Esic,Thr.Its Dy.Director vs M/S Neelam Hotel & Food ...
2017 Latest Caselaw 5225 Bom

3107 FA  562/2008                                         1                                               Judgment



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

                              FIRST APPEAL NO. 562/2008 


Employees State Insurance Corporation,
Panchdeep Bhavan, Ganeshpeth, Nagpur.
Through its Deputy Director.                                                       APPELLANT

                                            .....VERSUS.....


M/s. Neelam Hotel and Food Products,
Badnera Road, Amravati, a Registered
Partnership Firm through its Partners;
1]    Bhayyalal Puranlal Sahu,
2]        Ramgopal Hiralal Gupta,
3]        Jitesh Bhaiyyalal Sahu,
4]        Manish Bhayyalal Sahu,
          All R/o. Masangaj Amravati.                                               RESPONDE NTS


Mrs. B.P. Maldhure , counsel for appellant.
Shri S.M. Vaishnav, counsel for respondents.


                 CORAM  : DR. SMT. SHALINI PHANSALKAR-JOSHI, J.

                  DATE     : JULY 31, 2017.


ORAL JUDGMENT :  

This appeal preferred under Section 82 of the

Employees State Insurance Act, 1948 (for short, "ESI Act") raises for

consideration the following substantial question of law:

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"Whether Section 2A read with regulation 10-B of the Employees State Insurance Act, 1948 is mandatory?"

2] This issue is raised in pursuance of the order dated

04/04/2008 passed by Employees Court (Industrial Court),

Amravati in E.S.I. Petition No. 1/2004.

3] The facts, which may be necessary, for deciding this

question of law, can be stated in brief, as follows:

Respondent nos.1 to 4 herein claimed to be the

partners of M/s. Neelam Hotel and Food Products, Badnera Road,

Amravati, which is a partnership firm, running under the same

name and style. Earlier, one Neelam Hotel was running in the said

premises, however the said Hotel came to be closed on account of

certain problems faced by the partners, who were running the said

Hotel, namely, Shri Shankarsa Mamrade, Rajendrasa Mamrade and

Sanjay Mamrade. After the closure of the Hotel Neelam, all the

employees working in the said Hotel were terminated. Thereafter,

the Hotel premises were sold by its partners, Mamrade brothers, to

the firm of respondent nos.1 to 4, by registered sale deed dated

14/06/2001. After purchase of the said Hotel, respondent no.1

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started the business of hotel and food products in the said premises

with effect from 05/11/2001.

4] As per the case of respondents, they had started the

business afresh with new employees as not a single employee of the

earlier Hotel Neelam was continued or re-employed. Immediately

after starting their business, respondents requested Employees State

Insurance Corporation, Nagpur (hereinafter will be referred to as

"ESI Corporation") to provide the account number to them, so as to

deposit the contribution towards Employees State Insurance. It is

contended that, in spite of repeated correspondence made by the

respondents, no code number was allotted to them by the appellant

herein, and hence respondents could not deposit the amount by way

of contribution. It is their grievance that they made efforts to get the

account number, but it was all in vain. Conversely, notice came to

be issued to them on 29/03/2004 demanding contribution of

Rs.70,549/- for the period from November-2001 to March-2003.

After receipt of this notice, respondents again made correspondence

with the appellant to provide the requisite account number, so as to

comply with the said notice, however, appellant failed to do so.

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5]                  It is the contention of the respondents that the amount

claimed was exorbitant and excessive. As per their record, the

amount of Rs.28,651/- only was found due and they were ready to

deposit the same if the account number was provided to them.

However, appellant insisted on respondents to deposit the

contribution in the old account number of Hotel Neelam, to which

respondents had no concern. According to their case, they had

purchased Hotel Neelam without any liability and hence they

cannot be directed to deposit the contribution in the old code

number.

6] As such, respondents filed the petition before the

Presiding Officer of Employees State Insurance Court, Amravati

under Section 75 read with 77 of the ESI Act, for setting aside the

order dated 10/08/2004 issued by Deputy Director, ESI

Corporation, demanding the sum of Rs.70,549/- by way of

contribution and sought further direction to fresh assessment of

contribution on the basis of the record maintained by respondents

and further to provide them a new account number.

