M/S. Shilpa Re-Rollers Pvt. Ltd., ... vs Employees State Insurance Corpn. ...
2016 Latest Caselaw 1730 Bom

                  fa21.07.odt                                                                                       1/14

                                    IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                              NAGPUR BENCH : NAGPUR.




                                                                                                                 
                                                           FIRST APPEAL NO.21 OF 2007




                                                                                 
                   APPELLANT:                                 M/s. Shilpa Re-Rollers Pvt. Ltd., Plot
                                                              No.234,   Wanjra   Layout,   Near   Pili
                                                              Nadi,   Kamptee   Road,   Nagpur,
                                                              through its Managing Director.
                                                                                                                   




                                                                                
                                                                    -VERSUS-

                   RESPONDENT:                                Employees   State   Insurance
                                                              Corporation,   Sub   Regional   Office,
                                                              Panchdeep   Bhavan,   Ganeshpeth,




                                                                         
                                                              Nagpur through its Dy. Director.
                                                                                                                                    
                                     
                  Mr. R. B. Puranik, Advocate with Shri N. W. Almelkar, Advocate for the
                  appellant.
                                    
                  Smt. B. P. Maldhure, Advocate for the respondent.
                  ----------------------------------------------------------------------------------------------------


                    CORAM: A.S. CHANDURKAR, J.

DATE ON WHICH SUBMISSIONS WERE HEARD: 12-04-2016.

DATE ON WHICH JUDGMENT IS PRONOUNCED: 22-04-2016.

ORAL JUDGMENT :

1. This appeal filed under Section 82 of the Employees State

Insurance Act, 1948 (for short, the said Act) takes exception to the order

dated 4-10-2006 passed by the learned Judge, Employees State

Insurance Court, Nagpur in proceedings under Section 75 of the said

Act.

2. The appellant is a private limited Company to which the

provisions of the said Act have been made applicable. In the matter of

contribution payable by the appellant for the years 1993-94 and 1994-95

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inspection was carried out by the Officers of the respondent Corporation.

On 23-12-1997, a show cause notice came to be issued by the

Corporation calling upon the appellant to pay an amount of

Rs.1,74,983/-. In the said show cause notice, the dues claimed were on

account of contribution for the difference in the payments made to

contractors as well as on the difference on the amount paid to Security

Guards. The appellant appeared before the Corporation and contested

the proceedings. After grant of necessary opportunity and after exchange

of communications, the Deputy Director of the Corporation passed an

order under Section 45-A of the said Act dated 17-8-2004. It was held

that as the difference of amount remained unexplained, the dues as

proposed in the notice dated 23-12-1997 were finalized. On that basis a

demand of the contribution for Rs.1,74,983/- under Section 45-A of the

said Act came to be made.

3. The appellant challenged the aforesaid order in proceedings

under Section 75 of the said Act. It was the case of the appellant that

the relevant records had been made available to the Inspectors of the

Corporation during their visits. It was stated that an amount of

Rs.6,348/- as ESI contribution on the amount of Rs.1,15,406/- was paid

as demanded on 15-12-1997. Similarly, on 22-6-2002 an amount of

Rs.555/- as ESI contribution on the amount of Rs.10,081/- was also

paid. It was then stated that considering the period of time that had

elapsed, the relevant records were not available and, therefore, the

proceedings ought to be dropped.

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The appellant examined its Personnel Officer below Exhibit-

14 while the Corporation examined its Deputy Director below Exhibit-

20. The learned Judge of the Insurance Court after considering the

material on record held that no records had been produced by the

appellant and, therefore, the order passed under Section 45-A of the said

Act was just and proper. It was further held that the dispute for the

period from 1993-94 and 1994-95 was never closed and the same

continued till the passing of the order under Section 45-A of the said

Act. On that basis by order dated 4-10-2006, the application under

Section 75 of the said Act came to be dismissed.

4. The following substantial questions of law arise in the

second appeal:

(i) Whether the Employees' State Insurance Corporation was

entitled to raise the claim against the employer for alleged non-payment

of the E.S.I. contribution for the years 1993-94 and 1994-95, after a

lapse of five years therefrom in view of the proviso to Section 77(1-A)(b)

of the Employees State Insurance Act, 1948?

After hearing the respective Counsel for the parties,

substantial question of law No.2 that was framed on 24-1-2007 was re-

framed as under:

(ii) Whether the power under Section 45-A of the E.S.I. Act,

which deals with ad-hoc determination of E.S.I. dues in the absence of

failure on the part of the employer to maintain returns and records, can

be exercised when it is an admitted position that E.S.I. Inspector and his

fa21.07.odt 4/14

higher authorities repeatedly carried out the inspections and the

employer made all the relevant documents available and the inspections

were followed by production of records by the employer on several

occasions, only because the Order is passed after seven years after the

first inspection and the relevant records were not available immediately

before the passing of the Order?

