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Judgment
1 This appeal under Clause 15 of the Letters Patent arises out of an oral judgment dated 04.12.2017 passed by the learned Single Judge. The learned
Single Judge dismissed the petition upholding the order of the Employees’ State Insurance Corporation (‘ESIC’ for short) under Section
85(B) of the ESIC Act imposing damages of Rs.7,10,339/- for delayed payment of amount of contribution for the period from 01.09.1975 to
31.03.1988.
2 The facts in brief are as under:
2.1 The appellant, a company incorporated under the Companies Act, 1956, carried on business of public carriers, transporters etc. The dispute arose
between the appellant and the ESIC regarding the date from which the ESIC Act would be applicable. The contention of the appellant was that the
Act would not apply for the period from 30.03.1975 to 31.03.1988.
2.2 Demand Notices were issued on 06.04.1990, 16.07.1990 and 17.08.1990 demanding Rs.7,79,491/- as ESIC dues from the appellant for the period
from 30.03.1975 to 31.03.1988. These notices were challenged by the appellant before the ESIC Court by filing Application (EI) 66 of 1990. By a
judgment and order dated 17.08.1993, the contention of the appellant was upheld. The ESIC Court held as under:
“ ORDER
(A) It is hereby declared that the provisions of Section
1(5) of the Act are not applicable to the road motor transport establishment prior to 01.04.1988 in the State of Gujarat and, therefore, the affidavit is
not liable to comply with the provisions of the said Act prior to 01.04.1988 in the State of Gujarat.
(B) The impugned orders dated 06.04.1990 and 16th July, 1990 of the opponent no.1 are hereby quashed and set aside.
(C) No order as to costs.
Ahmedabad 17th August, 1993.
Sd/- Judge
Employee Insurance Court
Ahmedabad.â€
2.3 The ESI Corporation preferred First Appeal No. 1302 of 1996 before this Court. The appeal was decided on 10.07.2006. The ESIC succeeded as
the Court set aside the order of the ESIC. The appeal order reads as under:
“ 5.0 Heard, learned Counsel for the parties and perused the documents placed on record. In the impugned judgment and order, the Court below
held that the opponent No.1 is not liable to comply with the provisions of the said Act prior to 01.04.1988.
5.1 The issue involved in this appeal is squarely covered by a decision of the Apex Court in the case of “Transport Corporation of India Vs.
Employees' State Insurance Corporation and Another†reported in AIR 2000 SC 238 wherein the Apex Court held as under,
“From the definition of the term employee in S.2(9) and the definition of term immediate employer in S.2(13) it becomes at once clear that if a
person is employed on wages in connection with the work of establishment to which the Act applies and if the establishment is 'immediate employer'
of such a person under whose supervision he has to undertake the work and can be said to be employer by or through the establishment concerned,
the immediate employer, being such establishment, under whose supervision or under whose agent's supervision the employee works will get covered
by the sweep of the Act. The term 'principal employer' is found in sub-sec.(17) of S.2. A conjoint reading of sub-secs.(9), (13) and (17) of S.2,
therefore, clearly shows that if the head office or the registered office of the establishment is controlling its branch office, the employee working in its
branch can obviously be treated to be an 'employee' working under the supervision of the principal employer or his agent. Consequently, once such
'principal employer'; having head office in one State say State of Andhra Pradesh is covered by the seep of the Act, automatically employees working
in its branches, may be anywhere in India, including the branch at Bombay would get covered by the seep of the Act. That would be the direct
consequence of the applicability of Act by the notification of the 'appropriate Government', namely, the Andhra Pradesh Government under S.1(5) of
the Act. The provisions of Ss. 38, 40, Regns. 10-B, 26 and the prescribed forms make the statutory scheme further clear that the employees of branch
office of an establishment would get covered by the beneficial seep of the Act.â€
5.2 In above view of the matter, I am of the opinion that the Court below has committed an error in passing the impugned judgment and order and
ought to have held since the head office of theopponent No.1 is covered by the said act in the year 1975, the employees of branch office of the
opponent No.1 would also get covered by the beneficial sweep of the said act. Hence, the appeal deserves to be allowed.