7]                  This   petition   came   to   be   resisted   by   the   present



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appellant vide its written statement at Exh.12, contending inter alia

that though respondents had started the Hotel business in the

premises of Hotel Neelam with effect from 05/11/2001, they have

not furnished the information about the same within a period of 15

days, as per the provisions of Section 2 read with Regulation 10-B of

the ESI Act. It was submitted that they have given the first

intimation only on 05/12/2003 and requested for allotment of new

code number. Accordingly, Respondents were directed to start compliance

with the old code no. 23-2031-89 and also to send the copy of the

sale deed, but respondents did not comply with the said letter. It

was submitted by Appellant that every factory/establishment is

required to be registered as per the provisions of Regulation 10-B of

the ESI Act within 15 days after the ESI Act becomes applicable to

it. Such factory or establishment cannot insist for allotment of

new code number, as the code number is not meant for principal

employer, but for that particular factory. It was submitted that the

approach of respondents, since beginning was non-cooperative and

hence appellant was constrained to invoke its power under Section

45A of the Act for determination of contribution, which was

defaulted since November-2001. Respondents were also given a

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chance of personal hearing on 26/04/2004, but they did not submit

any statement of contribution for the period from November-2001

to March-2003, nor attended the personal hearing on 26/04/2004.

As a result, order came to be passed under Section 45A of the Act

on 10/08/2004, directing the respondents to deposit the

contribution of Rs.70,549/- for the period from November-2001 to

March-2003. It was submitted that the said order being legal and

correct, no interference was warranted therein, especially when the

only contention raised by the respondents was that they should be

allotted a new code number, which was not at all necessary, merely

because there is a change in ownership.

8] On the basis of these respective pleadings, the E.S.I.

court framed requisite issues for its consideration at Exh.17. In

support of their case, respondents examined their partner Jeetesh

Bhayyalal Sahu and relied upon various correspondence, whereas

on behalf of appellant, it's Branch Manager, Ramrao Khandekar was

examined as a witness.

9] On appreciation of their evidence and after going

through the various correspondence produced on record by both the

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parties, the learned Presiding Officer of ESI Court was pleased to

hold that, as admittedly the partners and owners of earlier Hotel

Neelam and the present establishment of Hotel Neelam and Food

Products, were distinct and different and even the employees were

also different, and hence specific request was made by the present

respondents to allot them a new code number, it was not proper to

serve on them the notice demanding the contribution of Rs.70,549/-

towards the period from November-2001 to March-2003.

10] The contention advanced by learned counsel for

appellant that the provisions of Regulation 10-B of the ESI Act, were

mandatory in nature and therefore the failure of respondents to

comply with the said provisions does not entitle them to any relief,

was not accepted by the learned Presiding Officer. As a result, the

petition was allowed and appellant was directed to make proper

assessment of contribution on the basis of the record and also to

provide a new account number to the respondents. Accordingly, the

order dated 10/08/2004 passed by the Deputy Director was set-

aside.

11]                 While challenging this order in the present appeal, the




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submission advanced by learned counsel for appellant is that, the

trial court has committed an error in holding that the provisions of

Regulation 10-B of the ESI Act, are not mandatory, especially

having regard to the use of the word "shall" in the said provision.

Hence, the substantial question of law, which is raised for

consideration in the present appeal is, whether Section 2A read with

Regulation 10-B of the ESI Act, 1948 is mandatory?

12] Per contra, learned counsel for respondent Shri

Vaishnav has submitted that the provisions of Regulation 10-B

contemplates certain compliance on the part of the appellant also.

Here in the case, no such compliance was made by the appellant,

and therefore Regulation 10-B, even if it is held to be mandatory,

cannot make impugned order passed by the trial court, as illegal.

13] Thus, in order to decide the substantial question of law,

which is raised in this appeal, as to whether Section 2A read with

Regulation 10-B of ESI Act is mandatory, it is necessary first to

reproduce these two provisions. Section 2A of the ESI Act reads as

follows:

3107 FA 562/2008 9 Judgment

"2A. Registration of factories and establishment.

Every factory or establishment to which this Act applies shall be registered within such time and in such manner as may be specified in the regulations made in this behalf."

