Bombay High Court
Bombay Gymkhana Ltd vs Regional Director, Esi ... on 8 February, 2022
Bench: N. J. Jamadar
FA1149_15.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FIRST APPEAL NO.1149 OF 2015
WITH
CIVIL APPLICATION NO.3010 OF 2016
Bombay Gymkhana Limited )
Mahatama Gandhi Road, )
Fort, Mumbai - 400 001. ) ... Appellant
Vs.
Regional Director, ESI Corporation )
Panchadeep Bhavan, Lower Parel, )
N. M. Joshi Marg, Mumbai - 400 013. ) ... Respondent
Mr. S. C. Naidu a/w. Mr. Manoj Gujar, Mr. T. R. Yadav, Ms. Divya
Yajurvedi and Mr. Pradeep Paswan i/b. C. R. Naidu & Co. for Appellant.
Mr. Sujeet Kurupkar for Respondent.
CORAM : N. J. JAMADAR, J.
Reserved on : DECEMBER 15, 2021
Pronounced on : FEBRUARY 8, 2022
JUDGMENT :-
1. This appeal under Section 82 of the Employees' State Insurance
Act, 1948 (the Act, 1948) is directed against the judgment and award
dated 20th August 2015 passed by the learned Judge, Employees
Insurance Court, Mumbai in Application (ESI) No. 11 of 2011 whereby
the application preferred by the appellant / applicant under Section 75 of
the Act, 1948 assailing the demand of interest on the unpaid
contribution, came to be dismissed.
2. The background facts leading to this appeal can be stated in brief
as under:
a] The appellant is a 'Club' incorporated and registered under
the Indian Companies Act VII of 1913 with the object to
promote or manage or assist in promotion or management of
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all forms of athletic sports, pass time and recreation. The
Regional Director of the Corporation / the respondent came
to the conclusion that the applicant / club is a 'factory' within
the meaning of Section 2(12) of the Act, 1948 and was liable
to be provisionally covered w.e.f. 1 st December, 1982. The
appellant was allotted Code No. 31-14345-09. Subsequently,
the coverage was preponed to 1st August 1972.
b] The appellant assailed the coverage on the premise that it
was not covered by the definition of 'factory' under Section
2(12) of the Act, 1948 by filing Application (ESI) No. 88 of
1983. By a judgment and order dated 29 th May 1987, the
challenge was negatived by ESI Court. The appellant carried
the matter in appeal, being First Appeal No. 479 of 1989, to
this Court. In the said First Appeal, initially, by the interim
order, stay was granted to the recovery of the contribution as
claimed by the Corporation. The respondent challenged the
interim order in Letters Patent Appeal No. 6 of 1991. During
the pendency of the proceeding, wherein the coverage was
assailed, the appellant decided to voluntarily cover all its
employees under the Act, 1948 w.e.f.1st April, 1989.
c] On 15th March 1989, the respondent raised a demand for the
sum of Rs. 14,92,474.40/- towards the contribution for the
period from 1st August 1972 to 31st January 1989. Interest at
the rate of 6% p.a. was claimed for the delayed payment of
contribution. Eventually, on 30th August 2000, the appellant
without prejudice to its rights and contentions agreed to
deposit the sum of Rs. 14,92,474.40/-. Accordingly, the said
sum of Rs.14,92,474.40/- was deposited with the S.B.I.,
Main Branch, Mumbai.
d] On 5th March 2011, the respondent served another demand in
Form C-18 dated 28th February 2011, to which a statement of
computation was annexed. The respondent levied interest on
FA1149_15.doc
the contributions payable for the period from 1 st August 1972
to 31st March 1989, at varying rates as under:-
Period of unpaid contribution Rate of Interest
21-09-1972 to 19-10-1989 6% p.a.
19-10-1989 to 31-08-1994 12% p.a.
31-08-1994 to 30-08-2000 15% p.a.
e] An aggregate demand of Rs.30,65,623/- was made. In
response, the appellant questioned the legality of the said
demand and also pointed apparent errors in computation.
Thereupon the respondent revised the demand of interest to
Rs.29,17,104.27/- vide communication dated 23rd March
2011. The appellant assailed the demand of interest on the
delayed payment of contribution for the period from 1 st
August 1972 to 31st March 1989 by preferring Application
(ESI) No. 11 of 2011.
f] The respondent resisted the application by filing written
statement. The respondent endeavored to justify the claim for
interest at varying rates by placing reliance on the provisions
contained in Section 39(5) of the Act, 1948 and Regulation
31A of the E.S.I. (General) Regulations, 1950 (the
Regulations, 1950).
g] The learned Judge recorded the evidence of Sharad
Chemburkar (AW.1). After appraisal of the evidence and the
documents tendered for his perusal, the learned Judge was
persuaded to dismiss the application. It was, inter alia,
recorded that the demand of interest under the demand letter
dated 23rd March 2011 was legal and valid and the appellant
was not entitled to a declaration that the said demand of
interest in excess of 6% per annum was bad in law.
