Bombay High Court

Foundever Crm India Pvt. Ltd. vs Employee State Insurance Corporation on 19 September, 2025

Author: R.I. Chagla

Bench: R.I. Chagla

2025:BHC-OS:15607



                                                                                      WPL-36012-24-Jt.doc

                    Sharayu Khot.
                                      IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                          ORDINARY ORIGINAL CIVIL JURISDICTION

                                              WRIT PETITION (L) NO. 36012 OF 2024


                          Foundever CRM India Pvt. Ltd. & Anr.                     ...Petitioners

                                    Versus

                          Employee State Insurance Corporation & Ors.              ...Respondents

                                                             ----------
                          Mr. Ashish Kamat, Senior Counsel a/w Mr. Rashmin Khandekar, Ms.
                          Shalaka Patil, Ms. Paulomi Mehta, Ms. Shilpa Sengar and Mr. Harsh
                          Khanchandani i/b. Trilegal for the Petitioners.
                          Mr. Shailesh Pathak with Mr. T.R. Yadav for Respondent ESIC.
                                                             ----------

                                                        CORAM             : R.I. CHAGLA J.

                                                        Reserved on       : 8 May 2025
                                                        Pronounced on : 19 September 2025


                          JUDGMENT :

1. By this Writ Petition, the Petitioners have sought

quashing and setting aside of the Demand Notices, Recovery Notices,

SHARAYU PANDURANG KHOT Prohibitory Orders, Bank Show Cause Notice, Inspection Report and

Digitally signed by SHARAYU PANDURANG the Further Demand Notices issued by the Respondents ("the KHOT Date:

2025.09.19 17:40:55 +0530

impugned orders").

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2. The 1st Petitioner is a private limited company engaged

in the business of providing business process outsourcing services

across different industry sectors. The 1st Petitioner has approximately

2000 employees and the Employees State Insurance Act, 1948 ("ESI

Act") is applicable to it. The 1st Petitioner claims to be compliant of

its statutory obligations under the ESI Act and is also responsive to

queries and questions from statutory authorities such as the

Respondents, which includes the ESI Corporation and its officers.

3. The 1st Petitioner states that towards compliance of its

obligations under the ESI Act, for the period from April 2019 to

March 2024, the 1st Petitioner had made payment of INR

13,35,45,916 towards dues of contribution under the ESI Act. The

Petitioner states that the Respondents' over-broad and unlawful

actions arose after the payment of the aforementioned amount when

the Respondents initiated visits to the 1st Petitioner's offices from

May 3, 2024 to July 1, 2024 for inspection of records and documents

maintained by the 1st Petitioner under the ESI Act. During each of

these inspection visits, the Petitioners claimed to have been extremely

co-operative and provided all the documents which were requested

by the ESIC department and available with the 1st Petitioner

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Company. On May 13, 2024, even the Petitioner visited the

Respondent's office to provide the authorities with any documents /

information sought.

4. The Respondent No. 4 - the Social Security Officer had

arrived at the findings which were shared with the Petitioners on

15th July 2024 by way of the Inspection Report, which had not

offered the Petitioners an opportunity to justify or provide the

rationale as to why the said payments could not be considered for the

purpose of remitting contributions under the ESI Act nor was any

notice or hearing granted. The 1st Petitioner states that during this

time when its personnel were in discussions with the Respondents,

the Respondents had assured the 1st Petitioner that the details and

documents in respect of the Inspection Report workings would be

provided and that no coercive steps would be taken.

5. The 1st Petitioner states that without any notice, without

granting any hearing opportunity or passing any order whatsoever, to

their complete surprise and shock, the Respondents issued demand

notices in October 2024 for a cumulative amount of INR 5,20,43,692.

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6. The 1st Petitioner states that upon receiving the demand

notices, on October 29, 2024, the Petitioner once again visited the

Respondents and sought an opportunity for a hearing and a reply

submission and were assured by the Respondents and in particular

the 4th Respondent that a hearing would be given. During the

Petitioners' visit on November 18, 2024 at the offices of the

Respondents, the Petitioners sought time for a written reply. Time

was given by the Respondents until in or around November 25, 2024

for a reply and then a hearing was also promised.

7. The Petitioners state that they submitted a short, interim

letter dated November 21, 2024 on November 22, 2024 (" Interim

Response") around 11-11:30 a.m. at the offices of the 1st and 2nd

Respondents, well in advance of the November 25, 2024 timeline.

8. The Petitioners state that without any application of

mind and in a pre-decided manner and without affording any

opportunity to be heard, the 3rd Respondent issued the Recovery

Notices (on the same date of November 22, 2024) clearly without :

(a) even considering the Interim Response; (b) providing no

opportunity to put in a detailed response; and (c) providing no

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opportunity of an oral hearing to put forward the Petitioners' case on

merits. The Recovery Notices were dated 22nd November 2024 and

the Petitioners state that they received the same only on 25th

November 2024 by courier at approximately 2 p.m..

9. The Petitioners submit that in view of the arbitrary and

extremely coercive and prejudicial use of state power, Prohibitory

Orders were issued by the 3rd Respondent on 28th November 2024

to HDFC Bank, i.e. the 1st Petitioner's bank. By way of the Demand

Notices read with the Prohibitory Orders, on 28th November 2024,

(a) the bank accounts of the Petitioners were issued freezing orders

and (b) the banks were asked to submit demand drafts / pay orders

to the Respondents from the accounts of the Petitioners in order to

clear the amounts under the Demand Notices. The Petitioners state

that these Prohibitory Orders were not even served upon the

Petitioners, and it is the Banks that informed the Petitioners

regarding the same.

10. The Petitioners submit that in a further act of

highhandedness, the 3rd Respondent issued a Bank Show Cause

Notice dated 28th November 2024 to HDFC Bank. A hearing was

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scheduled the very next day at 11 am on 29th November 2024. It

was claimed in the said Bank Show Cause Notice that HDFC Bank

was reluctant to disclose the balances of the Petitioners and

therefore, coercive steps were required to be taken against the bank

manager declaring them as a deemed defaulter for the aggregate

credit balances in the bank accounts of the Petitioners or the amounts

mentioned in the said Prohibitory Orders.