6.0 In the result, the appeal is allowed. No order as to costs.â€
2.4 Pursuant thereto, ESIC initiated recovery proceedings which were under challenge by the appellant by filing Special Civil Application No. 15457 of
2006. This Court by an order dated 31.07.2006, stayed the impugned order subject to paying an amount of Rs.8,01,510/-. The order reads as under:
“ Notice returnable on 07.08.2006 on condition that on or before 03.08.2006, the petitioner shall pay an amount of Rs.8,01,510/- and file an
undertaking before this Court by an officer duly authorised by the petitioner company (Transport Corporation of India Ltd.) Mr.Bhatt, learned Senior
Counsel, states that the Regional Manager is authorised to file an undertaking on behalf of the petitioner company. On the aforesaid amount being paid
and the undertaking being filed, the operation and implementation of the order dated 26.07.2006 (Annexure-’F’) is stayed by way of ad-interim
relief. Direct service is permitted.â€
2.5 On a consensus arrived at, the petition was disposed of on a condition that the appellant will make a representation and the same shall be
considered. The order reads as under:
“1 Before the matter could be heard on merits, on a consensus arrived at between the parties, the matter is disposed of with the following
directions:
(a) The petitioner to make a representation to respondent no.1 Corporation within four weeks from today.
(b) Respondent no.1 Corporation on receipt of the representation from the petitioner shall grant necessary permission to produce relevant documents
in support of the representation, if not already accompanied to the representation.
(c) Respondent no.1 Corporation shall also grant personal hearing to the petitioner and decide the matter as expeditiously as possible.
(d) Respondent no.1 Corporation shall pass fresh order and communicate the same to the petitioner by Registered Post A.D. Letter.
At the request of the learned advocate for the petitioner, it is clarified that it will be open for the petitioner to take recourse to the remedy available to
him under the law in case the order is against the petitioner.
The petition is disposed of with the aforesaid direction. Notice is discharged.â€
2.6 Representations made by the appellant were rejected, leading to passing the order by which the ESIC imposed damages. The order was confirmed
by the learned Single Judge.
3 Mr.Rituraj Meena, learned advocate appearing for the appellant submitted as under:
(A) The authorities are required to take the following parameters/principles into consideration before imposing damages under Section 85 (B) under
the Employees State Insurance Act:
a) There must be presence of mens rea or actus reus to contravene a statutory provision.
b) The authority is duty bound to act in a judicious manner to determine the question after assessment of all the relevant factors and not in a cursory
manner.
C) The reason offered for delay has an important role to play in arriving at the quantum.
d) Where the employer, is able to offer sufficient or cogent explanation for non-remittance, or in cases where there is only a technical or venial breach
of the provision of the act, or there exist bona fide circumstances, which will point out that there was no deliberate omission on the part of the
employer the Corporation should not levy any damages.
e) Merely because the employer failed to pay the contribution in time will not by itself give rise to a cause of action to the appellant to impose damages
under Section 85
(B) of the Act. Mechanical levy of damages to the maximum ceiling under Section 85(B) shall not be every time justifiable.
(B) The only reason given by the authority for imposing the damage was that the decision of M/s. TCI vs. ESIC decided by the Apex Court in 2000 in
favour of the ESIC was not cited by the petitioner before this Hon’ble Court. Such reasoning given by the authority clearly shows that there is
total non application of mind while deciding the issue of damages to be levied on the employer.
(C) Further, the following issues have not been taken into consideration by the authority despite the fact that the same were raised in the reply to the
show cause notice dated 16.07.2006.
a) The regulation 31(C) of Employees State Insurance (General) Reg.1950 provides for three exceptions. As per the three exceptions, the Corporation
has the powers to waive the damages partially and in exceptional hard cases, total waiver can be given. No reasons whatsoever has been given by the
authority as to why, the case of the employer does not fall within these exceptions.
b) That no ESI facility was availed by the employees of the Transport Corporation of India during that period. Under such circumstances there was no
actual loss to the ESIC.
c) That the ESIC has made the assessment on ad hoc basis and the same is causing great hardship to the Corporation as, no factual figure of the
employees working during that period is available with Transport Corporation of India.
