observing that Irrigation Department is responsible for creation and maintenance of irrigation potential through construction of Water Resources Department, it also looks after the calamity management work and is involve in pumping water and sewage, the High Court held that the Department was governed by section 2(k)(ii) of the Factories Act as the  Irrigation Department was also involved in the activity of pumping of water and sewage, i.e. manufacturing process as defined under the said section.

Irrigation Department whether Industrial Establishment or not?

The State contended that Irrigation Department was not an Industrial Establishment within the meaning of Section 25L of the ID Act and Chapter VB would have no application. The State argued, though the Irrigation Department might have more than hundred workers, it was not a factory within the meaning Section 2(m) of the Factories Act, 1948 as it was not carrying on manufacturing process.

Analysis and Findings

Though there was no dispute that the Irrigation Department satisfied the test of having not less than hundred workmen employed on an average; however, the question before the Court was whether the Irrigation Department was an Industrial Establishment as defined in Section 25L of ID Act.

Section 25L of the ID Act reads as:

“(a) “industrial establishment” means—

 (i) a factory as defined in clause (m) of section 2 of the Factories Act, 1948 (63 of 1948);”

It was the case of the respondent that the Irrigation Department of the first appellant was an Industrial Establishment as it was a Factory as defined in Section 2(m) (ii) of the Factories Act, which states, a Factory is:

“ (ii) whereon twenty or more workers are working, or were working 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…”

However, as the definition suggested, an establishment cannot be termed as a factory unless it is carrying on manufacturing process. The manufacturing process is defined under Section 2(k)(ii) of the Factories Act, which reads thus:

“‘Manufacturing process’ means any process for— (ii) pumping oil, water, sewage or any other substance;”

In the above backdrop, the Bench was of the view that even assuming that some of the employees may be doing the work of pumping of water, that was not sufficient to hold that Irrigation Department of the first appellant was carrying on manufacturing process. The Bench emphasised,

“Overall activities and functions of the Irrigation Department would have to be considered while deciding the question whether it is carrying on manufacturing activities.”

The Bench added,

 “Few employees of the Irrigation Department out of several may be incidentally operating pumps. But the test is what are the predominant functions and activities of the said Department.


The Bench held that even if the activity of operation of pumps was carried on by few employees, the Irrigation department did not carry on manufacturing process, hence, it was not a factory within the meaning of clause (m) of section 2 of the Factories Act. Accordingly, the Bench rejected the reasoning of the High Court that the Irrigation Department was an Industrial Establishment within the meaning of Section 25L and Chapter VB would have application in the case.

Hence, the appeal was allowed. The impugned judgments and orders were set aside and the termination of employment of the respondent was held to be legal and valid.

[State of M.P. v. Somdutt Sharma, 2021 SCC OnLine SC 829, decided on 29-09-2021]


Report by: Kamini Sharma, Editorial Assistant, EBC Publishing Pvt. Ltd. 


Appearance by:

For the State of M.P.: Mukul Singh, Deputy Advocate General

For the Respondent: Prashant Shukla, Advocate

*Judgment by: Justice Abhay S. Oka


Case BriefsInternational Courts

European Court of Human Rights (ECHR): Chamber composed of Yonko Grozev, President, Tim Eicke, Faris Vehabović, Iulia Antoanella Motoc, Armen Harutyunyan, Pere Pastor Vilanova, Jolien Schukking, judges, and Andrea Tamietti, Section Registrar, first time had the occasion to address a case concerning the prosecution of a victim, or potential victim of trafficking.

Crux of the application was that the said applications concerned the prosecution of the (then) minor applicants who were recognised as trafficking victims for criminal offences connected to their work as gardeners in cannabis factories were

Applicant’s principal complaint is that by prosecuting them for criminal offences connected to their work in the cannabis factories the State failed in its duty to protect them as victims of trafficking.

Applicants relied upon Article 26 of the Anti-Trafficking Convention which required the Contracting States to provide for the possibility of not imposing penalties on victims of trafficking for their involvement in unlawful activities to the extent that they have been compelled to act as they did

Questions to be considered by the Court:

  • Whether, on the facts of the cases at hand, the respondent State complied with its positive obligations under Article 4 of the Convention?

Clear evidence appeared to indicate that the cultivation of cannabis plants was an activity commonly carried out by child trafficking victims. Court stated that the police and subsequently the CPS should have been aware of the existence of circumstances giving rise to a credible suspicion that the minors were trafficked.

Hence, a positive obligation to take operational measures to protect the applicants as potential victims of trafficking arose after the minors were discovered.