11. The Petitioners state that they addressed emails on

28th November 2024 to HDFC, Bank of America, ICICI and Indian

Bank to not take precipitative action on the Petitioners' bank

accounts. Further, the Petitioners informed the Banks that the

Petitioners intend to move this Court to seek protective orders against

the Respondents.

12. The Petitioners submit that after issuance of the

impugned notices, the Respondents continued their actions in

violation of the ESI Act and principles of natural justice. Without

granting any hearing or passing any order, the Respondents took

coercive steps and visited the 1st Petitioner's banks, particularly Bank

of America and HDFC Bank on the evening of 28th November 2024,

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seeking immediate demand drafts / pay orders to be issued from the

bank accounts of the Petitioners towards alleged recoveries of the

amounts demanded under the Demand Notices on November 28,

2024. This was again done without the presence of the Petitioners or

even notice to the Petitioners in gross violation of natural justice. On

28th November 2024 evening an amount of INR 5,20,43,692 was

taken by the 4th Respondent by way of Demand Draft and debited

from the Petitioners' account on 28th November 2024.

13. The Petitioners state that they became aware only

at around 7:15 p.m. on 28th November 2024 that they had been

presented with a fait accompli. Upon the Petitioners checking their

account status on the Bank of America web portal, the Petitioners

saw that an amount of INR 5,20,43,692 had been debited from the

bank account of the Petitioners at 4:56 p.m..

14. The Petitioners state that as soon as the 1st

Petitioner became aware of the debit from the Bank of America

account, the 1st Petitioner carried out a further check on the web

portal of each of the other banks being, ICICI Bank, Indian Bank and

HDFC Bank for the online status of its accounts. It is upon checking

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that the Petitioner No. 1 realized that its account in HDFC Bank was

also reflecting a negative hold with a lien being marked on it for the

recovery of the total amount of INR 5,20,43,692. The Petitioners

state that the consequence of negative hold would be that even after

the entire amount was debited by a demand draft from Bank of

America, if the 1st Petitioner were to deposit any amount in HDFC

Bank, those additional amounts would also be debited and applied

towards the Prohibitory Orders based on the orders of the

Respondents.

15. The Petitioners state that in an attempt to halt the

Respondents' coercive actions, the 1st Petitioner wrote emails dated

28th November 2024 to ICICI, Indian Bank and HDFC informing

them that the amount of INR 5,20,43,692 had been debited from the

Bank of America and that the banks should not take any precipitative

action since the Petitioners would be urgently moving this Court for

urgent protective orders.

16. The Petitioners submit that what shows further

pre-determination on the part of the Respondents is that while the

Recovery Notices were being acted upon by the Respondents, further

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Demand Notices dated 19th November 2024 were issued again

without a hearing opportunity to the 1st Petitioner and received only

on 28th November 2024. These Further Demand Notices dated 19th

November 2024 were not even provided to the Petitioners when the

Recovery Notices were issued or indeed all the subsequent coercive

actions outlined above occurred.

17. The Petitioners submit that the actions of the

Respondents had put a complete halt on the day-to-day operations of

the Petitioners. In light of the excessive actions of the Respondents,

the Petitioners were compelled to file the present Writ Petition in the

early hours of 29th November 2024 to seek urgent protective orders.

18. By an Order dated 29th November 2024, this

Court after being apprised of the facts directed the Respondents to

not take coercive steps and/or encash the demand draft until the

next date of listing. Subsequently, the matter was listed on 2nd

December 2024, for the Respondents to update this Court on the

status of the deposit and encashment of the Demand Draft dated

29th November 2024. However, the learned Counsel representing the

Respondents informed this Court that he was still awaiting

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instructions.

19. Despite the earlier Order dated 29th November

2024, directing no encashment, the Respondents informed this Court

on 4th December 2024, that the demand draft dated 28th November

2024, had already been deposited on 29th November 2024, and

encashed on 30th November 2024.

20. Accordingly, this Court by its Order dated 4th

December 2024 directed the Respondents to deposit the amount of

INR 5,20,43,692 into the Court on or before 13th December 2024.

Pursuant to the said orders, the amount of INR 5,20,43,692 was

deposited into Court.

21. Mr. Ashish Kamat, the learned Senior Counsel for

the Petitioners has submitted that the present case is governed by the

provisions of Section 45A of the ESI Act. He has submitted that this

provision contemplates that a hearing must be given before any order

has been passed thereunder. He has submitted that in the present

matter, no such hearing has been afforded. It is trite that in such

circumstances, the order is ex facie in violation of the statutory

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mandate and is therefore, unsustainable.

22. Mr. Kamat has in support of the above contention

relied upon Affine Analytics Pvt. Ltd. Vs. Deputy Director, ESIC &

Anr.1 ("Affine"). He has submitted that in Affine, it was held that the

Corporation is statutorily bound to issue notice, grant a hearing and

pass a reasoned order. He has submitted that the proviso to Section

45A of the ESI Act explicitly states that no order shall be passed

without affording the principal employer or person in charge of the

establishment a reasonable opportunity of being heard.

23. Mr. Kamat has submitted that in Affine, the

learned Single Judge of the Karnataka High Court was deciding the

question whether adequate hearing opportunity was granted to the

employer under Section 45A of the ESI Act. In that case, the

Corporation had passed an order under Section 45A and thereafter,

served a notice of demand to the Petitioner's old registered office,

which was then hand delivered to the Petitioner's current address.

Only on becoming aware of the demand notice served at the current

address, the Petitioner appeared before the Corporation seeking

1 Writ Petition No. 28396 / 2023 (L-ESI) paragraphs 10, 14 and 18

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opportunity to be heard, which was refused by the Corporation. In

the meantime, an amount of INR 2,00,18,100 was recovered from

the HDFC Bank where the Petitioner held an account. Thereafter, the

Petitioner filed a Writ Petition against the action of the Corporation

complaining that the Corporation served notices on the Petitioner's

old address which premises were vacated in 2018, because of which

the Petitioners were denied any opportunity of hearing under Section

45A in violation of the principles of natural justice. The Counsel

appearing for the Corporation made two contentions: (i) that the

Petitioner did not notify the change of address and having failed to

do so the Petitioner cannot contend that a hearing opportunity was

not granted; and (ii) as an order under Section 45A of the ESI Act is

passed, the Petitioner has a remedy under Section 45AA or Section

75 of the ESI Act and hence, the Writ Petition is not maintainable.

