HONOURABLE SRI JUSTICE SAMBASIVA RAO NAIDU
CMA.NO.159 of 2022
JUDGMENT :
The appellant herein is Employees State Insurance Corporation, herein after will be referred as Employees State Insurance Corporation and this Civil Miscellaneous Appeal has been preferred against the order of Employees Insurance Court, Hyderabad in E.I.C.No.95 of 2019 dated 29-10-2021 by which the petition filed by one M/s. Vijay Marie Hospital and Educational Society, Khairtabad, Hyderabad, herein after will be referred as respondent was allowed by the trial Court. The appellant- Employees State Insurance Corporation preferred the present Civil Miscellaneous Appeal on the following grounds.
2. E.S.I. Court failed to consider the fact that the stay granted by the High Court in W.P.No.17977 of 2009 on 06-08-2009 was only limited to the stay of prosecution, but not against the other proceedings arising for default of the contributions and damages. The E.S.I. Act, 1948 containing penal provisions resulting in prosecution of the default entities and persons responsible but E.S.I. Court failed to consider that the 2 SSRN,J CMA No.159 of 2022 interim protection given by the High Court in the above referred Writ Petition is only to the extent of stay of prosecution, thereby at no point of time, there was stay against the contributions or payment of damages liable to be paid under the E.S.I. Act, 1948. The E.S.I. Court failed to consider the respondent herein comes within the purview of E.S.I. Act, 1948 because the Government order vide G.O.M.S.No.582 dated 14-10-2008 was not stayed. When once the respondent comes within the purview of E.S.I. Act, it has statutory liability to pay contribution under Section 40 of E.S.I. Act and under Regulation 31 of E.S.I. (General) Regulation, 1950. The respondent having failed to pay contribution within the time period is liable to pay damages for the delayed payment under Section 85-B of E.S.I. Act. The E.S.I. Court failed to consider that already Courts have held that Section 85-B is a valid legislation and it is not arbitrary. Therefore, E.S.I. Court ought not to have interfered with the order of the appellant under Section 85-B. The E.S.I. Court failed to consider that the respondent was given D-18 notice dated 28-09-2016 and an opportunity for personal hearing was given to the respondent but it did not choose to represent before the Employees State Insurance Corporation. The finding of E.S.I. Court that the respondent had no malafide 3 SSRN,J CMA No.159 of 2022 intention in paying the contributions with delay pending the Writ Petition is untenable and erroneous and not borne by any record. The appellant has followed the procedure contemplated under the E.S.I. Act and there is no irregularity in the order issued under Section 85-B of the E.S.I. Act, and the recovery certificate dated 26-06-2019. Therefore, the E.S.I. Court ought to have considered that the respondent has been given an ample opportunity to present his case and there was no infringement of principles of natural justice.
3. The appellant further pleaded that E.S.I. Court ought to have considered that the respondent is a Factory/Establishment covered under E.S.I. Act, 1948, thereby, required to pay contributions and submit returns of contributions under Sections 40/44 of the Act r/w E.S.I. (General) Regulations but the E.S.I. Court failed to consider that E.S.I. Act is a beneficial legislation had to be construed in its correct perspective, the technical or narrow construction, even if permissible, cannot be countenanced as that would frustrate the legislative intent underlying the social security scheme. With this, the appellant sought for setting aside the order of the E.S.I. Court.
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4. As could be seen from the record, the respondent herein approached the E.S.I. Court by filing E.I.C. No.95 of 2019 under Section 75(1)(g) of the E.S.I. Act, 1948, with a prayer to set aside the order issued by the appellant herein under Section 85-B of E.S.I. Act dated 07-09-2018 and 22-04-2019 for a sum of Rs.96,630/- for the period from June 2010 to June 2016.
5. The following was brief case of the respondent herein before the E.S.I. Court. The petitioner is a Hospital represented by its Director Sr.Theresa run by the Sisters Society namely "Sisters of Charity Non-Profitability Hospital" established in 1948. The Hospital was covered under E.S.I. Act, 1948, under Gazette notification vide G.O.No.582. The petitioner's private hospitals and other nursing homes association preferred Writ Petition challenging the said Gazette notification and inclusion of Medical Institution/Hospital under E.S.I. Act by filing W.P.No.17977 of 2009. The petitioner had obtained interim order by filing a petition vide W.P.M.P.No.23559 of 2009. The said interim order was subsisting till date of respondent filing the above referred petition. The respondent had informed about filing the Writ Petition to the appellant herein. They have paid the entire due contribution from the date of coverage without any demand and interest also 5 SSRN,J CMA No.159 of 2022 claimed by the Corporation from the date of coverage and the same was paid without any protest.
6. Therefore, according to the respondent as on the date of filing the above said petition, they have paid contributions and there was no default. The above said case was filed challenging the order issued by the appellant herein under Section 85-B for damages. The respondent has claimed that the notice issued by the appellant on 28-09-2016 was received by the respondent on 13-02-2018, date of hearing was fixed on 07-05-2018. The respondent got filed its reply through their Advocate on 20-04-2018 along with necessary documents. The respondent claims since the matter was pending before the High Court and as there was interim order in its favour, the respondent has paid the damages including the interest as on the date of filing the application. Therefore, according to the respondent, the notice issued by the appellant under Section 85-B is illegal and arbitrary, thereby sought for setting aside the said order.