FA1149_15.doc
3. Being aggrieved by and dissatisfied with the impugned judgment
and award, the appellant has preferred this appeal.
4. During the pendency of the appeal, the appellant deposited a sum
of Rs.16,26,128/- in terms of the order passed by this Court on 11 th
January 2016. By an order of even date, the appeal came to be admitted
on the following questions of law:-
(a) Whether the ESI Corporation was entitled to levy
interest over and above 6% for the period from 1 st
August 1972 to 31st January 1989?
(b) Whether the Corporation can levy different rates of
interest, i.e. from the due date to 19 th October 1989 @
6% from 19th October 1989 to 31st August 1994 @ 12%
and from 31st August 1994 till date of payment (30-08-
1994) @ 15% for each month?
(c) Whether the Corporation can vary the rate of interest
once a Show Cause Notice specifying the rate of interest
has been issued and after the principal employer has paid
contribution as demanded?
(d) Whether the Corporation exercising powers under
Regulation 31-A of the ESI Act has exhibited
remissness, indifference and casual approach by issuing
a notice after 10 years from the date of payment of
contribution?
(e) Whether the Corporation has levied interest at two
different rates for the same date throughout the period
amounts to recovery of interest in excess of the
jurisdiction?
5. I have heard Mr. S.C. Naidu, learned counsel for the appellant and
Mr. Sunil Kurup, learned counsel for the respondent at length. With the
assistance of the learned counsel for the parties, I have also perused the
material on record including the impugned demand notice and the order.
FA1149_15.doc
6. Mr. Naidu, learned counsel for the appellant, after taking the
Court through the chronology of the events, submitted that the challenge
in the instant appeal essentially revolves around the rate of interest
which the Corporation can levy for the delayed payment of contribution.
The core question which, according to Mr. Naidu, comes to the fore is
whether the Corporation / respondent is entitled to levy interest at more
than 6% per annum from 20th October 1989. It was strenuously
submitted that the respondent / Corporation is, in law, not entitled to
charge the interest at varying rates i.e. 6% p.a. upto 19 th October 1989, at
the rate of 12% p.a. from 20th October 1989 to 31st August 1994 and at
the rate of 15% p.a. from 1 st September 1994 to 30th September 2005 and
12% p.a. from 1st October 2005 till the date of payment i.e. 30 th August
2020. Since the respondent had issued a show case notice specifying the
rate of interest for the delayed payment, the liability to pay the interest
stood crystallized and, thus, the respondent could not have claimed rate
of interest at a higher rate consequent to change of rate of interest in the
provisions authorizing levy of interest.
7. Mr. Naidu, further submitted that the question is no longer res
integra and covered by three judgments of this Court, in the cases of
Regional Director, Employees State Insurance Corporation Vs.
Hotel Suresh1; Hotel Oberoi Towers Vs. Regional Director, ESIC
and Others2; and The Regional Director, Employees Insurance
Corporation Vs. Oxford University Press3.
8. Per contra, Mr. Kurup, learned counsel for the respondent
supported the impugned judgment. It was urged that the learned Judge
committed no error in dismissing the application as it is well recognized
that there is no jurisdiction to levy interest at the rate less than the
prescribed one. Since the appellant had not paid the due contribution till
1 2007 I LLJ 673
2 2013 II CLR 258
3 F.A.Nos.1059 of 2010 with 318 of 2009 and 420 of 2010 Dt.18-11-2010
FA1149_15.doc
30th August 2000, the Corporation was justified in claiming interest at
the applicable rate for the different periods of time. Thus, the appeal is
devoid of substance, submitted Mr. Kurup.
9. In the backdrop of the aforesaid submissions, the pivotal issue
around which the questions of law framed by this Court (extracted
above) revolve, is the justifiability of levy of interest over and above
6% on the unpaid contribution, claimed by the respondent consequent to
the change in the charging provisions. Two facts, which are
uncontroverted, deserve to be noted to explore a legitimate answer to the
aforesaid question. First, a demand of Rs.14,92,474.40/- was raised by
the respondent No.1 on 15th March 1989 along with interest thereon at
the rate of 6% per annum. There is no controversy over the fact that the
said amount of Rs.14,92,474.40/-, which constituted the principal unpaid
contribution, was deposited by the appellant on 30 th August 2000, albeit,
without prejudice to its rights and contentions. Second, pursuant to the
order of this Court dated 11th June 2016, the appellant deposited a sum of
Rs.16,26,128/-, which according to the appellant, constitutes the entire
interest component on the unpaid amount of contribution for the entire
period for which the contribution remained unpaid, at the rate of 6% per
annum. The appellant, thus, asserts that now the appellant does not owe
any amount even towards interest.