3.1 Mr. Rituraj Meena, learned advocate for the appellant, cited the following decisions:
1) Employees State Ins. Corp. vs. H.M.T Ltd., reported in 3 scc 35 (2008)
2) BEAMA Manufactures Pvt Ltd vs. Regional Dir., ESI Corporation, reported in 2 LLJ 29 (1991).
3) ESI Corporation vs. C.C. Santhakuma, reported in 1 SCC (2007).
4) Madras Hotel Ashoka (Pvt) Ltd. vs. ESIC, reported in 1 LLJ 495 (1994).
5) Management of Simpson vs. The Employees’ State Ins. Corp., reported in 2 CLR (1998)
6) Regional Director, Employees State Ins. Corp, Chennai vs. N.Dasarathy & Sons & Another., reported in 1 LLJ 1437 (2001).
7) Regional Dir., Employees State Ins. Corp., Mumbai vs. Kumar Steel & Gen. Mills, Proprietors, Nalwa Metal & Alloys Pvt Ltd, Mumbai & Anr.,
CLR.
4 As against this, Mr.Sachin Vasavada, learned advocate appearing for the ESI Corporation, submitted as under:
(A) Once the Supreme Court rendered a decision in the year 2000 in the case of Transport Corporation of India & Anr., vs. ESIC., reported in AIR
(2000) SC 238, the appellant was bound to have paid the ESIC dues.
(B) Pending issues before this Court would merge with the Supreme Court’s order and the proceedings in the High Court would become
automatically infructuous.
(C) The appellant’s intention and mala fides were apparent in not obeying the judgment and order of the Supreme Court on the same aspect and
avoiding liability to pay was nothing but an act of intention not to pay.
5 Having considered the submissions of the learned advocates for the respective parties, what emerges from the chronology of dates is as under:
I) Notices issued in the year 1990 by the ESIC were the subject matter of challenge before the ESIC Court.
II) ESIC Court allowed the application by an order dated 17.08.1993.
III) ESIC challenged the order by filing First Appeal in the year 1996.
IV) The appeal was pending in this Court for ten years. When taken up for hearing on 20.07.2006, the court allowed the appeal of the Corporation on
the basis of the judgment of the Supreme Court rendered in the year 2000.
V) Be it noted, that the Corporation was the appellant before the High Court. If a judgment of the Supreme Court was rendered in the year 2000, the
responsibility equally was on the ESIC to bring it to this Court’s notice in the pending appeal. It was only when in the year 2006, that it was relied
upon by the counsel of the Corporation and the appeal was allowed in terms of the judgment of the Supreme Court.
VI) The matter does not rest there. When recovery notices pursuant to the judgment in the First Appeal was rendered, the same was challenged by
filing the Special Civil Application No. 15457 of 2006, wherein, initially a conditional stay was granted on payment of a certain amount. Subsequently,
the petition was disposed of on consensus. Therefore, thereto the ESIC agreed to look into the representation made by the appellant. Only on such
representation made and on a personal hearing accorded, the impugned order was passed.
VII) These events would not certainly exhibit mens rea on the part of the appellant to avoid its liability. It was taking recourse to suitable legal
remedies available to it. Pendency of the litigation inter se and that too when it is not a case of it being protracted at the hands of the appellant, cannot
weigh against it to invite payment of damage.
VIII) Mr.Vasavada’s contention based on the doctrine of merger deserves to be rejected outright. Nothing prevented the ESIC in its own appeal
to bring the judgment rendered in the year 2000, to the notice of the Court rather than wait for the appeal to be taken up in its due course.
IX) If the authorities have waived damages on this count for the period from 12.10.1990 to 12.07.2006, there is no reasonable nexus if the amount of
damages were waived for the period from 30.03.1975 to 31.03.1988, when that issue of the Act’s applicability was itself at large during the period
of 12.10.1990 to 10.07.2006.
6 The Supreme Court in the case of Employees State Ins. Corp. vs. H.M.T Ltd., (supra), has held that an endeavour should be made to construe a
penal provision as discretionary. There has to be an existence of mens rea. The judgment’s relevant paras read as under:
“21. A penal provision should be construed strictly. Only because a provision has been made for levy of penalty, the same by itself would not lead
to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable from Section 85-B of
the Act. When a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages by reason of an enabling provision, the
same cannot be construed as imperative. Even otherwise, an endeavour should be made to construe such penal provisions as discretionary, unless the
statute is held to be mandatory in character.