24. Mr. Kamat has submitted that the Karnataka High

Court, on a reading of Section 45A of the ESI Act, was not convinced

with the Corporation's arguments. He has placed reliance upon

paragraphs 10, 14 and 18 of Affine in this context. The Karnataka

High Court has held that it could be seen that Section 45A of the ESI

Act is in the nature of a best judgment on the basis of the information

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collected by the inspector and if a determination is to be given, the

person concerned against whom any adverse order is to be made, he

or she must be heard.

25. Mr. Kamat has submitted that in a judgment of

this Court in SBI General Insurance Company Ltd. Vs. Employees'

State Insurance Corporation & Anr. 2 ("SBI General"), this Court

allowed the Writ Petition as it concluded that the grounds for

maintainability described in the decision of Whirlpool Corporation

Vs. Registrar of Trade Marks, Mumbai & Ors.3 were made out. He has

submitted that in the SBI General case, the Corporation had passed

an order under Section 45A of the ESI Act and the same was served

on the Petitioner. However, the order under Section 45A of the ESI

Act was made on the basis of two interim reports made by the Social

Security Officer; but these interim reports were not served and the

Petitioner got knowledge of them only when the order under Section

45A of the ESI Act was served. It was submitted therein that this is a

clear violation of natural justice. The Corporation contended that the

Petitioner has an alternative remedy under Section 45AA or Section

2 Writ Petition No. 3796 of 2024 paragraphs 7 and 14 3 (1998) 8 SCC 1

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75 of the ESI Act and the Writ Petition ought to be dismissed. This

Court found merit in the Petitioner's argument. He has placed

reliance upon paragraph 7 and 14 of the SBI General case.

26. Mr. Kamat has submitted that this Court in SBI

General (supra) held that the principles of natural justice have been

clearly violated. In the fact of that case the impugned order had been

passed inter alia by taking into consideration the interim reports,

copies of which had not been supplied to the Petitioner and

Petitioner's say had not been called.

27. Mr. Kamat has submitted that the Respondents'

own Revenue manual specifically contemplates the requirement of

granting a hearing prior to the passing of any order under Section

45A of the ESI Act. The failure to provide such a hearing, as

evidenced in the present case, therefore, not only contravenes the

statute, but also breaches the Respondents' own procedural

framework.

28. Mr. Kamat has submitted that it is equally well

settled that a Writ Petition is maintainable in cases where (i) a

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fundamental right is violated; (ii) the principles of natural justice are

disregarded; or (iii) the impugned order is passed wholly without

jurisdiction. He has submitted that in the present case, in view of the

facts outlined above and the nature of the impugned order, there can

be no doubt that there has been a clear and egregious violation of the

principles of natural justice. In this context, he has placed reliance

upon the judgment of the Supreme Court in Whirlpool Corporation

(supra) - paragraphs 14 and 15, where the Supreme Court has held

that the existence of an alternative remedy does not preclude this

Court from exercising writ jurisdiction in cases where (i) a

fundamental right is violated; (ii) principles of natural justice are

disregarded; or (iii) an order is wholly without jurisdiction.

29. Mr. Kamat has submitted that in the present case,

the Petitioner has established that the Corporation acted in flagrant

disregard of natural justice by issuing a demand notice and

proceeding with coercive recovery without first passing an order. In

doing so the Corporation has acted without jurisdiction. He has

submitted that this brings the case squarely within the two

exceptions of the Whirlpool case, making the Writ Petition

maintainable.

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30. Mr. Kamat has submitted that it has been

contended by the Respondents that the Petitioner has an alternate

remedy by way of an Appeal, and therefore, the Writ Petition ought

not to be entertained. He has submitted that this assertion by the

Corporation is fundamentally misconceived. It is well settled that a

hearing at the appellate stage cannot cure a violation of the

principles of natural justice that ought to have been observed at the

primary stage. Moreover, the absence of reasons in the impugned

order further compounds the breach, rendering the order

unsustainable in law.

31. Mr. Kamat has in this context, placed reliance

upon the judgment of the Supreme Court in Institute of Chartered

Accountants of India Vs. L.K. Ratna and Ors. 4 (LK Ratna"), where the

Supreme Court was dealing with the question of whether violation of

natural justice can be cured at the appellate stage. In the said

decision, the Institute of Chartered Accountants of India ("ICAI") had

initiated disciplinary proceedings against LK Ratna, the partner of

accounting firm AF Ferguson & Co. for distributing brochures of its

consulting practice to clients. The ICAI comprised a disciplinary

4 (1986) 4 SCC 537 paragraphs 18

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committee above which was a council. Two council members were

ex-officio members of the disciplinary committee. The disciplinary

committee after granting a hearing to Ratna submitted its Report to

the council wherein it was found that Ratna was guilty of

misconduct. Thereafter, the council at its meeting considered the

Report of the disciplinary committee, and without calling Ratna for a

hearing found him guilty of his conduct. Ratna filed a Writ Petition

challenging the aforementioned decisions. Both the Single Judge and

Division Bench ruled in favour of Ratna. The ICAI then approached

the Supreme Court with one of the contentions being that in the

absence of hearing before the council, the Appeal provision under

Section 22-A of the Chartered Accountants Act, 1949 is a complete

safeguard against any insufficiency in the original proceedings. The

Supreme Court dismissed the Appeals by finding no merit in this

argument. He has placed reliance upon paragraph 18 of LK Ratna in

this context.