10. With the aforesaid clarity on facts, before adverting to consider
the core question of justifiability of charge of interest on the unpaid
contribution, at varying rates, it may be apposite to note the governing
provisions of the Act, 1948 and the Regulations, 1950. Section 38 of the
Act declares that subject to the provisions of the Act, 1948, all the
employees in factories, or establishments to which the said Act applies
shall be insured in the manner provided by the said Act. Section 39
mandates payment of contribution at the rate prescribed by the Central
Government. Sub-section (5) of Section 39, which bears upon the
controversy at hand, came to be introduced by Act No.29 of 1989 with
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effect from 20th October 1989. It reads as under:-
"39. Contributions.-
* * * * *
(5)(a) If any contribution payable under this Act is not paid by
the principal employer on the date on which such contribution
has become due, he shall be liable to pay simple interest at the
rate of twelve per cent per annum or at such higher rate as
may be specified in the regulations till the date of its actual
payment:
Provided that higher interest specified in the regulations shall
not exceed the lending rate of interest charged by any
scheduled bank.
(b) Any interest recoverable under clause (a) may be recovered
as an arrear of land revenue or under section 45C to section
45-I.
Explanation.- In this sub-section,scheduled bank means a
bank for the time being included in the Second Schedule to the
Reserve Bank of India Act, 1934 (2 of 1934)."
11. With the incorporation of sub-section (5), the employer was made
liable to pay simple interest at the rate of 12% per annum or at such
higher rate, as may be specified in the Regulations, till the date of its
actual payment, if the employer committed default in payment of the
contribution on the date on which such contribution became due. The
proviso to clause (a) of sub-section (5), however, sought to put an upper
ceiling on the rate of interest by providing that the higher interest
specified in the Regulations shall not exceed the lending rate of interest
charged by any scheduled bank. Evidently, before sub-section (5) came
to be inserted in the Act 1948, the interest which was required to be paid
on the contribution, which had fallen due and remained unpaid, was
governed by the Regulations framed under the Act 1948.
12. Section 97 empowered the Corporation to make Regulations not
inconsistent with the provisions of the Act 1948 and the Rules made
thereunder, for the administration of the affairs of the Corporation and
for carrying into effect the provisions of the said Act. Sub-section (2) of
Section 97 empowered the Corporation to make regulations, inter alia,
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in respect of the levy of interest on the contribution due but not paid.
Before the Amending Act 29 of 1989, clause (iii-a) of sub-section (2) of
Section 97 read as under:-
"(iii-a) the levy of interest at a rate not exceeding six per cent
per annum on contributions due but not paid;"
The said clause was introduced by Act No.44 of 1966 with effect
from 28th January 1968.
13. Subsequent to the amendment, incorporated by Amending Act 29
of 1989, clause (iii-a) reads as under:-
"(iii-a) the rate of interest higher than twelve per cent on
delayed payment of contributions.;"
14. It would be contextually relevant to note that Regulation 31A,
framed by the Corporation in exercise of the power under Section 97(2)
of the Act, 1948, initially provided as under:-
"31A. Interest of contribution due but not paid in time.- An
employer who fails to pay contributions within the periods
specified in Regulation 31 shall be liable to pay interest at the
rate of 6 per cent per annum in respect of each day of default
or delay in payment of contributions :
Provided that where the contribution is paid by affixing
the contribution stamps, the employer shall be deemed to have
not paid the contributions in time if he fails to submit the
contribution cards within the time prescribed under Regulation
26."
15. Subsequent to the amendment, introduced by the Amending Act
28 of 1989, Regulation 31A came to be substituted as under:-
"31A. Interest of contribution due, but not paid in time.- An
employer who fails to pay contributions within the periods
specified in regulation 31 shall be liable to pay simple interest
at the rate of fifteen per cent per annum in respect of each day
of default or delay in payment of contribution."
16. It is imperative to note that with effect from 1 st October 2005, the
rate of interest came to be substituted to 12% instead of 15% p.a.