7. The appellant herein made its appearance before the E.S.I. Court, filed written statement disputing the material averments of the petition filed by the respondent. According to the appellant, it was specifically stated that the respondent herein 6 SSRN,J CMA No.159 of 2022 failed to pay the contributions within the stipulated time from the period from April, 2010 to September, 2010, December 2010 to March 2011, April 2015 to June 2015, as such notice in Form No.D-18 has been issued to the respondent proposing to impose damages to Rs.96,630/- for the delay in payment of contributions. A date was fixed for personal hearing of the respondent on 07-05- 2018. The notice was duly served on the respondent. But the respondent failed to submit any valid reasons for non-payment of contributions within the stipulated time. The appellant having admitted the filing of Writ Petition and interim order, further stated that the stay is only against prosecution and the respondent failed to attend the personal hearing on 07-05-2018, since the respondent failed to attend the personal hearing, it was assumed that the respondent does not intend to say anything against the proposed damages. The appellant further stated that if the employer failed to pay contributions as required under Section 40 of E.S.I. Act within the stipulated time, the employer is liable to pay damages for the delayed payment of contribution under Section 85-B of E.S.I. Act. Therefore, the authorized Officer passed an order under Section 85-B dated 22-04-2019 and imposed damages of Rs.96,630/- for the period from June, 2010 to 7 SSRN,J CMA No.159 of 2022 January, 2016. The order has been duly served but the respondent failed to comply with the order, thereby recovery certificate in Form No.D-19 dated 22-06-2019 was issued for recovery of the damages. The said notice was served on the respondent herein, therefore, the appellant sought for dismissal of the petition.
8. On the basis of above rival contentions, the E.S.I. Court framed the following issues:
1. Whether the order under Section 85-B of E.S.I. Act dated 07-09-2018 and 22-04-2019 for Rs.96,630/- for the period from June, 2010 to June, 2016 passed by the respondent is against the principles of natural justice and consequently to set aside the same?
2. To what relief?
9. During the enquiry, the parties did not choose to adduce any evidence but Exs.P1 to P7 are marked on behalf of the respondent and the appellant herein marked Exs.R1 to R14. The E.S.I. Court having considered the oral arguments of the parties and having appreciated the documents, came to a conclusion that the respondent proved its bonofides by paying contributions pending Writ Petition. Therefore, imposing damages against the respondent under Section 85-B does not arise. The Authorised Officer imposed damages in a mechanical way. With this, the 8 SSRN,J CMA No.159 of 2022 order under Section 85-B and consequential recovery notice in the Form of D-19 was set aside.
10. Heard both parties.
11. Now the point for consideration is :
Whether the E.S.I. Court committed an error in allowing the petition filed by the respondent and by setting aside the order under Section 85-B recovery notice under D-19, if so, whether the said order is liable to be set aside?
12. This Court disposed of C.M.A.No.158 of 2022 vide order dated 21-10-2022 and the present case is covered by the same Judgment.
13. The learned Standing Counsel for the appellant herein has submitted that all the private school institutions are covered by E.S.I. Act. This Court in a batch of writ petitions categorically held that the educational institutions were required to pay contributions from the date of notification of the Government order. Therefore, the respondent herein is required to pay the contribution. In fact the respondent used to pay contributions and there is no dispute about the order issued by the appellant under Section 85-B of E.S.I. Act. In support of the contention, the learned Standing Counsel placed reliance on a Judgment between "Horticulture Experiment Station Gonikoppal, Coorg Vs. 9 SSRN,J CMA No.159 of 2022 Regional Provident Fund Organization"1, and another Judgment between "Union of India and Others vs. Dharmendra Textile Processors and Others"2. The respondent, who was served with the notice did not choose to oppose the application.
14. I have perused the order impugned in the present appeal. The learned Chairman, E.S.I. Court has allowed the petition filed by the respondent herein mainly on the basis of a Judgment between "Employees State Insurance Corporation Vs. HMT Limited and another"3, and another case between "Assistant Provident Fund Commissioner EPFO and another vs. Management of RSL Textiles India Private Limited"4. In the first case i.e., E.S.I. Corporation, the Hon'ble Apex Court was pleased to observe that :
"The existence of mens rea/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".
15. In the other case, Assistant Provident Fund Commissioner, referred above, the Hon'ble Apex Court was pleased to observe as follows :
1 (2022) 4 Supreme Court Cases 516 2 (2008) 13 Supreme Court Cases 369 3 Laws(SC)‐2008‐1‐122 4 (2017) 3 Supreme Court cases page 110 10 SSRN,J CMA No.159 of 2022 "This issue is now wholly covered against the appellants in the decision render by this Court in Mcleod Russel India Limited Vs. Regl Provident Fund Commissioner reported in (2014) 15 SCC 263, where in it has been held in para 2 that the High Court has taken a view in the absence of a finding regarding mens rea/actus reus on the part of the employer, action under Section 14-B as also the quantum thereof since it is not inflexible that 100% of the arrears have to be imposed in all the cases. Alternatively stated, if damages have been imposed under Section 14-B it will only logical that mens rea and or actus reus was prevailing at the relevant time".