Whereas Reg. 10-B contained in Chapter II of the ESI Act,

reads as follows :

"10-B. Registration of Factories or Establishments.

(a) The employer in respect of a factory or an establishment to which the Act applies for the first time and to which an Employer's Code Number is not yet allotted and the employer in respect of a factory or an establishment to which the Act previously applied but has ceased to apply for the first time being, shall furnish to the appropriate Regional Office not later than 15 days after the Act becomes applicable, as the case may be, to the factory or establishment, a declaration of registration in writing in Form No.01 & Form No.01A (hereinafter referred to as Employer's Registration Form).

(b) The employer shall be responsible for the correctness of all the particulars and information required for and furnished on the Employer's Registration Form.

(c) The appropriate Regional Office may direct the employer who fails to comply with the requirements of paragraph

(a) of this regulation within the time stated therein, to furnish to that office Employer's Registration Form duly completed within such further time as may be specified and such employer shall, thereupon, comply with the instructions issued by that office in this behalf.

(cc) The employer in respect of a factory or establishment to which a code number has been issued by the Corporation based on information collected or decision taken

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regarding applicability of the Act to such factory or establishment, shall, within fifteen days of receipt of information of allotment of code number, furnish a declaration in Form-01.

(d) Upon receipt of the completed Employer's Registration Form, the appropriate Regional Office shall, if satisfied that the factory or the establishment is one to which the Act applies, allot to it an Employer's Code Number (unless the factory or the establishment had already been allotted an Employer's Code Number) and shall inform the employer of that number.

(e) The employer shall enter the Employer's Code Number on all documents prepared or completed by him in connection with the Act, the rules and these regulations and in all correspondence with the appropriate office."

14] For deciding whether both these provisions are

mandatory in nature or not, it would be useful to consider the

Object and Reasons of the ESI Act. The object of the ESI Act stated

in its preamble is to provide certain benefits to employees in case of

sickness, maternity, employment injury and for certain other

matters in relation thereto. It is a beneficial legislation enacted to

safeguard the interests of the employees in case of their difficult

times, like sickness, injury etc. As observed by the Hon'ble Apex

Court in the case of M/s. Cochin Shipping Co. -Vs- E.S.I.

Corporation, 1992 II CLR 623,

"The Act is an outcome of a policy to provide remedy for

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the widespread evils arising from the consequences of national poverty. Indeed, it is a piece of social security".

15] In another case of Employees State Insurance

Corporation -Vs- M/s. Harrison Malayalam Pvt. Ltd., 1994 I CLR

15, the Hon'ble Apex Court was pleased to observe that;

"..... The scheme under the Act for insuring the workmen for conferring on them benefits in case of accident, disablement, sickness, maternity etc.; is distinct from the contract of insurance in general. Under the Act, the scheme is more akin to group insurance. The contribution paid entitles the workman insured to the benefit under the Act. However, he does not get any part of the contribution back if during the benefits period, he does not qualify for any of the benefits. The contributions made by him and by his employer is credited to the insurance fund created under the Act and it becomes available for others or for himself, during other benefit period, if he continues in employement. What is more, there is no relation between contribution made and the benefit availed of. The contribution is uniform for all workmen and is a percentage of the wages earned by them. It has no relation to the risks against which the workman stands statutorily insured. It is for this reason that the Act envisages automatic obligation to pay the

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contribution once the factory or the establishment is covered by the Act, and the obligation to pay the contribution commences from the date of the application of the Act to such factory or establishment. The obligation ceases only when the Act ceases to apply to the factory/establishment. The obligation to make contribution does not depend upon whether the particular employee or employees cease to be employee/employees after the contribution period and the benefit period expired."

16] When the Constitutional validity of the provisions of

Regulation 10-B, dealing with registration of factories and

establishments, was challenged before the High Court of Jammu

and Kashmir in the case of Jay Kay Marbles -Vs- Union of India

and others, 1996 I CLR 507, relying on the abovesaid decisions of

the Hon'ble Apex Court, it was held that, "No part of the ESI Act,

neither Chapter IV nor Chapter V thereof suffers from any

unconstitutionality or legal vice or mischief". It was further held that,

"While deciding the constitutionality of this provision and other related provisions the first and foremost thing which has to be borne in mind that the Act is a piece of welfare legislation, enacted solely with the intention of

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providing relief as a welfare measure to the employees working in the factories and establishments covered by the Act. The intention of the Legislature in enacting a law like the Act was to ensure that in some adverse situations and circumstances whenever the employees need some relief either by way of cash assistance and medical treatment or both, they do not suffer for want of such relief and that the State creates a machinery, provides a mechanism whereby such a relief to them is ensured".