32. Mr. Kamat has submitted that in the case of Oryx

Fisheries Pvt. Ltd. Vs. Union of India and Ors. 5 ("Oryx Case"), the

Supreme Court was faced with the question of following natural

5 (2010) 13 SCC 427 paragraphs 27, 41 and 43

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justice when a quasi-judicial body issues a show cause notice and

whether an Appellate Authority can at all rectify the violation of

natural justice by the lower Authority. In the Oryx Case, Oryx had

exported several MT of shrimp from Mumbai to a company called

Cascade in Sharjah. Although the customs health department found

the consignment to be fit for human consumption, Cascade took

possession after 10 days and alleged that the shrimp was of very poor

quality. In the circumstances, Cascade issued a notice to Oryx asking

it to pay USD 83,104. Cascade also wrote to the Chairman, Marine

Products Export Development Authority ("MPEDA") about Oryx's

poor quality consignment. MPEDA in turn issued a show cause notice

to Oryx for cancellation of Oryx's registration. Oryx responded to the

show cause notice and refuted the allegations therein. However,

without giving Oryx an opportunity for hearing on the show cause

notice, MPEDA passed an order cancelling Oryx's registration. The

Appellate Authority also upheld the cancellation order. When Oryx

filed a Writ Petition before this Court, this Court found no error in the

orders and dismissed the Writ Petition.

33. Mr. Kamat has referred to the SLP filed by Oryx in

the Supreme Court against this Court's order. The Supreme Court

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found that MPEDA and the Appellate Authority had acted in violation

of principles of natural justice. He has placed reliance upon the

findings in paragraphs 27, 41 and 43 of Oryx case. He has submitted

that the Supreme Court held that once a quasi-judicial authority

issues a show cause notice, a fair hearing opportunity ought to be

granted, and an order passed thereon cannot be the outcome of a

made up mind. The lower authority has disregarded natural justice,

and hence, coercive action cannot be taken at the appellate stage.

34. Mr. Kamat has submitted that even in cases where

a statute does not expressly provide for a hearing, the principles of

natural justice must nonetheless be read into the statutory scheme

particularly where the consequences involved the imposition of a

significant civil liability. He has submitted that in the present case,

the ESI Act itself contemplates a hearing, yet without affording the

Petitioner a fair opportunity to present its case, the coercive recovery

undertaken by the Corporation is arbitrary, illegal, and unsustainable

in law.

35. Mr. Kamat has relied upon the judgment of the

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Patna High Court in Union of India Vs. Electronic Net 6 ("Electronic

Net case"). In the Electronic Net case, the issue was whether a

Section 45A order is mandatory even if the Social Security Officer

had conducted an inspection and proceeded based on the admitted

record of the Assessee. The Court held that even if the argument of

the learned Counsel is accepted, that contributions were remitted as

per returns and on inspection of the premises of the assessee, the

records revealed short fall of contributions paid; then necessarily the

particulars in the returns filed relating to the persons employed by

the employer is not in accordance with Section 44, in which event

Section 45 A would be applicable. The Court further observed that it

is clearly indicated in the ESIC's Revenue Manual Section L. 12.5,

that whether the notice is on an ad-hoc or actual basis, there should

be a well reasoned speaking order under Section 45A of the ESI Act

preceded by the mandatory requirement of affording the employer a

reasonable opportunity of being heard.

36. Mr. Kamat has distinguished the judgments relied

upon by the Respondents including the three additional judgments,

forming part of the written arguments of the Respondents filed

6 LPA No. 1611/2017 Pat HC (2024) paragraphs 10 and 15

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before this Court on 5th May 2025, though neither cited nor relied

upon during course of oral submissions. He has submitted that these

judgment are passed in the facts that arose for determination therein.

The present case is clearly distinguishable on facts and law and the

reliance on these judgments are wholly misplaced and inapplicable to

the present case.

37. Mr. Shailesh Pathak, the learned Counsel for the

Respondents has submitted that the issue before this Court is When

the claim for recovery of contribution, finalized / crystalised by ESI

Corp., from the employer, whether the employer can seek direction of

hearing as contemplated under Section 45A of the ESI Act? OR When

the claim for recovery of contribution is finalized / crystalised by ESI

Corp. from the employer, whether the proceedings are required to be

challenged before the Employees' Insurance Court under Section

75(2)(a) of the ESI Act?.

38. Mr. Pathak has submitted that the ESI Act is

basically a social welfare legislation and deals in respect of medical

assistance required to be given to the employees who are drawing

less than Rs.21,000/- salary. The medical benefits are not only

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limited to the employee, but also to his family and parents.

39. Mr. Pathak has submitted that in the present

matter, it is an admitted fact that the inspection was carried on at the

Petitioners' establishment with prior intimation on several dates. The

visit notes were handed over to the Petitioners' authority on each

date of which inspection was carried on and not disputed and/or

challenged. From 3rd May 2024 when inspection was carried till 21st

November 2024 when the claim for recovery of contribution was

made, the Petitioners not even bothered to write a single letter

disputing the claim.

40. Mr. Pathak has submitted that from the disputed

question of fact and law, it is required to interpret Section 45A and

Section 75(2)(a) of the ESI Act as to which Section has to be invoked

in such a given situation. He has placed reliance upon Section 45A of

the ESI Act. He has submitted that the powers under Section 45A of

the ESI Act can be invoked only in 2 circumstances viz.

(a) Where in respect of a factory or establishment no returns, particulars, registers or records are submitted,

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furnished or maintained in accordance with the provisions of Section 44

(b) any Social Security Officer or other official of the Corporation referred to in Sub-Section (2) of Section 45 is prevented in any manner by the principal or immediate employer or any other person, in exercising his functions or discharging his duties under Section 45, the Corporation may, on the basis of information available to it, by order, determine the amount of contributions payable in respect of the employees of that factory or establishment:

PROVIDED THAT :- (Provided that no such order shall be passed by the Corporation unless the principal or immediate employer or the person in charge of the factory or establishment has been given a reasonable opportunity of being heard).