16. The learned Chairman found that there was no malafide intention in the delayed payment of contribution, thereby the respondent need not pay any damages and in view of that matter, allowed the petition filed by the respondent. In fact there is no finding nor there is any argument that the respondent paid the damages claimed in the order under Section 85-B of E.S.I. Act.
17. As per the material averments made in the petition and counter placed before the trial Court, it was specifically alleged that the respondent failed to pay the contributions for a particular period and in view of the said failure, a notice was issued to the respondent directing this school to pay damages. The respondent did not deny the receipt of order under Section 85-B. It was not the case of the respondent that the Hospital was not given any opportunity of personal hearing. The appellant had categorically 11 SSRN,J CMA No.159 of 2022 stated in the counter filed before the trial Court that while issuing the order/notices, the respondent was given an opportunity of personal hearing and the said notice was acknowledged by the respondent but they did not avail the opportunity. The respondent claimed in the petition that the order issued by the appellant herein under Section 85-B is contrary to the provisions of E.S.I. Act and violation of the Article 14 of the Constitution of India. The respondent has claimed that the impugned order was passed mechanically and there was failure of Principles of Natural Justice. The entire focus of the respondent is on the aspect of mens rea/actus reus. Therefore, in view of the above averments made in the petition, the respondent did not dispute the receipt of notice but claimed that they have no intention to avoid the payment of contribution and damages. As already stated in the previous paragraphs herein before, the learned Chairman having relied on the Judgments referred in the order found that in view of the absence of mens rea/actus reus, no damages can be levied against the respondent.
18. However, in a recent Judgment i.e., Horticulture Experiment Station, referred above, the Hon'ble Apex Court was pleased to observe that :
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SSRN,J CMA No.159 of 2022 "Any default or delay in payment of EPF contribution by employer is sine qua non and sufficient for imposition of damages under Section 14-B - Mens rea or actus is not essential for imposing penalty/damages for breach of civil obligations/liabilities".
19. Section 85-B of E.S.I. Act reads as follows :
85-B : Power to recover damages :
1. Where an employer fails to pay the amount due in respect of any contribution or any other amount payable under this Act, the corporation may recover from the employer by way of penalty such damages not exceeding the amount of arrears as may be specified in the regulations.
Provided that before recovering such damages, the employer shall be given a reasonable opportunity of being heard.
Provided further that the Corporation may reduce or waive the damages recoverable under this Section in relation to an establishment which is a sick industrial company in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) subject to such terms and conditions as may be specified in regulations :
2. Any damages recoverable under sub-section (1) may be recovered as an arrear of land revenueor under Section 45-C to Section 45-I.
The respondent school is covered by the E.S.I. Act and there is no dispute about it even by the respondent. The record placed by the appellant clearly show that there was failure on the part of respondent in payment of contribution. It was not the case of respondent that no proper opportunity was provided for hearing. 13
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20. In the above referred Judgment, the Hon'ble Apex Court referred Judgment of Apex Court in Shriram Mutual Fund case5, wherein it was observed that :
"mens rea is not an essential element for imposing penalty for breach of civil obligations".
21. In Para No.16 of the above referred Judgment i.e., Horticulture Experiment Station, the following observations was made :
The Judgment on which the learned counsel for the 6 appellant(s) has placed reliance i.e. ESI Corpn. V. HMT Ltd., , the Division Bench in ignorance of the settled judicial binding precedent of which a detailed reference has been made, while examining the scope and ambit of Section 85-B of the Employees State Insurance Corporation Act, 1948 which is in pari materia with Section 14-B of the 1952 Act placing reliance on the judgment of Division Bench of this Court in Dilip N.Shroff v. CIT7, held that for the breach of civil obligations/liabilities, existence of mens rea or actus reus to be a necessary ingredient for levy of damages and/or the quantum thereof.
22. The learned Chairman, E.S.I. Court relied on E.S.I.
Corpn vs. HMT Ltd, Supra, which in fact held, per incuriam and held, impliedly overruled.
5 (2006) 5 SCC 361 6 (2008) 3 SCC 35 : (2008) 1 SCC (L&S) 558 7 (2007) 6 SCC 329 14 SSRN,J CMA No.159 of 2022
23. In the present case, it was not the claim of respondent that there was no delay in payment of contribution when once it is proved that there was delay, the aspect of mens rea cannot be considered. Therefore, the order impugned in this revision is liable to be set aside.
24. In the result, the appeal is allowed.
Consequently, Miscellaneous applications if any, are closed. No costs.
__________________________ JUSTICE SAMBASIVA RAO NAIDU Date: 18.01.2023 PLV