M/S. N.J. Nayudu & Co. Thru. ... vs Employees State Insurance Corpn. ...
2016 Latest Caselaw 2408 Bom

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                                             1

      IN THE HIGH COURT OF JUDICATURE AT BOMBAY NAGPUR BENCH




                                                                               
                              NAGPUR.

                        FIRST   APPEAL     NO.   335     OF     2007




                                                       
    M/s N. J. Nayudu & Company,
    A registered partnership firm,
    through its partner Mrs. Shanti




                                                      
    Rajendrapal Sharma, aged 71 yrs.
    Having its office at Liberty Cinema
    Building, Sadar, Nagpur.                                        APPELLANT.

                                          VERSUS




                                           
    1] Employees State Insurance
                             
    Corporation, Panchadeep Bhavan
    Ganeshpeth, Nagpur. 

    2] Savinder Singh Pritamsingh
                            
    Bhasin, aged major, R/o 635, Dr.
    Ambedkar Nagar, Nagpur. 

    3] Udesh Santoshrao Somkuwar
      

    aged major, R/o Vinod Bhavan
    Kadbi Chowk, Nagpur. 
   



    4] Harchransingh Pritamsingh
    Bhasin, aged Major, R/o 635,
    Dr. Ambedkar Nagar, Nagpur. 





    5] Ashish Prakashchandra Kokas,
    aged Major, R/o 360, Park Avenue,
    Dhantoli, Nagpur. 

    6] Prabhat Kumar Shailendra





    Nandi (expired) R/o Mama Road,
    Dharampeth, Nagpur.                                             RESPONDENTS.

Shri H. V. Thakur, Advocate for the appellant.

Smt B. P. Maldhure, Advocate for the respondent no. 1. Shri Atul Pathak, Advocate for respondent nos. 2 to 4.

                                    CORAM:     A. S. CHANDURKAR  J.
                                    JUDGMENT RESERVED ON 7th APRIL 2016. 
                                    JUDGMENT DELIVERED ON 6th MAY 2016               





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    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 02.02.2007 passed by the learned Member, Employees State Insurance

Court Nagpur, in proceedings under Section 75 of the said Act. By the said

order the application under Section 75 of the said Act came to be dismissed

and the demand towards contribution made by the respondent has been

confirmed.

2. The facts giving rise to the present proceedings are that, the

appellant is a registered partnership firm carrying on business of exhibition of

films. Four theaters are being run by the appellant in which it had engaged

its own employees. The establishment conducted by the appellant is

governed by the provisions of the said Act and the coverage is with effect

from 27.11.1976. On 15.02.1978 an inspection was carried out by the

Inspector of the Corporation. During said inspection the coverage of

employees of the cycle stand and canteen in the theaters was directed to be

done. According to the appellant the persons working on the cycle stand and

in the canteen were not the employees of the appellant. According to the

appellant this explanation was accepted and no further demand was raised

till about February 1994. It is the further case that in the year 1982 a writ

petition came to be filed in the matter of payment of provident fund dues.

This writ petition was withdrawn in the year 1989. Thereafter again

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inspections were carried out by the officers of the Corporation. After

exchange of communications between the parties the Assistant Regional

Director of the Corporation issued two notices dated 21.02.1995 seeking to

determine the amount of contribution payable under Section 45A of the said

Act. In the first notice a demand of contribution of Rs. 1,29,052/- was made

for the period from 27.11.1976 till 31.12.1992. By the second notice a

demand of Rs. 10,928/- for the period from April 1985 till March 1989 was

made.

3. In response to the aforesaid notices the appellant submitted its

reply on 09.03.1995. It was stated in the reply that the appellant was not the

employer of the persons working on the cycle stand or in the canteen. The

cycle stand and the restaurant had been given on lease and the persons who

were working therein were the employees of the lessee who was a separate

entity. It was further stated that the demand as made from the year 1976

was belated. As all records had been produced during the course of

inspection it was stated that the appellant was not liable to pay any amount

of contribution as demanded.

In so far as the second notice is concerned a similar reply was

given and the liability to pay contribution was denied.

4. The appellant on 05.04.1995 placed on record of the Assistant

Regional Director of the Corporation various licence agreements from the

year 1986-87 onwards. Thereafter on 26.05.1995 Assistant Regional Director

of the Corporation passed an order under Section 45A of the said Act and

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directed payment of contribution of Rs. 1,29,052/- for the period from

27.01.976 till 31.03.1985 and from 01.04.1989 till 31.12.1992. This amount

was directed to be paid with interest at the rate of 18% P. A.