FA1149_15.doc
17. The Corporation has professed to levy interest at the rate of 6%
per annum upto 19th October 1989; 12% per annum from 20 th October
1989 to 31st August 1994; 15% per annum from 1 st September 1994 to
30th September 2005; and again 12% per annum with effect from 1 st
October 2005, in conformity with the aforesaid changes in the charging
provisions under Section 39(5) of the Act 1948 and Regulation 31A of
the Regulations 1950, as they governed the varying periods of time.
Whether the Corporation is lawfully entitled to charge interest at the
varying rates, is the moot question.
18. Mr. Naidu, the learned counsel for the appellant, strenuously
submitted that since the unpaid contribution pertained to a period before
sub-section (5) came to be introduced in Section 39 of the Act, 1948 and
Regulation 31A authorized levy of interest @ of 6% per annum only for
the said period, the demand of interest over and above 6% was wholly
unsustainable. As indicated above, it was urged, with a degree of
vehemence, that the issue has been set at rest by three decisions of this
Court and yet the Corporation resorted to the device of charging interest
at higher rates. The learned Judge also committed a grave error in law in
dismissing the application of the appellant despite the authoritative
pronouncements having been brought to the notice of the learned Judge,
submitted Mr. Naidu.
19. The linchpin of aforesaid submission was the decision of this
Court in the case of Hotel Suresh (supra). Since, the judgment in the
case of Hotel Suresh (supra) has been followed in the subsequent
judgments in the cases of Hotel Oberoi Towers (supra) and Oxford
University Press (supra), it may be appropriate to note the factual
backdrop of Hotel Suresh so as to properly appreciate the ratio therein.
20. In Hotel Suresh, the establishment of the respondent was found
covered for the purposes of the Act, 1948 for the period between
October 1, 1987 and September 30, 1989. Thus, an order for recovery of
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contribution of Rs.40,424/- was issued under Section 45-A of the Act,
1948. The respondent questioned the recovery by filing an application
under Section 75 of the Act, 1948. The learned Judge negatived the
challenge and directed the respondent to pay the said amount to the
Corporation / appellant with interest at the rate of 6% per annum. The
appellant / Corporation assailed the said direction of the learned Judge
on the count that in view of sub-section (5)(a) of Section 39 of the Act,
1948, the respondent ought to have been directed to pay interest at the
rate of 12% per annum instead of 6% per annum.
21. The learned Single Judge, after noting that sub-section (5)(a) of
Section 39 was brought on the statute book by the Amendment Act, 1989
with effect from 20th October 1989, and the contribution in question was
due for the period prior to October 20, 1989, framed and determined the
following question:-
"Whether in case of a demand under Section 45-A of the Act
1948, which relates to a period prior to October 20, 1989,
interest at the rate of 12% per annum can be ordered to be
paid on the basis of the amended provision, which has come
into force on October 20, 1989?"
22. Placing reliance on a four-Judge Bench decision of the Supreme
Court in the case of Pratap Narain Singh Deo Vs. Srinivas Sabata 4,
wherein the apex Court had held that the benefit of the amended
provision contained in Sections 4 and 4A of the Workmen's
Compensation Act, 1923 cannot be given to a claim arising out of an
accident which has occurred prior to the date on which the amendment
came into force, learned Single Judge answered the aforesaid question in
the negative.
23. The observations in para No.12 are material and, hence, extracted
below:-
"12. In the present case the demand for compensation by the
Appellant relates to a period prior to October 20, 1989. At that
4 (1976) 1 SCC 289
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time the Employees State Insurance (Amendment) Act, 1989
had not come into force. If the submission made by Shri Mehta
appearing for the Appellant is accepted, interest at the rate of
12% per annum will be payable on the contribution payable by
the Respondent. When the default was committed by the
Respondent, the law provided for payment of interest at the
rate of 6% per annum on the outstanding amount. On the
outstanding amount for the period prior to October 20, 1989,
the Respondent cannot be penalised by directing him to pay
interest at the rate of 12% per annum. The amended provision
will apply in a case in which default is for a period after
October 20, 1989. Therefore, no fault can be found with the
order passed by the learned Trial Judge of directing payment of
interest at the rate of 6% per annum which was the rate
provided prior to October 20, 1989. The Trial Court had no
discretion to award interest at the rate which is more than the
rate prescribed by the statute at the relevant time. Therefore,
the Trial Court has applied the prevailing rate of interest as on
the date of the default. I do not agree with the view taken by the
learned Single Judge of Karnataka High Court that from the
date on which the amendment came into force, interest at the
rate of 12% per annum will be payable on contribution amount
payable in respect of a period which is prior to October 20,
1989. Retrospective effect cannot be given to a penal provision
of payment of interest."