  • Whether State fulfilled its duty under Article 4 of the Convention to take operational measures to protect minors?

Bench stated that it is well-established that both national and transnational trafficking in human beings, irrespective of whether it is connected with organized crime, falls within the scope of Article 4 of the Convention.

Court made it clear that where an employer abuses his power or takes advantage of the vulnerability of his workers in order to exploit them, they do not offer themselves work voluntarily.

“…prior consent of the victim is not sufficient to exclude the characterisation of work as forced labour.” [Chowdhury v. Greece, No. 21884/15, § 96, 30 March 2017]

Obligation as per Article 4

Article 4 entails a specific positive obligation on the Member States to penalise and prosecute effectively any act aimed at maintaining a person in a situation of slavery, servitude or forced or compulsory labour (Siliadin v. France, no. 73316/01, §§ 89 and 112, ECHR 2005-VII). In order to comply with this obligation, Member States are required to put in place a legislative and administrative framework to prevent and punish trafficking and to protect victims (see Rantsev, cited above, § 285).

Article 4 may, in certain circumstances, require a State to take operational measures to protect victims, or potential victims, of trafficking.

Court has considered it relevant that the Anti-Trafficking Convention calls on the Member States to adopt a range of measures to prevent trafficking and to protect the rights of victims. The preventive measures include measures to strengthen coordination at the national level between the various anti-trafficking bodies and to discourage the demand for all forms of exploitation of persons. Protection measures include facilitating the identification of victims by qualified persons and assisting victims in their physical, psychological and social recovery.

Summary of positive obligations under Article 4

(1) the duty to put in place a legislative and administrative framework to prohibit and punish trafficking;

(2) the duty, in certain circumstances, to take operational measures to protect victims, or potential victims, of trafficking; and

(3) a procedural obligation to investigate situations of potential trafficking.

“…prosecution of victims, or potential victims, of trafficking may, in certain circumstances, be at odds with the State’s duty to take operational measures to protect them where they are aware, or ought to be aware, of circumstances giving rise to a credible suspicion that an individual has been trafficked.”

In Court’s opinion, the duty to take operational measures under Article 4 of the Convention has two principal aims:

  • to protect the victim of trafficking from further harm; and
  • to facilitate his or her recovery.

In order for the prosecution of a victim or potential victim of trafficking to demonstrate respect for the freedoms guaranteed by Article 4, his or her early identification is of paramount importance.

Court acknowledged the fact that as children are particularly vulnerable, the measures applied by the State to protect them against acts of violence falling within the scope of Articles 3 and 8 should be effective and include both reasonable steps to prevent ill-treatment of which the authorities had, or ought to have had, knowledge, and effective deterrence against such serious breaches of personal integrity.

Since, first applicant was discovered by police at a cannabis factory during the execution of a drug warrant, the authorities should have been alert to the possibility that he – and any other young persons discovered there – could be a victim of trafficking. Nevertheless, despite there not being any apparent doubt that he was a minor, neither the police nor the CPS referred him to one of the United Kingdom’s Competent Authorities for an assessment. Instead, he was charged with being concerned in the production of a controlled drug.

Second applicant claimed that the door was locked from the outside and he believed the factory was guarded; that he was not paid for his work; and that he might be killed if he stopped working.

In Court’s view the State did not fulfil its duty under Article 4 of the Convention to take operational measures to protect the first and second applicant either initially, as a potential victim of trafficking and subsequently, as a person recognised by the Competent Authority to be the victim of trafficking.

Applicant’s also complained that they were denied a fair trial within the meaning of Article 6 of the Convention.

To assess Whether there has been a violation of Article 6 § 1 of the Convention, the Court must answer the following questions:

first of all, did the failure to assess whether the applicants were the victims of trafficking before they were charged and convicted of drugs-related offences raise any issue under Article 6 § 1 of the Convention;

secondly, did the applicants waive their rights under that Article by pleading guilty; and finally, were the proceedings as a whole fair?

Court expressed that although victims of trafficking are not immune from prosecution, an individual’s status as a victim of trafficking may affect whether there is sufficient evidence to prosecute and whether it is in the public interest to do so.

State cannot, therefore, rely on any failings by a legal representative or indeed by the failure of a defendant – especially a minor defendant – to tell the police or his legal representative that he was a victim of trafficking.

CPS 2009 guidance itself states, child victims of trafficking are a particularly vulnerable group who may not be aware that they have been trafficked, or who may be too afraid to disclose this information to the authorities Consequently, they cannot be required to self-identify or be penalised for failing to do so.

Did the applicants waive their rights under Article 6 of the Convention?