41. Mr. Pathak has submitted that from a reading of

the Section 45A of the ESI Act, it is crystal clear that the Section 45A

contemplates reasonable opportunity of being heard arises only when

the above two circumstances are being faced with by the parties to

the dispute i.e. no production of records and another non co-

operation with the ESI Authorities. He has submitted that admittedly

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these two circumstances are not present in this Petition. Rather the

ESI Corporation has claimed the recovery of contribution by

finalizing / assessing the short payment. He has submitted that this

Court will appreciate that while interpreting the statute no other

further meaning can be given by adding or modifying words in the

said Section when the language of the Section is plain and simple,

being part of a legislative statute.

42. Mr. Pathak has submitted that in statutory

interpretation, Courts cannot introduce a meaning beyond what the

statute explicitly states. The goal is to determine the legislature's

intention, as expressed in the language, and avoid adding or

modifying words to change the statute's original meaning. The rule

"expressio unis est exclusion alterius" means that, the express

mention of one thing is to the exclusion of other. Where things are

specifically included in the list and others have been excluded it

means that all others have been excluded. The general meaning of

"expression of one thing is the exclusion of another" is also known as

the negative implication rule. This rule assumes that the legislature

intentionally specified one set of criteria as opposed to the other.

Therefore, if the issue to be decided addresses an item not

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specifically named in the statute, it must be assumed that the statute

does not apply to that item.

43. Mr. Pathak has placed reliance upon the Full

Bench decision of this Court (Nagpur Bench) in Pankaj Bhallaji Atram

Vs. State of Maharashtra and Others7. He has submitted that from the

above decision, once the claim for recovery is made, hearing under

Section 45A of the ESI Act is not contemplated and it is the

Employees' Insurance Court which has jurisdiction to hear the

dispute under Section 75(2)(a) of the ESI Act. He has submitted that

the Petitioner is not helpless and has a remedy under Section 75(2)

(a) of the ESI Act.

44. Mr. Pathak has relied upon the judgment of the

Supreme Court in Qazi Noorul, H.H.H. Petrol Pump & Anr Vs.

Department Director, ESIC8. This is in the context of the Literal Rule

of Interpretation, which means that the Court should go simply by

the wording of the Statute and nothing else and there is no scope for

applying any other Rule of Interpretation.

7 2017 (2) Mh LJ 707 (NAGPUR BENCH) (F.B.) paragraphs 17 and 18 8 (2009) 15 SCC 30 para 9 & 10

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45. Mr. Pathak has referred to Section 75(2)(a) of the

ESI Act. He has submitted that after issuance of notices of recovery of

contribution by the Respondent Corporation, in the present case on

22nd November 2024, the disputes which arise, shall be referred to

and decided by the Employees' Insurance Court under Section 75(2)

(a) of the ESI Act, which provides for settling claim for the recovery

of contribution from the principal employer.

46. Mr. Pathak has submitted that in view of Section

75(2)(a) of the ESI Act, read with Section 75(2) of the ESI Act, the

legislature in its wisdom has incorporated matters to be decided by

the Employees' Insurance Court. He has referred to Sectuion 75 and

in particular, : (1) If any question or dispute arises as to (2) [Subject

to the provisions of Sub-Section (2A), the following claims] shall be

decided by the Employees' Insurance Court, namely: (a) claim for the

recovery of contribution from the principal employer.

47. Mr. Pathak has submitted that in the above

petition it is an admitted fact that the Petitioners are challenging the

claim of recovery of contribution and therefore, the powers to decide

the said dispute in respect of recovery of contribution are entrusted /

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given to the Employees' Insurance Court under Section 75(2)(a) of

the ESI Act and not under Section 45A of the ESI Act. This is in view

of there being a specific provision to deal with the claim of recovery

of contribution. The jurisdiction to decide the said dispute has to be

referred under the said Section i.e 75(2)(a) of the ESI Act and not

under Section 45A of the ESI Act.

48. Mr. Pathak has submitted that if such powers or

jurisdiction to decide the dispute is handed over to the Authority

under Section 45A of the ESI Act, which is no where near a "Court"

constituted under Act, it will make the provision of Section 75(2)(a)

of the ESI Act redundant and infructuous, which is not the legislative

purpose. He has placed reliance upon the judgment of the Supreme

Court in E.S.I.C Vs C.C. Santhakumar9, where the Supreme Court has

held that where the records are produced, the assessment has to be

made under Section 75(2)(a) of the ESI Act.

49. Mr. Pathak has submitted that in the present case

the records are produced and there is co-operation with the

Authorities, who have assessed and crystalised the contribution and

9 2007(1) SCC 584 at para 16

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when the disputes arise regarding the claim of recovery of

contribution it is only under Section 75(2)(a) of the ESI Act, that the

dsipute can be agitated.

50. Mr. Pathak has submitted that the manual

referred to by the Petitioners being the ESIC Revenue Recovery

Manual are administrative guidelines which cannot override the

provisions of law. He has submitted that the said guidelines also

contemplate that during the course of hearing of C-18 (actual) and

before the recovery of contribution is made by the Respondent

Corporation, if there is any representation pending, then only hearing

be granted. He has submitted that in the present case, it is an

admitted fact that from the date of inspection i.e visit note starting

from 3rd May 2024 till 22nd October 2024, there is not a single letter

of representation raising any objection. He has submitted that the

claim for recovery of contribution has been already crystalised by ESI

Corp. In view of the same the Petitioners cannot take shelter of the

said manual. He has submitted that it has been held in several

matters that if there is any conflict between an executive instruction

and rules framed under law, the rules shall prevail over the other. He

has in this context placed reliance upon the judgment of the Supreme

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Court in Kerala Financial Corpn. Vs. Comissioner of Income Tax10.

51. Mr. Pathak has submitted that even otherwise

there is a serious dispute about which provision of Act is to be

invoked and who has the jurisdiction to decide the dispute.

Accordingly, the Manual and the Circulars cannot be a determining

factor. It is only upon interpretation of Statute / Section the

legislative intention has to be arrived at. The Manual cannot be a

determining factor as the same are only for administrative purpose to

carry out day to day activities.

52. Mr. Pathak has dealt with the case law relied upon

by the Petitioner. He has submitted that in SBI General Insurance

Company Ltd. (supra), the enquiry was conducted under Section 45A

of the ESI Act, in which amount was required to be determined

whereas in the present Petition the amount has already been

ascertained / assessed and there is no determination. Hence, this

judgment is not applicable.