24. Mr. Naidu, learned counsel for the appellant strenuously
submitted that the aforesaid pronouncement is on all four with the facts
of the case at hand. Like Hotel Suresh, in the instant case also, the
respondent claimed contribution for the period from 1 st of August, 1972
to 31st of January, 1989 i.e., before sub-section (5)(a) of Section 39 of
the Act, 1948 came to be introduced by way of amendment. Since this
Court has categorically ruled that the amended provision cannot be made
applicable to the unpaid dues for the period prior to the amendment and
retrospective effect cannot be given to a penal provision of payment of
interest, the demand of interest over and above 6% per annum is legally
infirm.
25. In the case of Regional Director, Employees State Insurance
Corporation Vs. Oxford University Press5, another learned Single
5 F.A. No.1059 of 2010 and connected matters, decided on 18th November 2010.
FA1149_15.doc
Judge of this Court negatived the claim for demand of interest at a
higher rate than 6% per annum following the decision in the case of
Hotel Suresh (supra).
26. In Hotel Oberoi Towers (supra), the claim was for the period
from 1982 to 1986. The Corporation claimed interest @12% per annum.
This Court, following Hotel Suresh, held that prior to the Amendment
Act, 1989, the Corporation was entitled to levy interest at the rate of 6%
per annum. Simply because the order has been passed subsequently, the
Corporation would not be entitled to claim interest at the rate of 12% per
annum on the contribution which remained unpaid for the years from
1982 to 1986.
27. Mr. Naidu would urge that this Court has consistently ruled
against retrospective application of the amended provision enhancing the
rate at which interest can be levied and collected by the Corporation.
Therefore, the learned Judge was not at all justified in sustaining the
claim of the respondent Corporation at a higher rate of interest.
28. I have given my anxious consideration to the aforesaid
submissions. Undoubtedly, in the case of Hotel Suresh (supra) and the
decisions which follow Hotel Suresh, this Court has held that the
Corporation would not be entitled to claim interest at the enhanced rate
prescribed by Amendment Act 29 of 1989 with effect from 20 th October
1989 in respect of the contributions, which remained due for the period
pre-amendment.
29. As indicated above, in the decision in the case of Hotel Suresh,
this Court mainly relied upon the judgment of the Supreme Court in the
case of Pratap Narain Singh Deo (supra). It is imperative to note that
in the case of Pratap Narain Singh Deo, the question of liability
essentially turned upon the date on which the employer becomes liable
to pay compensation to an employee who suffered death or disablement
FA1149_15.doc
in an accident arising in the course of and out of employment. The
liability to pay compensation was held to have arisen on the very date of
the accident. On this premise, it was ruled that the employee would not
be entitled to the benefit of the amended provision as the liability to pay
compensation arose on the date of the accident.
30. With a lot of respect at my command to the views recorded in the
case of Hotel Suresh (supra) and the succeeding judgments, I am afraid
to concur with the said view as the essential aspect of the nature of the
liability where the contribution remains unpaid has not been adequately
addressed. As noted above, Regulation 31A, before sub-section (5) came
to be introduced in Section 39 of the Act 1948, provided that an
employer who fails to pay contribution within the period specified in
Regulation 31A shall be liable to pay interest at the rate of 6% per
annum in respect of each day of default or delay in payment of
contribution. Sub-section (5)(a) of Section 39 introduced by the Act
No.29 of 1989 gave a statutory mandate to charge interest at the rate of
12% per annum or at such higher rate as may be specified in the
Regulations till the date of its actual payment. Regulation 31A, post the
amendment, again provided that the employer shall be liable to pay
simple interest at the rate of 12% per annum in respect of each day of
default or delay in payment of contribution.
31. The liability to pay interest on the unpaid amount of contribution
is evidently of a continuing nature. An employer who commits default in
payment of contribution is liable to pay interest in respect of each day of
default or delay in payment of contribution. Undisputably, the default in
payment of contribution, in the case at hand, is for the period before 20 th
October 1989. Undoubtedly, for the said period of default, the
Corporation was entitled, under the then governing Regulation 31A, to
charge interest at the rate of 6% per annum. This does not, however,
necessarily imply that the liability to pay interest on the said amount of
unpaid contribution is freezed in the point of time of default qua the rate
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of interest. The non-payment of contribution under Section 38 of the
Act, 1948 is a continuing cause. The liability to pay interest on unpaid
contribution subsists and continues each passing day.