The applicants’ guilty pleas were undoubtedly “unequivocal” and as they were legally represented they were almost certainly made aware that there would be no examination of the merits of their cases if they pleaded guilty. However, in the absence of any assessment of whether they were trafficked and, if so, whether that fact could have any impact on their criminal liability, those pleas were not made “in full awareness of the facts”.

Court did not consider that the applicants waived their rights under Article 6 § 1 of the Convention.

Whether the fairness of the proceedings as a whole was prejudiced?

In respect of both applicants, the reasons given by the CPS for disagreeing with the Competent Authority were wholly inadequate. Insofar as any reasons were given, they were not consistent with the definition of trafficking contained in the Palermo Protocol and the Anti-Trafficking Convention.

Court did not consider that the appeal proceedings cured the defects in the proceedings which led to the applicant’s charging and eventual conviction.

Hence it was concluded that the proceedings as a whole could not be considered “fair”.


Court referred to its finding that there has been a violation of Articles 4 and 6 of the Convention on account of the failure of the respondent State to fulfil its positive obligations under Article 4 to take operational measures to protect the victims of trafficking.

The Court had no doubt that the applicants suffered distress on account of the criminal proceedings and faced certain obstacles on account of their criminal records. However, it must also bear in mind that the aforementioned violations were essentially procedural in nature and as such the Court has not had to consider the merits of the decisions to prosecute the applicants.

Therefore each of the applicants was granted a sum of EUR 25,000 in respect of non-pecuniary damage, plus any tax that may be chargeable.[V.C.L & A.N. v. The United Kingdom, Applications Nos. 77587 of 12 and 74603 of 12, decided on 5-07-2021]

The first applicant, who had been granted legal aid, was represented by Ms Philippa Southwell of Birds Solicitors, a law firm based in London.

The second applicant was represented by the AIRE Centre, a legal charity based in London, and by Professor P. Chandran, a Barrister based in London at 1 Pump Court Chambers.

The Government were represented by their Agent, Mr J. Gaughan of the Foreign and Commonwealth Office.

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): The Coram of Dilip Gupta (President) and P. Anjani Kumar (Technical Member) dismissed an appeal filed by the Department aggrieved against the order of Commissioner (Appeals).

The respondent was engaged in the manufacture of lead and zinc and is also availing CENVAT credit of duty paid on inputs and input services in terms of the provisions of the Credit Rules prevailing during the relevant period from December 2015 to March 2016. The respondent claimed to be clearing the finished goods (zinc and lead) on payment of duty and further claimed that during the relevant period, sulphuric acid was also cleared on payment of duty but some quantity of sulphuric acid was cleared to fertilizer manufacturers, after claiming exemption from payment of duty, under Entry No. 86 of the Notification dated March 17, 2012.

The Department entertained a view that sulphuric acid, cleared to the fertilizer units without payment of duty, was an exempted product and hence the respondent was liable to pay an amount in terms of rule 6(3)(i) of the Credit Rules, accordingly a show cause notice was issued proposing to recover an amount @6% of the value of sulphuric acid, in terms of Rule 6(3)(i) of the Credit Rules. The Joint Commissioner had confirmed the demand raised under rule 6(3) of the CENVAT Credit Rules 2004 for clearance of sulphuric acid from the factory of the respondent during the period from December, 2015 to March, 2016 for Rs 72,93,931. After which the respondent had filed an appeal before the Commissioner (Appeals) which had allowed the appeal relying on the Supreme Court judgment of Union of India v. Hindustan Zinc Ltd., (2015) 15 SCC 312 setting aside the order of the Joint Commissioner. Thus, the instant appeal was filed.

The Tribunal reproduced the relevant portion of the order passed by Commissioner (Appeals),

“8. I have carefully gone through the case records, grounds of appeal as well as submission made during the course of personal hearing. I find that main issue to be decided in this case are whether by product namely sulphuric acid emerges in appellant factory is covered under the definition of „excisable goods‟ as per provisions of Section 2(d) of CEA, 1944, (ii) whether the „sulphuric acid‟ qualifies as exempted goods under Rule 2(d) of Cenvat Credit Rules, 2004 and whether Rule 6 of the Cenvat Credit Rules, 2004 is applicable in the instant case or not?


As per the above definition of exempted goods, goods should be excisable goods. In this regard, the adjudicating authority observed in OIO that in the budget of 2018, the definition of „excisable goods‟ in clause (d) of Section 2 of the Central Excise Act, 1944 was amended by adding an explanation that for the purposes of this clause, “goods” include any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.