53. Mr. Pathak has also referred to the judgment

10 1994 (4) SCC 375 paragraph 14

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relied upon by the Petitioner reported in the Electronic Net case

(supra). He has submitted that in this judgment, there is no

discussion of Section 75(2)(a) of the ESI Act which gives power to

Employees' Insurance Court to decide the matters in respect of

recovery of contribution and hence, this judgment cannot be of

relevance as the Respondents have submitted that the Authority

under Section 45A of the ESI Act will have no jurisdiction in respect

where there is a claim for recovery of contribution and it would only

be Employees' Insurance Court.

54. Mr. Pathak has submitted that as regards the other

case laws relied upon by the Petitioner, the same are based on

principles of natural justice. He has submitted that since the subject

matter and jurisdiction of hearing falls under Section 75(2)(a) of the

ESI Act before the Employees' Insurance Court, there is no question

of referring and giving hearing under Section 45A of the ESI Act.

Hence, these judgments are of no relevance.

55. Mr. Pathak has relied upon the judgments of the

Supreme Court and this Court in support of his submission that when

an alternate remedy is available, the party cannot file a Writ Petition.

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These are as under :-

(1) The State of Maharashtra & Ors. Vs. Greatship (India)

Ltd. reported in Civil Appeal No. 4956 of 2022 (S.C.)

at paras 6, 7, 8, 9 and 10.

(2) M/s. ATC (Clearing & Shipping) Pvt. Ltd. Vs.

Employees' State Insurance Corporation reported in

Writ Petition No.1570 of 2004 (Bom.H.C.).

(3) Smt. Tarabai Ganpati Aadayprabhu Vs. Employees

State Insurance Corpn. & Anr. reported in Writ

Petition No.9580 of 2013 (Bom.H.C.)

(4) United Labour Union Vs. Air India Ltd. & Others

reported in 2016 III CLR 682 (Bom.H.C.) at paras

6, 7 and 8.

(5) Property Guards Security Services Pvt. Ltd. Vs. State of

Maharashtra & Anr. reported in Writ Petition No.3176

of 2021 (Bom.H.C.)

(6) Property Guards Security Services Pvt. Ltd. Vs. Union

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of India & Others reported in Writ Petition No.8794 of

2021 (Bom.H.C.)

(7) E.S.I.C Vs. C.C. Santhakumar reported in 2007 (1)

SCC 584 at Para 16

(8) The Deputy Director, ESI Corp Vs. The Management of

SRTC Tech Solutions Private Limited reported in W.A.

No.2171 of 2023 Madras HC at paras 10, 11, 12, 13

and 14.

56. Mr. Pathak has submitted that having interpreted

Section 45-A and Section 75(2)(a) of the ESI Act, the Petitioners who

are challenging the claim of recovery of contribution made by the ESI

Corporation cannot seek remedy to hear the matter under Section

45A of the ESI Act, as the same does not incorporate the issues

involved in the Petition. The subject matter of claim of recovery of

contribution can be dealt only by the Employees' Insurance Court,

which stands on a much higher pedestal. He has submitted that the

claim for recovery of contribution cannot be heard by the authorities

under Section 45-A of the ESI Act which is only restricted to give a

hearing in the aforesaid two instances.

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57. Mr. Pathak has submitted that if the submissions

made by the Petitioner are appreciated and accepted by this Court,

namely to grant hearing in respect of claim for recovery of

contribution, then this Court will enlarge this limited scope of Section

45-A of the ESI Act by giving unlimited powers to the Authorities

under Section 45-A of the ESI Act which is not the purpose of the

said Section and thereby making Section 75(2)(a) of the ESI Act

redundant.

58. Mr. Pathak has submitted that the reason for the

Petitioners not raising the disputes before the Employees' Insurance

Court is that the Petitioner wants to avoid the pre-deposit which

Section 75(2)(a) contemplates, i.e. prior to the consideration of the

Appeal. He has submitted that therefore insisting for the disputes to

be heard under Section 45A of the ESI Act is an attempt to

misinterpret the Section. He has submitted that when an alternate

remedy is available, this Court may not entertain the said Petition.

59. Mr. Pathak has submitted that Courts cannot

introduce a meaning beyond what the statute explicitly states. The

goal is to determine the legislature's intention, as expressed in the

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law's language, and avoid adding or modifying words to change the

statute's original meaning. He has submitted that the general

meaning "the expression of one thing is the exclusion of another " is

also known as the negative implication rule. This rule assumes that

the legislature intentionally specified one set of criteria as opposed to

the other. Therefore, if the issue to be decided addresses an item not

specifically named in the statute, it must be assumed that the statute

does not apply to that item.

60. Mr. Pathak has submitted that there is no

substance and merit in the above Petition and hence, this Court be

pleased to dismiss the Petition with costs.

61. I have considered the submissions. The

interpretation of Section 45A of the ESI Act falls for determination. It

is the contention of the Respondents that Section 45A of the ESI Act

may be invoked only in the aforesaid two instances including where

no records are furnished at all. I find this contention to be misplaced.

It is evident from a plain language of Section 45A of the ESI Act that

this provision is not confined to situations where no records are

furnished at all, rather it equally applies where the records submitted

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are incomplete, inadequate, or selectively disclosed whether in

relation to specific categories of employees or particular contribution

periods. The wording of that provision is "Where in respect of a

factory of establishment, no returns, particulars, registers or records

are submitted, furnished or maintained ......". The contention of the

Respondents that Section 45A(1) is confined to a situation where no

records are furnished at all, would disregard the word "maintained".

Further, the last line of Sub-Section (1) of Section 45A, it is provided

that "...the Corporation may, on the basis of information available to

it, by order, determine the amount of contributions payable in

respect of the employees of that factory or establishment ." confirms

that this provision is not confined to in a situation of complete

absence of records.

62. Accordingly, I am of the view that the

Respondents' attempt to limit the applicability of Section 45A of the

ESI Act solely to a case of total non-submission of records is

untenable.