5. The appellant company being aggrieved by the aforesaid

adjudication filed an application under Section 75 of the said Act. It

reiterated its stand that was taken in the reply to the show cause notice

issued before passing the order under Section 45A of the said Act. It was

denied that the appellant was the "immediate employer" and also the fact

that it was not liable to pay any amount of contribution.

The written statement came to be filed on behalf of the

respondent-Insurance Inspector. After the issues were framed the appellant

examined its General Manager as well as the representative of various lessees

in support of its case.

After considering the entire evidence on record the learned

Member of the Employees' State Insurance Court held that though the cycle

stand and the canteen in the theaters were meant for cinema viewers, the

said facilities were not restricted only for outsiders and that even the cinema

viewers could avail the same. The demand as made in the notice was held to

be valid. It was then observed that actual wages paid to the employees of the

cycle stand and the canteen were not brought on record and therefore the

adhoc calculation as made was just and reasonable. The learned Member

relied upon the decision of the Hon'ble Supreme Court in Royal Talkies,

Hyderabad and others Vs. Employees' State Insurance Corporation through its

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Regional Director, Hill Fort Road, Hyderabad AIR 1978 Supreme Court 1478

and by order dated 02.02.2007 dismissed the application filed under Section

75 of the said Act.

6. The appellant being aggrieved by the aforesaid adjudication has

filed the present appeal. On 24.04.2007 the following substantial questions

of law were formulated:

1] Whether the order dated 26.05.1995 was

bad in law for non compliance of the principles of natural justice as well as lack of jurisdiction

as the E.S.I. Department had failed to furnish requisite material to the appellant on the basis of which the liability for past recovery was confirmed?

2] Whether the burden was on the appellant to prove that the employees employed by the Canteen and Cycle Stand owners were not its

own employees and as such were not covered under the E.S.I. Act?

3] Whether the findings recorded by the E.S.I. Court that "the activity of canteen and cycle stand run by the appellant's tenant in the leased premises was primarily meant for the

Cinema viewers though outsiders were permitted to enjoy the said facility" is perverse and whether the liability fastened upon the appellant to pay E.S.I. Contribution on the basis of the said finding is bad in law and

deserves to be set aside?

4] Without there being any physical identification of the beneficiaries, i.e. the employees purported to have been employed by the owners of the canteen and cycle stand/appellant's tenants during the period from 1976 to 1992 who could be covered under the E.S.I. Act whether the order dated 26.05.1995 passed under Section 45A fastening liability upon the appellant to pay

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arrears of E.S.I. Contribution is valid and

sustainable in law?

7. Shri H. V. Thakur, the learned Counsel for the appellant

submitted that the initial order passed by the Assistant Regional Director of

the Corporation under Section 45A of the said Act was bad in law as it had

been passed in breach of principles of natural justice. It was submitted that

the notice dated 21-2-1995 (Exhibit-27) had been issued to the appellant on

the basis of the information that was available with the Corporation. On the

basis of said information a demand of contribution of Rs.1,29,052/- came to

be made. In response to aforesaid notice the appellant by its reply dated

9-3-1995 (Exhibit-56) made a request to the Corporation to furnish all

relevant material that was relied upon for issuing the show cause notice. It

was submitted that certain records available with the appellant were made

available by the appellant along with the communication dated 5-4-1995

(Exhibit-58). However, without supplying the material demanded and

without grant of any further hearing, the order under Section 45A of the said

Act came to be passed on 26-5-1995. According to the learned

Counsel, it was necessary for the Corporation to have supplied the material

on the basis of which the show cause notice was issued. However, without

doing so, the order under Section 45A of the said Act came to be passed. In

that regard, the learned Counsel placed reliance on the judgment in ESI

Corporn. v. Central Press and anr.(1977) 2 SCC 581 and Bharat Heavy

Electricals Ltd. v. ESI Corpn. (2008) 3 SCC 247. It was urged that this aspect

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of the matter was urged before the Insurance Court but the same was not

considered.

It was then submitted that the Assistant Regional Director

proceeded to demand contribution by relying upon the judgment of the

Hon'ble Supreme Court in Royal Talkies, Hyderabad (supra) without noticing

various distinguishing features. He submitted that the premises where the

cycle stand and the canteen were being operated had been given on license.