32. A profitable reference, in this context, can be made to ESI
Corporation Vs. C. C. Santhakumar6, wherein the nature of the
liability was expounded as under:-
"16. Where an order is passed under Section 45A, it is the
duty of the employer and not the Corporation to approach the
E.S.I. Court. Since no application need be filed by the
Corporation after an order is passed under Section 45A, the
limitation prescribed under Section 77 does not get attracted.
The non-payment of contribution is a continuing cause, which
is clear from the fact that the employer is enjoined to pay the
interest under Section 39(5)(A), which was introduced by Act
29 of 1989, until the date of its actual payment.
(emphasis supplied)"
33. It is a well recognized principle of interpretation that a statute
dealing with substantive rights is prima facie prospective unless it is
expressly or by necessary implication made to have retrospective effect.
In contrast, a statute dealing with matters of procedure or evidence or the
one which is declaratory in nature is ordinarily construed to have
retrospective operation, unless there is a clear indication to the contrary.
An amending Act is also construed on the aforesaid touchstone. Thus, an
amendment which affects the substantive rights will ordinarily take
effect only from the date it was brought into force and will have no
application to prior transactions, in the absence of an express provision
or implication to the contrary.
34. It is trite that the rule against retrospective construction is not
applicable to a statute merely because a part of the requisites of its action
is drawn from a time antecedent to its passing. It is more so, where the
default which entails enhanced liability is a continuing default and not a
default once and for all. A continuing default can be dealt with under the
6 (2007) 1 SCC 584
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amended provisions, if it continues when the Amending Act comes into
force, although the default was committed when the old regime of law
was in force.
35. A profitable reference in this context can be made to a three-Judge
bench decision of the Supreme Court in the case of Maya Rani Punj
Vs. Commissioner of Income Tax, Delhi7. In the said case, there was
default in filing return of income within the stipulated period. The
assessee filed the return beyond seven months of the due date i.e., 3 rd of
May, 1962. With effect from April 1, 1962, the Income Tax Act, 1961
had come into force. Under Section 28 of the 1922 Act (Old), the
assessee was liable to pay penalty not exceeding one and half time of
amount of income tax and super tax. Under the 1961 Act (New), the
assessee was liable to pay penalty equal to 2% of the assessed tax for
every month during which the default continued.
36. The Supreme Court considered the question as to whether the
default of non-filing of the return within the time stipulated by law is a
continuing default. Repelling the contention that the default pertained to
a period before the Act, 1961 (New) came into force, the Supreme Court
held that the imposition of penalty was not confined to the first default
but was with reference to the continued default. The observations of the
Supreme Court in paragraphs 17 to 19 are instructive and hence
extracted below:-
"17. In Words & Phrases, Permanent Edition, under the head
'Continuing Offence', instances have been given which indicate that
as long as the default continues the offence is deemed to repeat and,
therefore, it is taken as a continuing offence. As has been
appropriately indicated in Corpus Juris Secundum, Vol. 85, p. 1027,
accrual of penalty depends upon the terms of the statute imposing it
and in view of the language used in section 271(1)(a) of the 1961
Act, the position is beyond dispute that the Legislature intended to
deem the non-filing of the return to be a continuing default - the
wrong for which penalty is to be visited, commences from the date
of default and continues month after month until compliance is
made and the default comes to an end. The rule of de die in diem is
applicable not on daily but on monthly basis.
7(1986) 1 SCC 445
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18. In State v. A. H. Bhiwandiwalla, A.I.R. 1955 Bombay 161, (a
decision referred to in Suresh Seth's case), Gajendragadkar, J. (as
he then was), after quoting the observations of Beaumount, C.J. in
an earlier Full Bench decision of that Court observed:
Even so, this expression has acquired a well-
recognised meaning in criminal law. If an act
committed by an accused person constitutes an offence
and if that act continues from day to day, then from day
to day a fresh offence is committed by the accused so
long as the act continues. Normally and in the ordinary
course an offence is committed only once. But we may
have offences which can be committed from day to day
and it is offences falling in this latter category that are
described as continuing offences.
19. The imposition of penalty not confined to the first default but
with reference to the continued default is obviously on the footing
that non-compliance with the obligation of making a return is an
infraction as long as the default continued. Without sanction of law
no penalty is imposable with reference to the defaulting conduct.
The position that penalty is imposable not only for the first default
but as long as the default continues and such penalty is to be
calculated as a prescribed rate on monthly basis is indicative of the
legislative intention in unmistakable terms that as long as the
assessee does not comply with the requirements of law he continues
to be guilty of the infraction and exposes himself to the penalty
provided by law.