17] It was accordingly held that, "If the employees and the

employers contribute some amount for providing such mechanism, a

system and infrastructure whereby relief is ensured to the deserving

weaker, poor and oppressed employees, the objective indeed is

laudable, and therefore the Act is intra vires the Constitution of India".

18] While dealing with the plea regarding Constitutionality

of Regulation 10-B of the ESI Act, it was held that,

"this Regulation is in conformity with the purpose for which provision is made in the Act for registration of factories and establishments so that effective implementation of the welfare scheme, as provided for in the act is carried out. Regulation 10B merely provides for a mechanism for registration of the factories, furnishing

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of requisite information and allotment of employers Code Number etc. It enjoins upon the employers to give correct information with regard to the employees etc. and fixes responsibility upon the employers for giving incorrect information. There is nothing obnoxious in Regulation 10B which may attract any legal vice or mischief or which may be termed as being opposed to the principles of natural justice. We hold that Regulation 10B is therefore also not ultra vires either the Constitution of India, the Act or any other law."

19] If one considers the laudable object of the Act and the

entire scheme provided under the Act for the welfare of the

employees in the moments of their difficulty, like sickness, medical

problems etc., then it needs to be held that so far as Section 2A of

the Act is concerned, which also contains the word "shall", it is

required to be held as mandatory. It enjoins the duty upon the

factories or establishments to which this Act applies to be registered

within such time and in such manner as may be required under the

regulations. In view thereof, if this provision is not considered to be

mandatory, then every employer may get rid of the liability

which is fastened on him under the Act to advance the laudable

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object of the Act.

20] Now the question for consideration is whether

Regulation 10-B which is a necessary follow up of the provision of

Section 2A of the Act is also mandatory? As held in the abovesaid

judgment in the case of Employees State Insurance Corporation vs.

M/s.Harrison Malyakim Pvt. Ltd. of the Jammu and Kashmir High

Court, if Regulation 10-B merely provides for mechanism of

registration of the factories so as to give correct information with

regard to the employees etc. and for fixing the responsibility upon

employers for giving incorrect information, then the said Regulation

also becomes mandatory. Hence so far as clause (a) is concerned

which casts a duty on the employer in respect of the factory or

establishment to which the Act applies to furnish to the appropriate

Regional Office not later than 15 days after the Act becomes

applicable, a declaration of registration in writing in Form No.01 is

concerned, the said provision needs to be considered as mandatory.

It becomes the legal duty and mandate of the every establishment

and factory to which the Act is applicable, to provide the

information in Form No.01 within 15 days from the day the Act has

become applicable to such an establishment. There is no option but

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to hold this provision as mandatory, as it is within the exclusive

knowledge of the employer when the Act becomes applicable to his

establishment. Clause (b) further holds the employer responsible for

correctness of all the particulars and information required for and

furnished in the employee's Registration Form.

21] Clause (C) of Regulation 10-B, on which learned

counsel for respondent has placed much reliance provides that it is

for the appropriate Regional Office to direct the employer who fails

to comply with the requirements of the Clause (a) of the

Regulation, within the time stated therein to furnish Form No.01

within the such further time as may be specified and such employer

shall there upon, comply with the instructions issued by the office in

that behalf. The employer has to, then 15 days after the allotment of

the Code number, furnish the information and declaration in Form

No.01. According to Clause (d) of the regulation 10-B, upon receipt

of the employer's Registration Form, it is the duty of the Regional

Office to allot to it Employer's Code Number unless the factory or

establishment has already been allotted an Employer's Code

Number and shall inform the employer of that number.