In view of the above, the adjudicating authority found that any by-product, though emerges due to technological necessity would be included in the definition of „goods‟, hence fall within the ambit of term „final product‟. Therefore, Rule 6 would become applicable automatically.


In the light of above, I find that from decision of the Hon‟ble Supreme Court and above circular, it is clear that sulphuric acid emerged in factory of appellant was not a manufactured product and the judgment applies to both periods before and after the insertion of explanation in Section 2(d) of Central Excise Act, 1944 by Finance Act, 2008.

Since sulphuric acid emerged in factory of appellant was not a manufactured product as discussed above even after 01.03.2008, the same is not covered under definition of „excisable goods‟ as provided in Section 2(d) of CEA, 2004 accordingly it was not covered under the definition of „exempted goods‟ as provided in Rule 2(d) of Cenvat Credit Rules, 2004.

  1. I find that the adjudicating authority also tried to differentiate the case dealt by the Hon’ble Supreme Court in the case of UOI vs HZL reported at 2014 (303) ELT 321 (SC), by deciding that the Sulphuric acid is a distinct product and manufacture from the by product i.e sulphur dioxide as such the same is neither a waste product nor a by product, and the appellant have separate plant and process to manufactured the Sulphuric acid. In this regard, I observe that the Hon‟ble Supreme Court in the above-cited case and after examining the manufacture process of the appellant held that Sulphuric acid is a by-product….” I, therefore, find that there is no dispute left regarding treating the Sulphuric acid as a by-product, hence finding of adjudicating authority on this account is not correct and same is set aside.”

The Tribunal dismissed the appeal holding that there was no error in the order passed by the Commissioner (Appeals).[CCE v. Hindustan Zinc Ltd.,  2020 SCC OnLine CESTAT 336, decided on 09-12-2020]

Suchita Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Madras High Court: Abdul Quddhose, J., dismissed a writ petition filed against the order passed by the Employees Provident Fund Appellate Tribunal holding that the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 have to be interpreted only in the favour of employees.

An order was issued against the petitioner by the Regional Provident Fund Commissioner under Section 7-A of the EPF & MP Act stating that a sum of over Rs 14.40 lakhs was due and payable by them towards 194 employees, for whom, EPF contributions were not paid by them. The petitioner filed a review of this order, which was dismissed. An appeal filed thereagainst before the EPF Appellate Tribunal met with the same fate. The petitioner’s case was that the 194 employees concerned apprentices and temporary employees.

While considering the matter, the High Court observed: “The purpose of the enactment of the said Act is to cultivate the spirit of saving amongst the workers regularly. It is, therefore, a beneficial legislation to protect the interest of the employees. Therefore, this Court will have to necessarily interpret the provisions only in favour of the employees whenever there requires any interpretation.”

Not satisfied with the stand taken by the petitioner, the High Court said: “It is impossible for the factory to have more number of apprentices than regular employees, that too about in the ratio 1:3. Further, there is no dispute regarding the number of persons, who were working at the time of inspection by the enforcement wing officials in the factory premises of the petitioner in the year 2006.”

The Court noted that the evidence was duly considered by the Commissioner. Stating that it cannot re-appreciate the evidence under Article 226 jurisdiction, the Court dismissed the present petition finding no perversity in the impugned order. [Kumar Spinning Mills (P) Ltd. v. Employees Provident Fund Appellate Tribunal, 2019 SCC OnLine Mad 937, dated 02-04-2019]

Supreme Court

Supreme Court: Deciding the question that whether the kitchen and catering section of the Delhi Gymkhana Club come within the meaning of “factory” and “manufacturing process” as defined in Employees’ State Insurance Act, 1948 (ESI Act) thereby granting the employees of the club the benefits of the Act, the bench of T.S. Thakur and R. Banumathi, JJ held that the ESI Act was enacted to provide certain benefits to employees in case of sickness, maternity in case of female employees, employment injury and to make provision in certain other matters in relation thereto and the employees of the appellant-club should not be kept out of the welfare coverage of the beneficial legislation like ESI Act.

Interpreting the term “factory” under the ESI Act, the Court held that a 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. Holding that preparation of food items in the kitchen amounts to “Manufacturing process”, the Court said that 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 and the contention that the appellant-club is a non-profit organization, would not take away the same from the purview of the Act.

The present case where the parties were represented by R.N. Keshwani and P.N. Puri, the Court explained the importance of the said legislation and held that 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 and that the social security system needs to be effective and constructive and should have more coverage areas. Delhi Gymkhana Club Ltd. v. Employees State Insurance Corpn., 2014 SCC OnLine SC 853 decided on 28-10-2014