(emphasis supplied)"
37. In view of the aforesaid exposition of law, I find it rather difficult
to accede to the submission that the rate of interest to be charged on the
amount of contribution, which remained unpaid, has reference to the
point of time of default only. Since the liability to pay the contribution
under Section 38 of the Act, 1948 is in the nature of a continuing
liability and default in making such contribution is at the pain of
payment of interest for each day of default or delay, in my considered
view, the rate at which the interest is to be charged cannot be freezed to
the period of default.
38. Mr. Naidu attempted to salvage the position by placing reliance
on a recent judgement of the Supreme Court in the case of Transport
Corporation of India Vs. ESI Corporation and others 8. In the said
8 2021 SCC OnLine SC 1015
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case, the notice was issued to the appellant establishment under the
unamended Regulation 31A of the Regulations 1950 on 6 th of April
1990, under which, interest at the rate of 6% per annum was payable on
the overdue amount. Another notice dated 16 th July 1990 was issued by
the Corporation demanding interest at the rate of 12% per annum from
20th October 1989 upto 31st July 1990. When the charge of interest at the
varying rates was sought to be assailed, the Supreme Court did not find
merit therein and, in fact, upheld the levy of interest at varying rates
consequent to the amendment.
39. The observations in para No.10 are material and hence extracted
below:-
"10. As noted earlier, for the period up to 19 th October
1989, interest at the rate of 6% per annum was demanded as
per unamended Regulation 31-A. Only for the arrears of
contribution payable after 19 th of October 1989, interest at
the rate of 12% has been claimed. Interest at the rate of 12% is
payable as per clause (a) of sub-section 5 of Section 39 of the
said Act of 1948 which was brought on the statute book with
effect from 20th October 1989. For a period prior to 20 th
October 1989, interest has been claimed at the rate of 6% per
annum as per unamended Regulation 31-A. Hence, the demand
for interest cannot be faulted with in absence of any challenge
to the Regulation 31-A.
(emphasis supplied)"
40. The aforesaid pronouncement is of no assistance in advancing the
cause of submission on behalf of the appellant. On the contrary, if
properly construed, it supports the stand of the respondent that interest
on overdue amount can be charged at the varying rates in accordance
with the amended provisions. This judgment of the Supreme Court, in a
sense, takes a view different from the one recorded by this Court in the
case of Hotel Suresh and judgments which follow the said line of
decision that interest over and above 6% cannot be charged for the
period before 20th October 1989 for which contribution remained unpaid.
41. For the foregoing reasons, I am persuaded to answer questions (a)
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and (b), extracted above, in the affirmative, and (e), in the negative.
Question Nos.(c) and (d)
42. Mr. Naidu, learned counsel for the appellant opened another front
by canvassing a submission that once the respondent made a demand
specifying the particular rate of interest (i.e. 6% p.a.), it was not open to
the respondent to again seek interest at a higher rate, especially after the
appellant paid the contribution, as demanded.
43. In the notice dated 15th March 1989, before the Amendment Act
29 of 1989 came into force, the respondent had demanded interest at the
rate of 6% per annum by resorting to the provisions contained in
Regulation 31A of the Regulations, 1950. There is not much controversy
over the fact that the unpaid contribution of Rs.14,92,474.40/-, as
demanded under the said notice dated 15 th March 1989, was paid by the
appellant on 30th August 2000, albeit without prejudice to the rights and
contentions of the appellant. In this backdrop, a submission was sought
to be advanced that the liability to pay interest at the rate of 6% per
annum stood crystallized as of 15 th of March, 1989. And, thus, the mere
fact that the contribution for the period from 1 st August 1972 to 31st
January 1989 remained unpaid till 30th August 2000 would not entitle the
Corporation to claim interest at the enhanced rate.
44. Though the submission appears attractive at the first blush, yet, on
a close scrutiny, it crumbles traceless. Under communication dated 15 th
March 1989, the appellant was put to notice that in the event of failure to
pay dues or offer a satisfactory explanation, the appellant would be
liable to pay interest at the rate of 6% per annum, as provided under
Regulation 31A of the Regulations, 1950. At that point of time, there is
no qualm that, the Corporation could not have charged interest beyond
6% per annum. To urge that the liability thus stood crystallized, so far as
the rate at which interest was to be paid on the delayed payment of
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contribution, is to ignore the nature of the liability to pay interest. We
have seen that the liability to pay interest is a continuing liability and is
incurred each day of default. In this view of the matter, the endeavour on
the part of the appellant to bind the Corporation to the rate of interest
specified in the notice dated 15th March 1989 cannot be countenanced.