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22] Considering the entire scheme of the Act, the object

and reasons for enactment for such legislation, therefore it has to be

held that, initially the first duty is on the employer to furnish the

information within 15 days from the date when the Act becomes

applicable. The said employer has to file a declaration of

registration in Form No.01, giving all the particulars. If he fails to

do so, then it is for the Regional Office to direct the employer to

furnish such information in Form No.01 within the stipulated time.

Thereafter it is again for the employer to furnish the declaration in

Form No.01 within 15 days and then again for the Regional Office

to allot code number to it, if it is already not allotted.

23] In the instant case, it is not disputed that so far as the

Respondent is concerned, the provisions of ESI Act are applicable to

it. No factual dispute is raised on this aspect. It is also admitted that

earlier Hotel Neelam was conducted in the said premises and the

said establishment was, with effect from 05/11/2001, taken over by

the present respondents and they started running the Hotel therein

under the somewhat different name of M/s. Neelam Hotel and Food

Products. The applicability of the Act to the business of hotel or the

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establishment preparing or manufacturing food products is also not

in dispute and learned counsel for appellant has also, in this respect

relied upon the judgment of this court in the case of Poona

Industrial Hotel Ltd. -Vs- I.C. Sarin, 1979 Law Suit (Bom) 269,

wherein it was held that, "The word "establishment" needs to

considered to be generic which includes factory and other

establishments. If the establishment is a factory as defined under the

Act, it applies to the said establishment and it does not require any

action on the part of the Corporation or of the Government to apply

the provisions of the Act to the factory".

24] It was held that, "the application of the provisions of the

Act to the Hotel establishment of Blue Diamond, which was a factory

as defined under the Act, automatically cannot be considered as

violation of the rules of natural justice". It was further held that, "it is

enough if 20 employees are working in premises in a part of which

manufacturing process is carried on for making the provisions of the

ESI Act automatic applicable to the said establishment."

25] Here in the case, learned counsel for respondents is

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also not disputing the applicability of the ESI Act to the

establishment of respondents. It is also not disputed that requisite

number of 18 persons were employed in this establishment when it

came into existence from 05/11/2001. It is also not disputed that

earlier Hotel Neelam was covered under the ESI Act and particular

code number 23-2031-89 was allotted to Hotel Neelam.

26] The grievance of learned counsel for respondents is

however that, admittedly Hotel Neelam has stopped working and it

is not disputed that none of the employees of Hotel Neelam was re-

employed in the new establishment of the respondents. It is also

admitted that establishment of the Hotel Neelam and establishment

of respondents under the name of Hotel Neelam and Food Products

were distinct and different. The management is also changed. Mr.

Mamrade was the proprietor of Hotel Neelam, whereas the

respondents are the partners of the present establishment. It is also

admitted that the sale deed, under which the present respondents

have taken over the said establishment, clearly shows that they have

not accepted the liability of the already existing employees.

Therefore, according to learned counsel for respondents, when a

totally new establishment is created and it is distinct in every way

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from the earlier establishment of Hotel Neelam, it was the

responsibility of the appellant to provide a separate code number

than the earlier code number. Respondents had demanded such

separate code number, however appellant failed to provide such

code number and directed the respondents to make contribution

under the earlier code number. This submission of learned counsel

for respondents is accepted by the ESI Court and accordingly the

appellant was directed to re-assess the amount due and payable

from the respondents.

27] If this submission of learned counsel for respondents is

to be appreciated in the light of the provisions on record, then it has

to be held that it was the responsibility of the respondents,

immediately after the new establishment came into effect from

05/11/2001, to give information to the Regional Office in

prescribed proforma of Form No.01 within 15 days after the Act

became applicable. As per the provisions of the ESI Act, there is

immediate application of the Act and as stated above, the moment

the establishment comes into existence and achieves the

particular number of employees, which is mandatory under the Act,

then the application of the Act to such an establishment is

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automatic. There is no further procedural requirement

contemplated. Even the contention that it is in violation of

principles of natural justice as no show cause notice or opportunity

of hearing is contemplated, was also rejected as stated above.

Therefore, from 05/11/2001, when respondents took over the

establishment, the provisions of the ESI Act became applicable to

the respondents. Hence it was necessary for the respondents to

submit the information and declaration in Form No.01 within 15

days thereafter to the Regional Office. However, admittedly no such

information was provided by the Respondents as contemplated

under the Regulation 10(a) of the ESI Act.

