M/S Advance Group vs The Regional Director
2023 Latest Caselaw 5938 Kant

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     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

        DATED THIS THE 24th DAY OF AUGUST, 2023

                          BEFORE

          THE HON'BLE MR. JUSTICE H.P. SANDESH

                 M.F.A. NO.674/2012 (ESI)
BETWEEN:

1.     M/S. ADVANCE GROUP
       NO.6, D MAIN,
       EAST END ROAD,
       BANGALORE-560 069
       REPRESENTED BY ITS PROPRIETOR,
       SRI K.VENKATESH.                     ... APPELLANT

               (BY SRI J.KANIKARAJ, ADVOCATE)
AND:

1.     THE REGIONAL DIRECTOR
       ESI CORPORATION,
       BINNY FIELDS, BINNY PET,
       BANGALORE-560 023.                ... RESPONDENT

            (BY SMT. GEETHADEVI M.P., ADVOCATE)

     THIS M.F.A. IS FILED UNDER SECTION 82(2) OF
EMPLOYEES STATE INSURANCE ACT, AGAINST THE ORDER
DATED 19.12.2011 PASSED IN ESI APPLICATION NO.26/2006
ON THE    FILE OF EMPLOYEES STATE INSURANCE COURT,
BANGALORE, DISMISSING THE PETITION FILED U/S 75 & 77 OF
EMPLOYEES STATE INSURANCE ACT CHALLENGING THE ORDER
DATED 28.9.2005 PASSED UNDER SECTION 45-A OF THE
ACT CLAIMING CONTRIBUTION OF RS.7,64,527/- FOR THE
PERIOD 1999 TO 2003.
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    THIS M.F.A. HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT   ON    10.08.2023 THIS  DAY, THE   COURT
PRONOUNCED THE FOLLOWING:


                            JUDGMENT

Heard the learned counsel for appellant and learned

counsel for respondent.

2. The factual matrix of case of the appellant herein is

that respondent caused a notice Form C-18 (ad-hoc basis)

claiming contribution amount of Rs.7,46,245.99/- for a period

2002-2003, since the appellant is a proprietary concern,

engaged in the business of rendering security services to various

establishments. The appellant disputed the said claim of the

respondent on the ground that amount of wages booked under

it, books of accounts comprised of salaries paid to exempted

employees', bonus paid to eligible employees' under the

Payment of Bonus Act. Hence, the entire amount as claimed by

the corporation i.e., respondent herein was not due to

respondent.

3. It is the contention of the appellant that by giving

reply stated that the claim is not maintainable and the same

includes of amount paid as salaries to supervisory personnel,

Bonus dispersed under the Payment of Bonus Act, on which

contributions are not payable. The respondent passed an order

under section 45A of the ESI Act confirming the claim of the

contribution amount of Rs.7,64,527/-. Hence, the same was

challenged before the ESI Court under Section 75 of ESI Act in

ESI Application No.26/2006. The ESI Court examined the

applicant as AW1 and also got marked the document as Ex.A1 to

Ex.A11 and respondent was examined as RW1 and got marked

the document as Ex.R1 to Ex.R11. The ESI Court after

considering the material on record, dismissed the application

filed under Section 75 of the ESI Act. Hence, the present appeal

is filed before this Court.

4. The main contention of the appellant's counsel by

filing this appeal under Section 82(2) of the ESI Act that the

demand in making payment of contribution amount of

Rs.4,95,054/- on Rs.76,16,210.56/- is not liable to be paid since

the said amount Rs.76,16,210.56/- comprised of wages paid to

exempted employees', annual bonus and the appellant had also

sought time to produce the relevant documents to substantiate

their contention.

5. No dispute with regard to the other claim is

concerned and only dispute is with regard to the amount of

Rs.4,95,054/- on Rs.76,16,210.56/- and out of the said amount,

an amount of Rs.58,89,090/- towards salaries paid to

supervisory staff, whose salary exceeded Rs.6,500/- per month

and they being exempted employees' and contribution amount is

not liable to be paid in respect of salary paid to them.