The employees of the licensees were not the employees of the appellant and,

therefore, the liability could not have been fastened on the appellant to pay

the amount of contribution. He sought to distinguish the aforesaid judgment.

It was further urged that the identification of the concerned employees for

whose benefit the insurance contribution was sought was required to be

made. In absence of any identification of such employees, no order saddling

liability to pay contribution could have been fastened. The burden in that

regard was on the Corporation, but it had failed to discharge the same. The

learned Counsel relied upon the decisions in Sandeep Dwellers pvt. Ltd.,

Nagpur v. Union of India and Ors. 2006(III) CLR 748, ESI Corpn. v. Bhakra

Beas Management Board and another, (2009) 10 SCC 671, ESIC v. Om

Prakash and others 2010 II LLJ 524 and ESIC Vs. Pioneer Laundry 1966 II LLJ

425 in that regard. It was further urged that though the demand of

contribution was required to be made within reasonable period the same was

not done. He submitted that even as per the decision in ESI Corpn Vs. C.C.

Shanthkukar (2007) 1 SCC 584, the demand was made beyond reasonable

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period. The demand for the period from 1976 to 1985 and from April 1989 to

March, 1992 was being made in February, 1995. The demand of interest @

18% per annum was also illegal. It was, therefore, submitted that the

substantial questions of law as formulated while admitting the appeal were

liable to be answered in favour of the appellant.

8. Smt. B. P. Maldhure, the learned Counsel for the respondent No.1

supported the impugned order. According to her, the exercise of power

under Section 45A of the said Act was justified in the facts of the present

case. It was submitted that the Assistant Regional Director was justified in

relying upon the ratio of the judgment in the case of Royal Talkies, Hyderabad

(supra) while passing the order under Section 45A of the said Act. She

submitted that initially a notice dated 1-6-1978 had been issued

seeking contribution for the period from December 1976 to December 1977.

Between the period from 1978 to 1994, steps were not taken by the

Corporation as the writ petition filed by the appellant was pending. It was

submitted that it was the responsibility of the appellant to maintain the

relevant records and as the same were not submitted despite demand, an ad

hoc assessment was required to be made. The facility of canteen and cycle

stand was for the benefit of cinema viewers and in that backdrop the

appellant as the principal employer was liable to pay contribution. It was

submitted that the demand of contribution under Section 45A of the said Act

was made after grant of full opportunity to the appellant and there was due

compliance with the principles of natural justice. In support of her

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submissions, the learned Counsel placed reliance on the following judgments:

(1) Transport Corpn. Of India v. Employees State Insurance Corpn.

(2000)1 SCC 332.

(2) Saraswath Films V. ESI Corpn. (2010)11 SCC 553

(3) ESIC v. M/s Harrison Malayalam Pvt. Ltd. AIR 1993 SC 2655.

(4) ESIC v. Hotel Kalpaka International 1993 (1) CLR 332 and

(5) Regional Director ESIC Corpn. v. Amalgamation Repco Ltd. 1982

LIC 1691.

It was, therefore, submitted that the appeal did not give rise to any

substantial question of law and the same was liable to be dismissed.

9. With the assistance of the learned Counsel for the parties, I have

perused the records of the case and I have given due consideration to their

respective submissions. For the purposes of considering the substantial

question of law framed at Sr. No.1, it would be necessary to consider certain

facts. On 21-2-1995, the Corporation through its Assistant Regional Director

issued show cause notice to the appellant (Exhibit-27) as to why the

contribution under Section 45A of the said Act of an amount of Rs.1,29,052/-

should not be determined and recovered. In para 2 of the show cause notice,

it has been stated that on the basis of information laid before the Assistant

Regional Director and on its consideration, the Assistant Regional Director

had a reason to believe that the contribution in respect of cycle stand and

canteen for the period specified had not been paid. In response to aforesaid

notice, the appellant submitted its reply on 9-3-1995 (Exhibit-56). In said

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reply, the appellant requested the Authority to furnish relevant material

which was mentioned in para 2 of the notice so as to enable it to reply to the

same. A right was also reserved for filing an additional reply after the said

material was supplied. The claim as made by the Assistant Regional Director

was, however, denied. Thereafter on 5-4-1995 (Exhibit-58) the request for

supply of material was reiterated. However, certain records available with

the appellant were supplied to the Assistant Regional Director. On 25-5-

1995, the order under Section 45A of the said Act came to be passed.