28] The correspondence which is produced on record goes

to show that as respondents failed to furnish such information or

seek registration, they were called upon by notice dated

20/11/2002 to comply with the same. It was informed to

respondents that as per the inspection carried out on 18/09/2002,

they have to make necessary compliance under the code number of

Hotel Neelam. This letter is received on behalf of the respondents

on 16/12/2002. Thus, by this letter, a specific direction was given

to the respondents to make contribution under the old code

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number. Thereafter by another letter dated 25/03/2002, it was

again pointed out that as per the letter dated 29/11/2002

Respondents were directed to make compliance under the old code

number. The copy of this letter dated 25/03/2002 is also produced

on record. Thereafter also as respondents failed to comply, another

letter dated 14/08/2003 was issued to them, drawing their

attention towards non-compliance of the provisions of ESI Act. To

this letter, respondents sent reply on 26/02/2004 for allotting them

new code number. It was submitted that they have requested for

such new code number on 05/12/2003, however till the date they

were not allotted new code number, hence they are facing the

difficulty. Therefore they again requested for allotment of new code

number. The Deputy Director of appellant then, by notice dated

05/07/2004, again called upon the respondents to make payment

under the old code number as new code number cannot be allotted.

As respondents failed to comply with the same, the ad-hoc process

for the recovery of the amount due from the respondents was

initiated and they were called upon to pay the said amount by the

order dated 10/08/2004. This order is ultimately challenged before

the trial court.

Judgment

29] Thus, the correspondence on record is more than

sufficient to reveal that in the first place respondents did not furnish

the information as per Clause (a) of the Regulation 10-B which was

a mandatory mechanism, in order to comply with the provisions of

the Act especially section 2A. Respondents failed to furnish such

information within 15 days from the date when the Act became

applicable. Therefore, they were called upon to furnish such

information, by the appellant. They were also informed that they

should furnish such information under the old code number.

However, thereafter also, they failed to furnish information or to get

their establishment registered under the Act. As a result, after

issuing the requisite notice, if the ad-hoc assessment was made by

the Deputy Director of the appellant and respondents were called

upon to make the payment, no fault can be found therein.

30] According to learned counsel for the respondents,

however, it was the responsibility of the appellant to provide them a

new code number, without which it was not possible to make

contribution. In this respect, reliance is placed on the judgment of

Delhi High Court in the case of Employees' State Insurance

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Corporation -Vs- B.S. Electro Chem, 2009 SCC OnLine Del, 2053,

wherein after considering the provisions of Regulation 10-B it was

held that,

"As per these regulations it is clear, that once Employer's Registration form is received by appropriate Regional Office, they shall allot a Code Number, called as "Employer's Code Number" to the employer, whose establishment is governed under the Act. The word used in the Regulation is 'shall' which means, it is the duty of the Regional Office, to provide with Code Number without which, contribution is not possible".

31] In the facts of the said case it was held that though it

was a case of the Regional Office that the code number was sent

and delivered to the respondents as according to respondents they

had not received the same, it was held that, without providing of

such code number to the employer, it was not possible for the

employer to make the payment of contribution.

32] Thus, the facts of the abovesaid authority are distinct to

the effect that appellant therein, which was an establishment, has

already submitted the employer's Registration Form and it was

received by the Regional Office and therefore the liability was

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shifted upon the Regional Office to allot new code number to that

establishment. Though they had allotted such new code number it

was not proved that appellant had received it.

33] Here in the present case, it is not at all the case of the

respondents also that they had furnished the Registration Form to

the appropriate Regional Office within 15 days after the Act became

applicable to them. Thus, there is no compliance with the provisions

of the Act, which cast the first duty on the employer to furnish

Registration Form. Only if the employer fulfills the same duty, it is

the duty of the Regional Office to supply the code number. Here in

the case, respondents have not fulfilled the first duty cast upon

them, of furnishing Registration Form within 15 days after the Act

became applicable to them or even thereafter also, despite repeated

reminders. In such case, this authority cannot be made applicable at

all. Moreover in this authority new code number was to be allotted

as the establishment has come into effect newly. As against it, in the

present case, according to appellant, the old code number which

was allotted to the earlier establishment, was to continue and there

was no necessity of allotting the new code number, as the premises

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in which the establishment was started by respondents was one and

same. Moreover, the fact that Respondents have to fill the

Registration Form under the same old code number was clearly

informed to the respondents by the letter dated 28/11/2002 itself

and the said letter was received on 16/12/2002 as it can be seen

from the endorsement and the acknowledgement thereon. It may be

true that thereafter they again raised grievance that they should be

allotted new code number, but it was informed to them that there is

no necessity of allotting of new code number and they will have to

comply with the provisions of the Act under the old code number.