63. The further contention of the Respondents that

Setion 45A of the ESI Act applies only to adhoc assessments due to

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non-production of records and does not apply to actual assessments

is misconceived. This contention is contingent upon an artificial and

unsupported distinction between "C-18 (Ad-hoc)" and "C-18

(Actual)" notices, both being instruments issued by the Corporation

under its internal ESIC Revenue Manual. From a reading of the said

Manual, in particular Section L. 12.5, it is evident that this distinction

between "actual" and "ad-hoc" finds no recognition. Such a

distinction is also not found in the ESI Act itself.

64. The Respondents in the present case, have passed

the impugned order without affording an opportunity of hearing to

the Petitioners. This in my considered view is in violation of the

express mandate of Section 45A of the ESI Act. It is well settled that

any determination under this provision, whether based on full,

partial or no records must be preceded by a fair hearing. During the

hearing, this Court had posed a pointed query to the Respondent

Corporation regarding the applicable statutory provision in the event

of shortfall in contributions. The Respondent Corporation was unable

to provide any clear or concrete response. Thus, the Respondent

Corporation by not affording a hearing to the Petitioners is seeking to

bypass the procedural safeguards under Section 45A of the ESI Act by

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invoking internal classifications or relying on distinctions that have

no statutory basis.

65. The judgments relied upon by the Petitioners viz.

Affine (supra) and SBI General (supra) are applicable in the present

case. These judgments have affirmed that Section 45A of the ESI Act

is not confined to situations where no records are available. Further,

its invocation must be strictly in accordance with the principles of

natural justice. The Courts have held that a reasoned order must be

passed only after affording the employer a fair and reasonable

opportunity of being heard. In my view, the Respondents have not

being successful in distinguishing the aforementioned judgments.

66. The Respondents have contended that all records

were made available by the Petitioners. I find from the facts and

documents on record that this assertion of the Respondents is

misplaced. The copy of the Social Security Officer's visit note at

Exh.W7 of the Writ Petition shows that the Inspection Report did not

consider the entire workforce of the Petitioners. The statutory scheme

under Section 45A of the ESI Act specifically contemplates its

invocation in situations where the Respondent Corporation is unable

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to determine contributions due to the lack of complete and accurate

data. Therefore, the case put forward by the Respondents that all

records were available is not only factually incorrect, but also

misinterprets the scope of Section 45A of the ESI Act.

67. I find much merit in the submission of the

Petitioner that before any coercive recovery action is undertaken by

the Respondent Corporation, a speaking order that is preceded by a

reasonable opportunity of being heard under the provisions of

Section 45-A of the ESI Act is mandatory, irrespective of whether the

proceedings are initiated by issuing notices under C18 (actual) or

C18 (ad-hoc). In the present case, neither requirement has been met.

Although, the ESIC Revenue manual was brought to the attention of

the Respondent Corporation during the arguments of the Petitioners,

this was met with an entirely unsatisfactory response of the

Respondent Corporation suggesting that the manual is merely a

"guideline" and, as such, need not be followed. The Respondent

Corporation is required to be guided by its own manual and cannot

disregard the same.

68. The Respondents had contended that during the

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inspection proceedings, no objections were raised by the Petitioners.

This is contrary to the documents on record, in particular the letter

dated 21st November 2024 submitted by the Petitioners and

delivered to the offices of the 1st and 2nd Respondents on 22nd

November 2024 raising an objections and this is raised well before

the stated timeline of 25th November 2024 and which letter records

the Petitioners' concern regarding the ongoing proceedings.

69. Insofar as the Respondents' contention that the

Petitioners statutory remedy lies in initiating proceedings under

Section 45AA of the ESI Act before the Employees' Insurance Court is

concerned, I find such contention to be misconceived. The

Respondents have failed to address the contention raised by the

Petitioners that any breach of the principles of natural justice at the

original stage vitiates the proceedings and cannot be cured in appeal.

The Petitioners have placed reliance upon LK Ratna and the Oryx

cases. In the present case, the main grievance of the Petitioners is

with regard to the denial of an opportunity of hearing prior to the

issuance of the impugned order under Section 45-A of the ESI Act.

The Respondents have rather than addressing this grievance

suggested recourse to either Section 45AA or 75 of the ESI Act. I am

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of the considered view that the failure to provide an opportunity of

hearing strikes at the root of the adjudicatory process itself. Section

45AA or 75 do not address this issue as it presumes the validity of the

impugned order, which is precisely under challenge in these

proceedings. Further, Section 75 does not apply in the present case

absent an appropriate hearing prior to the impugned order being

passed.

70. The contention of the Respondents that the denial

of a personal hearing has not materially affected the outcome, as the

determination is based on records already submitted by the

Petitioner, is untenable. It is settled law that the principles of natural

justice as contemplated under Section 45A of the ESI Act are not

contingent upon the presumed outcome of a proceeding. The denial

of such an opportunity renders the proceedings inherently flawed

and in violation of the statutory mandate of fair hearing.

71. It is pertinent to note that the Respondents have

conceded in open Court that both the C-18 (Ad-hoc) and D-18

notices contemplated a hearing under Section 45A of the ESI Act. It is

the Respondents' own admission, and therefore, renders

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unsustainable any attempt on their part to justify the issuance of the

impugned C-18 (Actual) notice without affording the Petitioner a

hearing. Further, there is no recognition of a distinction between C-

18 (Ad-hoc) and C-18 (Actual) notices, both being instruments issued

by the Respondent Corporation under its internal ESIC Revenue

Manual. There is also no recognition in the Act of any such

distinction.

72. The Respondents have relied upon SRTC Tech

Solutions Private Limited (supra) in support of their contention that

Section 45A of the ESI Act applies only in cases where the employer

fails to produce revenue records, necessitating an ad hoc assessment.