5. Shri R. B. Puranik, learned Counsel for the appellant at the

outset submitted that in so far as the first substantial question of law is

concerned, the same stands answered against the appellant in view of

the decision of the Hon'ble Supreme Court in E.S.I. Corporation Vs. C.C.

Santhakumar (2007) 1 SCC 584. He submitted that in aforesaid

decision it has been held that it was open for the Insurance Corporation

to raise a claim against the employer even after the lapse of five years in

terms of Section 77(1-A) of the said Act. It was further held that the

same was required to be done within a reasonable time.

In so far as the second substantial question of law is

concerned, it was submitted that various inspections had been carried

out by the Authorities under the said Act and all relevant documents had

been produced during the course of inspection. As per the note-sheet of

the aforesaid proceedings maintained by the Corporation below Exhibit-

35, it was clear that on 29-1-1998 and 9-2-1998 relevant records in

respect of the Security Contractors had been produced. The last entry in

said note-sheet is dated 9-2-1998, while according to the Corporation,

further hearing was granted on 18-3-1998. However, submission of

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relevant records on 29-1-1998 and 9-2-1998 has not been taken into

consideration and on the contrary the Corporation has sought to rely

upon the personal hearing granted on 18-3-1998. He submitted that this

indicated non-consideration of the relevant records before passing the

order under Section 45-A of the said Act. Said aspect was also not

considered by the Insurance Court in proceedings under Section 75 of

the said Act. He referred to the documents filed on record and

emphasized the legal position with regard to the powers under Section

45-A of the said Act as laid down in E.S.I. Corporation (supra). He,

therefore, submitted that the entire action initiated by the Corporation is

liable to be set aside.

6. Smt. B. P. Maldhure, learned Counsel for the respondent at

the outset submitted that the present appeal that was filed under

Section 82(2) of the said Act would have to be heard only on the

substantial questions of law as framed while admitting the appeal. She

submitted that it would not be permissible to re-frame a substantial

question already framed while hearing the appeal. She referred to the

provisions of Section 100 of the Code of Civil Procedure, 1908 and urged

that the same were distinct from the provisions of Section 82(2) of the

said Act. There was no power with the Court to re-frame a substantial

question of law that was already framed while admitting the appeal.

As regards substantial question of law No.(i), the learned

Counsel for the respondent did not dispute the legal position flowing

from the judgment of the Hon'ble Supreme Court in E.S.I. Corporation

fa21.07.odt 6/14

(supra). In so far as the second substantial question of law is concerned,

it was submitted that the appellant had not produced the relevant

records despite grant of several opportunities and various visits by the

Inspectors for verification. As the appellant had not cooperated by

producing the relevant records, the Deputy Director had rightly passed

the order under Section 45-A of the said Act. It was then submitted that

it was the duty of the appellant to preserve the records as the show

cause notice has been issued on 22-12-1997 and the stand that the

records had been destroyed was an afterthought. It was, therefore,

submitted that considering the entire material on record, it could not be

said that the impugned order had been passed in a manner contrary to

law.

7. I have given due consideration to the respective

submissions and have gone through the records of the case. In so far as

the first substantial question of law is concerned, the Hon'ble Supreme

Court in E.S.I. Corporation (supra) considered the question as to whether

the contribution for a period prior to five years could be claimed by the

Corporation in view of provisions of Section 77(1-A)(b) of the said Act.

After considering the scheme of the entire Act, it was held that the right

of the Corporation to claim contribution could not be restricted for a

period of five years and that such claim could be made by the

Corporation within a reasonable period. In view of aforesaid decision,

the first substantial question of law is answered in the affirmative and

against the appellant.

fa21.07.odt 7/14

8. As noted above, the second substantial question of law was

re-framed after hearing the respective Counsel on 4-4-2016. The

submission made on behalf of the respondent that the Court would not

have power to re-frame a substantial question of law that was already

framed and that the appeal under Section 82(2) of the said Act was

required to be heard only on the substantial questions of law that were

framed while admitting the appeal cannot be accepted. Section 82(2) of

the said Act stipulates that an appeal would lie to the High Court from

the order of the Employees Insurance Court only if it involves a

substantial question of law. To restrict an appeal that has been admitted

by framing a substantial question of law only to said question despite the

fact that during the course of hearing it transpires that either an

additional substantial question of law arises or that the substantial

question of law already framed is required to be re-framed would

amount to putting fetters on the Court hearing an appeal under

Section 82 of the said Act. The provisions of Section 82 do not restrict

the hearing of an appeal only on a substantial question of law that has

been framed while admitting the appeal. In fact, Section 82(2) of the

said Act merely requires an appeal to give rise to a substantial question

of law for the same to be entertained under said provision. In absence

of any such bar in Section 82 of the said Act, there is no reason

whatsoever to confine hearing of an appeal filed under Section 82 of the

said Act to only those substantial questions of law that have been framed

while admitting the appeal. On the contrary, the course as prescribed by

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provisions of Section 100(5) of the Code of Civil Procedure, 1908 can be