Despite that, no compliance was made and therefore this fact was

brought to their notice again by the letter dated 05/07/2004 and as

they failed to comply with the said letter also, ad-hoc assessment

was made by the order passed by the Deputy Director under section

45A of the Act. Hence no fault can be found in the order passed by

the Deputy Director.

34] According to learned counsel for the respondents,

however, it was obligatory on the Corporation to hear the defaulting

employer who might be affected by the decision of Corporation

under section 45 of the Act. By placing reliance on the judgment of

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Paints (India), Ltd. -Vs- Employers' this court in the case of Asian

State Insurance Corporation and another, it is submitted that

under section 45A of the Act, the Corporation acts as a quasi-

judicial authority and therefore, having regard to the object and

scope of section 45A, the principles of natural justice would apply to

these proceedings. The employer has to be given an opportunity of

being heard before the amount is determined by the Corporation

under section 45A of the Act. It was further held that,

"The conditions laid down for the application of section 45A(1) and 45A(2) of the Act are two. One is non- compliance or non-observance of the provisions of section 44 which relate to employer's failure to furnish returns and maintain registers. The second condition, which is in the alternative, is the non-compliance of the provisions of sub-section (2) of section 45".

35] It was held that, "The expression "sufficient proof" used

by the Legislature indicates that the Legislature did not intend to

declare the amount determined by the Corporation to be a conclusive

proof because it has taken care not to use the expression "conclusive

proof" as understood in the Law of Evidence". Therefore, giving of

an opportunity of hearing to the employer is necessary.

Judgment

According to learned counsel for respondents there is no proof

produced on record by the appellant to show that the demand

notice issued was received by the respondents and thus no

opportunity of hearing was given to the respondents. Therefore, on

this count also impugned order of the Deputy Director, needs to be

set aside.

36] According to learned counsel for respondents the

witness for the appellant, Ramrao Khandekar, Branch Manager of

Corporation, has admitted that he has no personal knowledge as to

how many employees were working with the respondents at the

relevant time. Even he does not know whether the inspection notes

of the Inspector have been placed on record. This document,

according to him, was not filed on record as it was not found

necessary and thus, there is no sufficient proof that this amount is

due from the respondents. The respondents had already deposited

the amount of Rs.35,275/- in the court as per the order of the

Industrial Court and the respondents are ready to deposit whatever

amount was found due after they are heard in the matter, and

hence, according to learned counsel for respondents, if any amount

Judgment

is decided on ad-hoc basis, without there being sufficient material

on record to prove it as due from the respondents, such amount can

be finally determined after giving an opportunity to the

respondents. It is submitted that the trial court has accordingly

permitted such reassessment and hence no fault can be found in the

impugned order of the trial court.

37] It is submitted that in the show cause notice issued on

29/03/2004, the wages of the employees were assumed as

Rs.3,075/- per month and on that basis, if the amount was arrived

at on ad-hoc basis and now the said amount is finalized by the

impugned order, it shows that there was no sufficient proof of the

said amount being due from the respondents, and hence said

assessment, needs to be set aside.

38] Per contra, learned counsel for appellant submits that

even after giving an opportunity to the respondents by issuing show

cause notice dated 29/03/2004 which was received by the

respondents on 30/03/2004, when the assessment is made by the

Deputy Director under section 45A of the Act, it will prevail. To

substantiate her submission, learned counsel for appellant has relied

Judgment

upon the provisions of section 45A to submit that in the show cause

notice, it was clearly stated in clause (3) as follows :

"3. Please note that under Section 45A of the Act, where in respect of a factory/establishment no returns, particulars, registers or records are submitted/furnished or maintained in accordance with the provisions of section 44, the Corporation may, on the basis of information available to it, by an order determine the amount of contribution payable in respect of employees of such factory/establishment and the same can be caused to be recovered under section 45C to 45I of the said Act".