10. The provisions of Section 45A of the said Act require submission

or furnishing of records as per provisions of Section 45 of the said Act. The

Corporation on the basis of information available to it can pass an order

demanding the amount of contribution payable in respect of the employees of

the establishment. This is, however, to be done after giving a reasonable

opportunity of being heard to the principal or immediate employer or person

in-charge as the case may be. In Employees State Insurance Corporation,

Bhopal (supra), the Hon'ble Supreme Court observed that where there is an

omission on the part of the employer to maintain records as per Section 44 of

the said Act, it has to determine the amount of contribution on the strength

of such information as it may collect. It can then make the demand. It has

further observed that the Corporation has to itself collect the information

initially and make a provisional demand. In Bharat Heavy Electricals Ltd.

(supra), it was observed that in proceedings initiated under Section 45A of

the said Act an immediate employer or principal employer may show that it is

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not liable to pay any contribution on behalf of the employees as the

establishment did not come under the purview of the said Act.

From the aforesaid it is clear that the Corporation can demand

the amount of contribution acting on the information available with it and

after giving a reasonable opportunity to the person from whom such

contribution is demanded.

11. The facts of the present case indicate that the show cause notice

at Exhibit-27 was issued on the basis of the information that was available

and placed before the Assistant Regional Director who after considering the

same had reason to believe that the contribution for the employees of the

cycle stand and the canteen was not paid. The appellant demanded the

information/material which was relied upon by the Assistant Regional

Director for issuing a show cause notice with a view to contest the

proceedings. This demand was reiterated in the communication dated 5-4-

1995 (Exhibit-58). The order passed under Section 45A refers to the reply

dated 9-3-1995 as well as the communication dated 5-4-1995. It, however,

does not reflect any consideration of the demand made by the appellant for

supply of relevant material to it. The request for supply of the material on

the basis of which the show cause notice was issued has not been rejected,

nor has it been held that the demand for such information was unjustified.

Without considering the request to supply information as sought, the demand

of contribution has been made. It is, therefore, clear that failure to consider

the request for supply of material on the basis of which the demand of

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contribution was made has resulted in reasonable opportunity not being

granted to the appellant thus vitiating the entire exercise. It need not be

reiterated that a reasonable opportunity of being heard would include supply

of material on the basis of which the impugned action of demand was

initiated. The request for supply of information has not been refused. There

is, thus, failure to consider the request as made.

Similarly, after the appellant supplied copies of the license

agreements on 5-4-1995, no further hearing was granted and the impugned

order came to be passed. Thus, there was no effective hearing before the

impugned order was passed. These aspects going to the root of the mater

have been lost sight of by the Employees State Insurance Court also. The

order passed under Section 45A of the said Act cannot be sustained. The

substantial question of law at Sr. No.1 is answered in favour of the appellant.

12. As it has been found that the order dated 26-5-1995 passed by

the Assistant Regional Director under provisions of Section 45A of the said

Act is bad in law on account of failure to furnish requisite material resulting

in non-compliance of the principles of natural justice, it is found necessary

that the Authority under the said Act should reconsider the matter on the

basis of the show cause notice dated 21-2-1995 issued to the appellant. In

that view of the matter, it would not be necessary to answer substantial

questions of law framed at Sr. Nos.2 to 4. As the entire matter is required to

be reconsidered, consideration of these questions at this stage is not

warranted. As a consequence of the answer to the substantial question of law

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at Sr. No.1, the following order is passed:

(1) The order dated 25-5-1995 passed by the Assistant Regional

Director under Section 45A of the said Act as well as order dated 2-2-2007

passed by the Employees State Insurance Court in Application No.12/1995

stand set aside.

(2) The proceedings are remanded to the Assistant Regional Director

for fresh consideration in accordance with law and in the light of the

observations made herein above. It is made clear that the respective

contentions of the parties on merits are kept open for due adjudication.

(3) As the proceedings have been initiated in the year 1995, the same

are expedited. The Assistant Regional Director shall take necessary decision

in accordance with law expeditiously.

(4) The records of the case be sent to the Employees State Insurance

Court, Nagpur.

(5) The first appeal is allowed in aforesaid terms with no order as to

costs.

JUDGE

/Muley/