45. Mr. Naidu then urged that the demand of interest by notice dated
5th March 2011, despite the payment of the contribution on 30 th August
2000, suffers from the vice of unreasonable delay and laches. Question
(d), extracted above, revolves around this aspect of delay of more than
ten years in issuing notice claiming interest component on the unpaid
contribution.
46. Again, the submission appears alluring instinctively. However, a
deeper scrutiny renders the submission unworthy of acceptance. In the
case of C. C. Santhakumar (supra), the Supreme Court, after an
exhaustive analysis of the provisions contained in the Act 1948, ruled in
clear and explicit terms that the right of the Corporation to recover the
due amount by coercive process is not restricted by any limitation nor
could the government by recourse to the rule-making power prescribe a
period in teeth of Section 68, which empowers the Corporation to resort
to coercive process, to recover the contribution from the employer as if it
were an arrear of land revenue and the said right is not restricted by any
limitation. Repelling the contention on behalf of the employers that the
proviso to Section 77(1-A)(b) of the Act, 1948 prescribed a limitation of
five years for the claim to be made by the Corporation, the Supreme
Court enunciated the law as under:-
"29. Section 77 of the Act relates to commencement of
proceedings before the E.S.I. Court. The proviso to sub-Section
77 of the Act cannot independently give any meaning without
reference to the main provision, namely, Section 77 of the Act.
Therefore, the proviso to Clause (b) of Section 77(1-A) of the
Act, fixing the period of five years for the claim made by the
Corporation, will apply only in respect of claim made by the
Corporation before the E.S.I. Court and to no other
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proceedings.
(emphasis supplied)"
47. The next question that wrenches to the fore is whether a concept
of reasonable time can be read into the provisions even though no period
of limitation is specifically provided under the Act, 1948 within which
the Corporation can resort to the recovery of the amount of interest? It is
a well recognized principle of law that even when no period of limitation
is prescribed, the authority vested with the power is expected to exercise
it within a reasonable time. A reasonable time, in turn, is a relative
concept. By its very nature, it depends on the nature of action, the
circumstances in which the authority is proposed to be exercised and the
facts of the case. There can be no strait jacket formula as to what could
be a reasonable time.
48. It is pertinent to note that the demand of interest on the delayed
payment of contribution is not discretionary. As indicated above, under
sub-section (5) of Section 39 of the Act 1948 and Regulation 31A of the
Regulations 1950, it is the liability of the employer to pay interest on the
unpaid contribution till the date of its actual payment. It is also noticed
that the liability is of a continuing nature. No element of discretion is
involved. In contrast to this, under Section 85-B of the Act 1948, the
Corporation is vested with discretion to recover damages where an
employer fails to pay the due amount in respect of any contribution or
any other amount payable under the Act 1948. In a given case, where the
Corporation professes to recover damages and it is shown that the action
is commenced after several years of the default, the element of
reasonable time may become significant. However, where there is a
statutory liability to be discharged by the employer and the liability
continues till the date of payment and no element of discretion is left
with the Corporation in enforcing the said liability, in my view, the
concept of reasonable time in seeking the recovery cannot be resorted to.
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49. It is true that the demand of interest after about ten years of the
payment of contribution by the appellant indicates indolence on the part
of the respondent Corporation. However, having regard to the fact that
such interest component is to form a part of the "employees' state
insurance fund" and the purposes for which the fund is to be expended,
the inadvertence and remissness, on the part of the respondent, cannot be
pressed into service to absolve the appellant from the liability to pay
interest on the delayed contribution. For the foregoing reasons, I am
inclined to answer question No.(c) in the affirmative and question No.(d)
in the negative.
50. The conspectus of aforesaid discussion and answers to question
Nos.(a) to (e) is that the appeal deserves to be dismissed. However, it is
clarified that the appellant shall be entitled to point out the errors in the
computation of the interest at the governing rates for the varying
periods. Hence, the following order:-
:ORDER:
(i) The appeal stands dismissed.
(ii) The appellant-employer is, however, entitled to point out the
errors, if any, in the computation of the amount of interest at the
governing rates for the varying period. Subject to such clerical or
arithmetical correction in the amount of interest and deduction of
the sum of Rs.16,26,128/- paid by the appellant, the balance
amount of interest shall be paid by the appellant within a period of
six weeks from today. For the said period of six weeks, the
respondent Corporation shall not take any coercive action.
(iii) In the circumstances, the parties shall bear their respective costs.
51. In view of the dismissal of the appeal, nothing survives in Civil
Application No.3010 of 2016 and the same is disposed of accordingly.
(N. J. JAMADAR, J.)
Minal Parab 21/21