In Prestolite (India) Ltd. Vs. Regional Director this Court rejected a contention raised by the Regional Director of Employees’ Insurance that
under the Employees’ State Insurance General Regulations guidelines have been indicated showing as to how damages for delayed payment are
to be imposed and since such guidelines have been followed, no exception should be taken thereto made to the impugned adjudication, stating (SCC
p.693, para 5)
“5.....Even if the regulations have prescribed general guidelines and the upper limits at which the imposition of damages can be made, it cannot be
contended that in no case, the mitigating circumstances can be taken into consideration by the adjudicating authority in finally deciding the matter and it
is bound to act mechanically in applying the uppermost limit of the table. In the instant case, it appears to us that the order has been passed without
indicating any reason whatsoever as to why grounds for delayed payment were not to be accepted. There is no indication as to why the imposition of
damages at the rate specified in the order was required to be made. Simply because the appellant did not appear in person and produce materials to
support the objections, the employee’s case could not be discarded in limine. On the contrary, the objection ought to have been considered on
merits.â€
In Dilip N. Shroff vs. CIT, this Court stated: (SCC p.353, para 40)
“40. Thus, it appears that there is distinct line of authorities which clearly lays down that in considering a question of penalty, means rea is not a
relevant consideration. Even assuming that when the statute says that one is liable for penalty if one furnishes inaccurate particulars, it may or may not
by itself be held to be enough if the particulars furnished are found to be inaccurate is anything more needed but the question would still be as to
whether reliance placed on some valuation of an approved valuer and, therefore, the furnishing of inaccurate particulars was not deliberate, meaning
thereby that an element of mens rea is needed before penalty can be imposed, would have received serious consideration in light of a large number of
decisions of this Court.â€
We agree with the said view as also for the additional reason that the subordinate legislation cannot override the principal legislative provisions.
The statute itself does not say that a penalty has to be levied only in the manner prescribed. It is also not a case where the authority is left with no
discretion. The legislation does not provide that adjudication for the purpose of levy of penalty proceeding would be a mere formality or imposition of
penalty as also computation of the quantum thereof became a foregone conclusion. Ordinarily, even such a provision would not be held to providing for
mandatory imposition of penalty, if the proceedings is an adjudicatory one or compliance with the principles of natural justice is necessary thereunder.
Existence of mens rea or actus reus to contravene a statutory provision must also be held to be a necessary ingredient for levy of damages and/or
the quantum thereof.
The Division Bench of the High Court, therefore, in our opinion, was not wrong in opining that Section 85-B provides for an enabling provision.
What, however, cannot be appreciated is that such a construction itself would lead to the conclusion that the High Court is entitled to substitute its
view in place of the statutory authority. In our considered view, therefore, the matter should be considered afresh for determination of quantum of
damages etc., in the light of the observations made hereinabove.â€
7 Even from the other judgments cited at the bar by Shri Meena, it is evident that in the matter of levy of damages under Section 85-B of the Act the
authorities must take into consideration relevant factors.
8 As held by the Supreme Court in the case of ESI Corporation v/s. C.C. Santhakumar., reported in (2007) 1 SCC 584, the approach of the ESI
Authorities should be that of a watchdog and not of a blood hound. As held by the Madras High Court in the case of Madras Hotel Ashoka (supra),
the determination of quantum of damages is not to be a subjective determination. There must be an objective approach taking into account all matters
which are relevant. The validity of the explanation of the party in default must be appreciated.
9 All these lead us to a conclusion that it cannot be said that the appellant can be said to have a mens rea to contravene a statutory provision. Taking
recourse to a valid legal remedy and pendency thereof without any intention to delay the outcome at the hands of the appellant cannot expose the
appellant to the liability of damages.
10 Accordingly, the judgment of the learned Single Judge dated 04.12.2017 is quashed and set aside. The order of the ESIC dated 08.12.2006 is
quashed and set aside. The appeal is allowed with no order as to costs. Civil Application stand disposed of, accordingly.