Karnataka High Court
Esi Corporation R/B. Asst. ... vs M/S Desai A D Company on 17 February, 2022
Bench: R Natarajpresided Byrnj
:1:
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 17TH DAY OF FEBRUARY, 2022
BEFORE
THE HON'BLE MR. JUSTICE R. NATARAJ
M.F.A. NO.23514 OF 2010 (ESI)
BETWEEN:
ESI CORPORATION
REP. BY ITS
ASSISTANT DIRECTOR,
ESI CORPORATION,
SUB-REGIONAL OFFICE
NO.H-42 GROUND FLOOR,
NIKETAN, DOLLARS COLONY,
ADJ. NEW CENTRAL BUS-STAND,
HUBBALLI-580030.
... APPELLANT
(BY SRI. V. S. KOUJALAGI, ADVOCATE)
AND:
1. M/S. DESAI AND COMPANY
DESAI CHAMBERS
KIPPOKAR ROAD,
HUBBALLI-20.
BY ITS PARTNER MADAN BINDURAO DESAI.
2. B.K. KURTHKOTI
KURTHKOTI COMPOUND,
NEAR VENKATESH TEMPLE,
SARASWATIPUR,
DHARWAD.
... RESPONDENTS
(BY SRI. RAVI HEGDE, ADV FOR R1
SMT. P. R. BENTUR, ADV. FOR R2)
:2:
THIS APPEAL IS FILED UNDER SECTION 82(2) OF THE
E.S.I. ACT, 1948, AGAINST THE JUDGMENT AND ORDER DATED
21.06.2010, PASSED IN ESI APPLICATION NO.5/2008, ON THE
FILE OF THE EMPLOYEE'S STATE INSURANCE COURT, HUBBALLI,
AT HUBBALLI, PARTLY ALLOWING THE E.S.I. APPLICATION FILED
UNDER SECTION 75(2) THE EMPLOYEES STATE INSURANCE ACT,
1948.
THIS APPEAL COMING ON FOR FINAL HEARING, THIS DAY,
THE COURT DELIVERED THE FOLLOWING:
JUDGMENT
The appellant-corporation has filed this appeal
challenging the order dated 21.06.2010 passed by the
Employees State Insurance Court, Hubballi (henceforth
referred to as "ESI Court") in ESI Application No.5/2008.
2. The respondent is a partnership firm engaged in
the business of sale and distribution of LPG cylinders
manufactured by Bharat Petroleum Corporation Ltd.
(henceforth referred as "BPCL") The inspector of the
appellant Corporation visited the respondent No.1 on
10.08.2006 to verify the records for the period April-2002
to March-2005. After inspection he issued a notice in Form-
C18 and found that the respondent No.1 had omitted to pay
contribution on Rs.22,57,283/- towards wages and
maintenance of its branch office at Dharwad. He held that
the respondent No.1 had not produced any bills or vouchers
and hence prepared an observation slip and fixed a date for
personal hearing. The respondent No. 1 filed objections
contending that it had an office in Dharwad but had not
engaged any employees at Dharwad. It further contended
that it was receiving commission from BPCL out of which it
paid 60% to the respondent No.2 and retained remaining
40%. It claimed that commission cannot be classified as
wages and therefore it was not liable to make any
contribution. The appellant corporation rejected the
objections raised and determined the contribution at a sum
of Rs.1,46,724/- under Section 45(A) of the Employees
State Insurance Act, 1948.
3. Being aggrieved by the aforesaid order, the
respondent No.1 filed an appeal under Section 75 (2) of the
ESI Act. The Manager of the respondent No.1 was
examined as AW-1 and he marked Ex.A.1 to A.10. The
Inspector of ESI Corporation was examined as RW-1 and he
marked Ex.R.1 to R.13.
4. The ESI Court after considering the oral and
documentary evidence, held that the respondent No.2 was
the branch office of the respondent No.1 as the affairs of
the respondent No.2 was supervised by the respondent
No.1 and therefore there was a functional integrality
between the respondents. It held that there were no clear
records regarding the amount spent towards expenses and
the wages. It thus held that out of the commission of
Rs.22,57,283/- received by the respondent No.1, 60% was
utilized to pay the wages and therefore the respondent No.1
was liable to pay contribution of a sum of Rs.87,857/-.
Hence, it ordered the respondent No.1 to pay a sum of
Rs.87,857/- along with simple interest at 12% per annum.
After calculating the interest from 21.11.2007 till
07.02.2008 (when Rs.73,362/- was deposited), the ESI
Court calculated the interest payable at Rs.2,225/- and
imposed damages of Rs.2688/- and ultimately directed the
respondent No.1 to pay the balance sum of Rs.24,000/-
within one month from the date of the order.
5. Being aggrieved by the aforesaid order, the
present appeal is filed by ESI Corporation.
6. The learned counsel for the Appellate
Corporation submitted that treating 60% of the commission
earned as wages paid to the employees was without any
basis. He submitted that the respondent No.1 and 2 had
not produced any documents to establish the amount used
towards the payment of wages and therefore the ESI Court
ought to have considered the entire commission received as
wages.
7. Per contra, the learned counsel or the
respondent No. 1 submitted that the commission received is
not entirely wages but, also covers the expenses incurred
by the respondent No.1 for operating the petroleum outlet.
He contended that though the Courts have consistently held
that the wages constitute 40% of the income yet the ESI
Court had considered it at 60% of the commission as wages
for the purpose of determining the contribution.
8. I have considered the submissions of the learned
counsel for the parties.
9. As rightly held by the ESI Court there is a clear
functional integrality between the respondents. The
respondent No.2 was operating under the supervision of the
respondent No.1 and therefore any payment made to the
respondent No.2 was to be treated as wages. The
commission received by the respondent No.1 would also
cover other components such as advertisement,
establishment, running cost, fixed expenses, interest on
borrowings, profit margins, cost of spillages etc. Even
otherwise, in any enterprise, the material cost and the
profits would be 60% of the income while the labour cost
would be 40%. In the present case however the ESI Court
has treated 60% of the commission as wages and has
determined the contribution accordingly. The respondent
No.1 has not contested the same. Hence no fault could be
found in the order of the ESI Court. Therefore the ESI
Court was justified in passing the impugned order.
10. There is no merit in this appeal and it is
dismissed.
Sd/-
JUDGE
SMM