39] It was further informed to the respondents in the said

notice that if they fail to show cause within 15 days as to why

assessment should not be made as proposed in the notice, then the

said assessment will be finalized. It is urged that, in this case the

respondents failed to reply the said show cause notice or even to

appear before the Deputy Director. They have also not produced

any material before the Deputy Director to explain or to give the

submission regarding full particulars/ contribution actually due as

per their record. Hence, in such situation, no fault can be found in

the impugned order of the Deputy Director finalizing the said

amount due.

Judgment

40] According to learned counsel for the respondents

however, as held in the judgment of Asian Paints, it is the duty of

the ESI Court to scrutinize the amount determined by the

Corporation under section 45A(1) of the Act as it is not final. The

very fact that it is necessary for the ESI Court to satisfy itself that

the said demand was just and correct, it is open for the ESI Court to

demand better evidence and 'sufficient proof' depending upon the

facts and circumstances of the case. The declaration contained in

sub-section (2) of section 45A does not and cannot impair the right

of the Court to ask for such proof. In para no.23 of the judgment in

the case of Asian Paints, it was held that,

"It may be that the conduct of the party is condemnable because it has breached the provisions of section 44 by failing to file the returns or to maintain the records in accordance with that section or it may be that the party is guilty of causing obstruction to the offices of the Corporation when they are discharging their duties under section 45(2). But for all this, the rule of natural justice cannot be made inapplicable and then it becomes the ESI Court to verify and scrutinize whether the amount arrived at is correct or not".

41] Learned counsel for appellant has placed reliance on

Judgment

the judgment in the case of ESI Corporation -Vs- C.C.

Santhakumar, (2007) 1 Supreme Court Cases 584, specially the

observations made in para no.15 of the judgment that, "Section 45A

provides for determination of contribution in certain cases. When the

records are not produced by the establishment before the Corporation

and when there is no cooperation, the Corporation has got the power

to make assessment and determine the amount under section 45A and

recover the said amount as arrears of land revenue under section 45B

of the Act. This is in the nature of a best-judgment assessment as is

known in taxing statutes. When the Corporation passes an order

under section 45A, the said order is final as far as the Corporation is

concerned".

42] There cannot be any dispute about the legal proposition

laid down in this authority. However the fact remains that in this

authority also the employees were given an opportunity to move the

ESI Court and the direction was given to the ESI Court to determine

the quantum of contribution, if any payable.

43] In the instant case, admittedly the ESI Court that is

trial court has not scrutinized or verified the amount of contribution

Judgment

due from the respondents. It has directed ESI Corporation to make

proper assessment on the basis of the record maintained by the

respondents.

44] Thus, in the instant case, it bocomes now necessary to

uphold this part of the order of the ESI Court as the competent

authority is the ESI Corporation to make proper assessment of the

contribution on the basis of the record, which respondents, if given

an opportunity once again will produce it before the Corporation.

To that extent, the impugned order of the trial court, needs to be

upheld and confirmed as ESI Court itself has not done the scrutiny

or verification of the amount of contribution given in the order

under section 45A of the Act. However, the further direction of the

trial court to the ESI Corporation to provide new account number to

the respondents cannot be upheld, as already it is informed to the

respondents that they will have to make registration and pay

contribution in the old account number and there is nothing wrong

in it.

45] Thus, so far as the substantial question of law is

concerned, it is answered in affirmative holding that both, Section

Judgment

2A and Regulation 10B of ESI Act, are mandatory in nature.

However, on the factual aspects, the impuged order of the trial

court directing ESI Corporation to make proper assessment of the

contribution on the basis of the record maintained by the

respondents is upheld. The respondents are directed to approach

the ESI Corporation with all the records in their possession within

the period of one month from today i.e. on 31/08/2017.

46] The ESI Corporation shall determine the quantum of

contribution, payable from the respondents and issue the requisite

order under section 45A of the ESI Act.

47]             Appeal is disposed of in above terms.



                                                                    JUDGE

Yenurkar