73. The reliance placed by the Respondents on the

said judgment, in my view, misplaced. This judgment has been

departed from by a coordinate bench of the Patna High Court in

Electronic Net case (supra). The Patna High Court has held that

invocation of Section 45A of the ESI Act is not confined merely to

cases of non-production of records. This would apply, even where

records are furnished and inspected, and where such records are not

in compliance with the requirements under Section 44 or disclose

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underpayment of contributions, the authorities are entitled to invoke

Section 45A. The Court clarified that mere production of records does

not bar the application of Section 45A in cases where contribution

shortfalls are found. Further, the Court held that C-18 (Actual) and

C-18 (Ad hoc) notices are not statutory forms, but are issued under

internal ESIC guidelines, and cannot limit the applicability of the ESI

Act.

74. The ESIC Revenue Manual, in particular Section L.

12.5, explicitly mandate that any order under Section 45A must be a

well reasoned speaking order and must be preceded by affording the

employer a reasonable opportunity of being heard. In L. 12.9 of the

said Manual, requires that prior to issuing a Section 45A order

against C 18 (Adhoc) and C 18 (Actual) notices, the Authority must

ascertain whether any representation from the employer is pending,

and in all cases, allow a minimum period of 30 days for the employer

to appear for a personal hearing or submit a written representation.

These procedural safeguards, which are integral to ensuring fairness

in quasi judicial proceedings under ESI Act, were not addressed or

considered in the SRTC Tech Solutions Private Limited (supra),

thereby limiting its applicability and diminishing its precedential

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value.

75. The Respondents have also placed reliance on the

judgment in E.S.I.C Vs C.C. Santhakumar (supra) in support of their

contention that the invocation of Section 45A of the ESI Act is

conditional and can be resorted to only where the employer fails to

submit the requisite returns, particulars or records. I find that the

said judgment in fact fortifies the Petitioner's case by affirming that

the exercise of powers under Section 45A of the ESI Act must be

preceded by a reasonable opportunity of hearing and must be based

on the entirety of the material available on record. The Supreme

Court has held that Section 45A is intended to be invoked only in

situations where the employer obstructs or fails to furnish the

requisite records, thereby preventing the Corporation from

performing its duties under Section 45. In such circumstances, the

Authority is obliged to issue a notice and afford a fair hearing before

passing a determination order. Paragraph 15 of the E.S.I.C Vs C.C.

Santhakumar (supra) judgment reads as under:-

"15. When the Corporation passes an order under Section 45A, the said order is final as far as the Corporation is

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concerned. Under Section 45A(1), the Corporation, by an order, can determine the amount of contributions payable in respect of the employees where the employer prevents the Corporation from exercising its functions or discharging its duties under Section 45, on the basis of the material available to it, after giving reasonable opportunity."

76. The Respondents have relied upon the judgment

of the Supreme Court in The State of Maharashtra & Ors. Vs.

Greatship (India) Ltd. (supra) in support of their contention that the

High Court should not entertain a Writ Petition under Article 226 of

the Constitution wherein effective and efficacious remedy is

available. There are other judgments relied upon by the Respondents

in support of this contention passed by both the Supreme Court and

as well as this Court. However, the reliance placed by the

Respondents on these judgments is wholly misplaced and

inapplicable to the present case. In the present case, the Petitioners

have been denied a reasonable opportunity of hearing, which is a

mandatory procedural safeguards under proviso to Section 45A of

the ESI Act. The impugned action in the present case was undertaken

prior to the passing of any lawful or reasoned order. Thus, rendering

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the action wholly without jurisdiction and clear violation of the

principles of natural justice. The Petitioners are not merely bypassing

an appellate forum, but are challenging the very legality and

procedural fairness of the primary action itself, making these

judgments which are on effective and efficacious statutory remedy

being available, inapplicable. The judgment of the Supreme Court in

Whirlpool (supra) relied upon by the Petitioners will apply in the

present case.

77. The Respondents have placed reliance on the

judgment of this Court in Property Guards Security Services Pvt. Ltd.

Vs. State of Maharashtra & Anr. (supra) to emphasize that statutory

remedy is available under Section 45AA of the ESI Act. In that case,

this Court reiterated that Section 45AA provides for an appellate

remedy to an employer aggrieved by an order passed under Section

45A of the ESI Act. In the said case, there was no issue raised on the

interpretation of Section 45A and consequently there is no finding or

interpretation of Section 45A and therefore, this case is clearly

distinguishable from the present case.

78. In view of the finding that Section 45A of the ESI

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Act must be preceded by a reasonable opportunity of hearing and

must be based on the entirety of material available on record, the

impugned demand notices, recovery notices, prohibitory orders, bank

show cause notice, inspection report and further demand notices (as

particularly set out in Annexure A) are required to be quashed and

set aside.

79. Accordingly, the Petition is made absolute in terms

of prayer clauses (A) to (E) which read thus :

"A. For a writ of mandamus or any other writ, direction or order in the nature of mandamus under Article 226 of the Constitution of India declaring that the Impugned Orders (as particularly set out in Annexure A) are illegal, ultra vires the Constitution of India and the provisions of the ESI Act;

B. For an order of injunction restraining any person(s) authorized by the Respondents from taking any steps and / or acting in furtherance of the Impugned Orders (as particularly set out in Annexure A);

C. For an order directing the Respondents to issue communications recalling the Impugned Orders (as particularly set out in Annexure A);

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D. For a writ of certiorari or any other writ, direction or order in the nature of certiorari under Article 226 of the Constitution of India quashing the Impugned Orders (as particularly set out in Annexure A);

E. For a writ of mandamus or a writ or order or direction in the nature thereof remanding the Inspection Report, Demand Letters, Recovery Notices and the Further Demand Letters as particularized in Annexure A to the Respondent No. 1 for fresh adjudication after providing the Petitioners reasonable time to submit their detailed response and the opportunity to make oral submissions during a personal hearing."

80. The Respondents shall within a period of four

weeks from this judgment and order, issue communication recalling

the impugned orders. The Respondents shall carry out the fresh

adjudication after issuance of requisite notice to the Petitioners

affording them opportunity to submit detailed response and the

opportunity to make oral submissions during personal hearing and

pass reasoned speaking order within a period of six weeks from the

recall of the impugned orders.

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81. The Writ Petition is accordingly disposed of in the

above terms. There shall be no order as to costs.

[R.I. CHAGLA J.]