followed. If during the course of hearing of an appeal under Section 82

of the said Act, it is found by the Court that the appeal gives rise to a

substantial question of law that has not been framed earlier or that a

substantial question of law already framed is required to be re-framed,

such substantial question of law can always be framed/re-framed subject

to grant of opportunity to the contesting party to meet such substantial

question of law as framed/re-framed. Hence, said submission made on

behalf of the respondent cannot be accepted.

ig While considering the second substantial question of law as

re-framed, it would be necessary to first refer to the documents placed

on record. On 23-12-1997, a show cause notice came to be issued to the

appellant demanding contribution under provisions of Section 45-A of

the said Act. The same was under two heads. The first head was

contribution on the difference of the contractors' amount and the other

was contribution on the difference amount of security charges. The total

dues of contribution were taken as Rs.1,74,983/-. Pursuant to this

notice, the Time Office Clerk of the appellant appeared before the

Corporation on 2-1-1998 and submitted certain documents. He was

called upon to furnish particulars for the difference of amount on

29-1-1998. On 29-1-1998, the ledger and the relevant records for the

year 1993-94 and 1994-1995 was produced. Time was granted to

produce vouchers for purchase of Gas Cylinders and materials for

Security Guards. On 9-2-1998, the said Office Clerk remained present.

fa21.07.odt 9/14

The office notice at Exhibit.35 of the record reads thus :-

"Shri A. B. Fadnavis, Time Office Clerk, attended today (9-2-98) in response to C-18

(Ad-hoc) dated 23-12-97. He produced the relevant records related to security contractors for the period from 9-3-94 and 94-95. The decision on C-18 (ad-hoc) will be intimated to

the employer shortly.

This is the last entry in the office note at Exhibit-35.

10. The record further indicates that on 16-8-1999, a notice

was issued to the appellant that the Assistant Regional Director would

visit the establishment for inspection of records. Thereafter on

28-12-2001, another notice was issued with regard to the visit on

10-1-2002 which is at record page 129. The Assistant Director of the

Corporation referred to the personal hearing dated 18-3-1998 and stated

that the records pertaining to the contractors payment was not shown.

In response thereto, the appellant on 13-5-2002 stated that the

assertions that the records were not shown on 18-3-1998 were denied.

It was stated that all relevant records had been shown and a request was

made to furnish copies of the proceedings of the personal hearing.

Thereafter, on 20-6-2002, a demand of contribution on payment made

for furnace repairs for Rs.555/- was demanded. The same was duly

paid.

At this stage, it is necessary to refer to the communication

dated 1-10-2003 issued by the Deputy Director of the Corporation

(record page 133). Reference is made in said communication to the

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personal hearing granted on 2-1-1998 and 18-3-1998 and it is stated

that on 18-3-1998, the appellant had submitted details of payments

made and after considering the same, the contribution on the difference

amount of security charges was not payable. The total contribution

referred was Rs.1,20,991/- on said head and 5.5% thereof was

demanded being Rs.6654.50/-. It was then stated that the records

relating to the contractors' payment had not been shown. From this

communication, it is clear that one head on the basis of which show

cause notice dated 23-12-1997 was issued was dropped. A reply was

sent by the appellant on 9-10-2003 at Exhibit-30. It was reiterated that

all necessary records had been shown and that the details of the

contractors' payment could not be produced due to passage of time.

After giving one more opportunity and after considering the reply dated

27-5-2004 (Exhibit-32), the order under Section 45-A of the said Act

came to be passed.

11. The order passed below Exhibit-33 under Section 45-A of

the said Act indicates that in para 3, it has been observed that though it

was the case of the appellant that the records were shown in the past,

there was no specific recording in the proceedings available in the file as

to which records were verified. On this basis, the dues as demanded in

the show cause notice were finalized.

12. In the deposition of the witness examined by the appellant,

the note-sheet at Exhibit-35 was referred in his cross-examination. This

witness has further deposed about various communications exchanged

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between the parties. The witness examined by the Corporation in his

cross-examination admitted that he was not keeping track of the case

after submission of the case report and that he was not a party while

issuing the order under Section 45-A of the said Act.

The learned Judge of the Insurance Court in the impugned

order has held that the reasons for non-production of documents had no

legal bearing. It was not a case of reopening the proceedings as the

demand for contribution continued from 1997 till 2004. On that basis by

observing that the fault was with the appellant, the application under

Section 75 of the said Act came to be rejected.

13. As held by the Hon'ble Supreme Court in E.S.I. Corporation

(supra), if the records are not produced by the establishment and there

is no co-operation, then the Corporation has to make the assessment and

determine the amount under Section 45-A of the said Act. The same is

in the nature of a best-judgment assessment. The material on record

indicates that during the course of personal hearing on 2-1-1998, 29-1-

1998 and 9-2-1998 certain records were produced by the representative

of the appellant. There is a dispute with regard to the personal hearing

dated 18-3-1998. The note sheet at Exhibit-35 does not indicate that

there is any reference to grant of any such personal hearing on 18-3-

1998. However, in the communication dated 1-10-2003 (record page

133) after referring to the personal hearing on 18-3-1998, the claim for

contribution under the head of security charges paid for the period from

1993 to 1995 to security contractors had been dropped. Even assuming

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that such personal hearing was granted on 18-3-1998, the

communication dated 1-10-2003 clearly indicates that the Deputy

Director was satisfied with the records produced pertaining to the

difference of amount of security charges and, therefore, informed the

appellant that the amount under said head was not payable. Thus, from

the total demand of Rs.1,74,983/- one head of demand for difference in

the amount of security charges was dropped. This aspect has not been

considered by the Deputy Director while passing the order under Section

45-A of the said Act. It was the duty of the Dy. Director to have

examined the entire records including the communication dated

1-10-2003 issued by the Corporation. However, without doing so, the

Authority has proceeded to pass the order under Section 45-A of the said

Act.

Another ground that has been weighed with said Authority

is the absence of any specific recording in the proceedings that were

available on record. The appellant could not be blamed if the records of

the proceedings were not properly maintained by the Corporation. The

note-sheet at Exhibit-35 does not indicate grant of personal hearing on

18-3-1998 while on the basis of very same hearing, the Deputy Director

on 1-10-2003 informed the appellant that the part of the demand made

in the show cause notice dated 27-12-1997 was being dropped. As these

relevant aspects have not been taken into consideration, it will have to

be held that the order under Section 45-A of the said Act has been

passed without proper verification of the records that were available. On

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this ground the order dated 17-8-2004 under Section 45-A of the said

Act is liable to be set aside. The order passed under Section 75 of the

said Act by the Employees Insurance Court is also liable to be set aside

as the aforesaid aspects going to the root of the matter have not been

examined. The second substantial question of law is answered by

holding that though power under Section 45-A of the said Act in the

facts of the present case could have been exercised, said exercise of

powers is without proper verification of the records resulting in vitiating

the entire exercise.

ig By order dated 23-2-2007, the effect and operation of the

order dated 4-10-2006 passed by the Employees Insurance Court was

stayed as the appellant had deposited 75% of the amount that was due

and payable by it to the respondent. It was further directed that if the

appellant succeeded in the appeal, the respondent would be liable to

repay the amount withdrawn by the respondent with simple interest @

7.5 % per annum. Though the learned Counsel for the respondent

submitted that the direction to pay interest on aforesaid amount was not

warranted and sought to rely upon the judgment of the Karnataka High

Court in M.F.A. No.5225/03 (The Regional Director, ESI Corporation vs.

M/s New Taj Mahal Cafe Pvt. Ltd.) decided on 30-7-2004, as the

respondent has not challenged the order dated 23-2-2007 passed by this

Court nor had the Corporation ever applied for its modification, said

request cannot be accepted. Hence, the amount withdrawn by the

respondent is liable to be paid to the appellant with interest @7.5% per

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annum. Needless to state that this would not come in the way of the

Corporation in deciding the proceedings afresh and in accordance with

law.

15. As a result of the aforesaid discussion, the order dated

17-8-2004 passed under Section 45-A of the said Act as well as the order

dated 4-10-2006 passed under Section 75 of the said Act are liable to be

set aside. The same are accordingly set aside. The proceedings are

remanded to the Deputy Director, Employees States Insurance

Corporation, Nagpur who shall consider the entire record and pass fresh

orders under Section 45-A of the said Act after giving due opportunity to

the appellant. The Corporation shall decide the proceedings under

Section 45-A of the said Act expeditiously. The rights and contentions of

the parties on merits are kept open. The record and proceedings be sent

back forthwith to the Employees State Insurance Court. The first appeal

is allowed in aforesaid terms with no order as to costs.

JUDGE

//MULEY//