6. The counsel also would contend that a sum of

Rs.17,27,120/- is towards payment of bonus under the Payment

of Bonus Act, no contribution is payable on the said amount. The

counsel also vehemently contend that when the appellant is not

liable to pay the compensation amount and the very demand

made by them is erroneous.

7. The counsel also vehemently contend that the RW1

who has been examined on behalf of the respondent has

admitted in his cross examination that he has verified those

salary sheets produced by the appellant which was marked as

Ex.A9 series at the time of the inspection and he has affixed his

signature to the said document. But, the ESI Court brushes away

the said documentary evidence on the sole ground that same

does not inspire confidence and the very approach of the ESI

Court is erroneous.

8. The counsel also vehemently contend that RW1 in

his cross examination has admitted that out of total amount of

Rs.1,22,95,246/- paid by the appellant as wages to their

employees', the same includes wages paid both to coverable and

non-coverable employees'. The counsel also contend that the

appellant has produced the wage register i.e., Ex.A9 to the ESI

Inspector at the time of inspection and ESI Inspector has affixed

his signature for having verified the same. But, in spite of it, the

Trial Court has committed an error. Hence, it requires

interference.

9. It is also contend that this Court has to frame a

substantive question of law whether Annual Bonus comes within

the definition of Section 2(22) of the ESI Act? and whether the

appellant is liable to pay the contribution amount to exempted

employees'?

10. The counsel also brought to notice of this Court that

an application is filed under Order 41 Rule 27 praying this Court

to permit the appellant to submit the annual return filed under

the Payment of Bonus Act. The counsel also contend that in

support of application, an affidavit is also filed by the Proprietor

that though certain documents were in their possession could

not produced the same earlier, not realizing the importance of

the same till the counsel brought to notice that relevant

document that is necessary to decide the issue involved between

the parties and due to inadvertence, the same could not be

placed before the ESI Court.

11. Per Contra the counsel appearing for the respondent

would vehemently contend that the bonus is part of contract and

the same is a statutory payment. Hence, the appellant is liable

to pay the contribution amount on the payment of bonus also.

The counsel would vehemently contend that bonus is also a part

of the salary, no dispute is with regard to the payment of bonus

is concerned to the tune of Rs.17,27,120/- and claims that the

same is an annual bonus.

12. The counsel in support of her argument has relied

upon the judgment of the Apex Court 1997 (9) SCC 71 Indian

Drugs and Pharmaceutical Ltd., V/s Employees' State

Insurance Corporation and others. The counsel referring this

judgment contend that the Apex Court held that whatever

remuneration paid or payable for over time work, forms wages

under an implied term of the contract. The object thereby is

clear that the overtime work done by the employee is an implied

contract to do overtime and the remuneration paid therefore

does form part of the wages under Section 2(22) of the ESI Act.

Concomitantly, the employer is enjoined to pay the contribution

under the Act and should be required to be complied with.

13. The counsel also vehemently contend that the word

'wages' within the meaning of Section 2(22) of the ESI Act is

extracted in the paragraph No.2 of the judgment and in

paragraph No.3 comes to the conclusion that it will not comes

within additional remuneration, if any, paid at intervals not

exceeding two months within Section 2(22) of Act. The counsel

also brought to notice of this Court in paragraph No.5 the Apex

Court has also discussed in detail that wages under Section

2(22) of ESI Act, the main part of the definition, without taking

aid of the inclusive part, would indicate that wages means all

remuneration paid or payable on cash to an employee, if the

term of the contract of employment, express or implied, were

fulfilled.

14. It is settled legal position word "include" would be

given wide interpretation so as to bring within its ambit

exhaustively all entries akin to or analogous to the main part of

wage, except enumerated entity except those expressly

excluded by the legislation would be within its sweep. Hence, the

counsel would contend that the omission thereof in the definition

of Section 2(22) excluding the items (a) to (d), would be

eloquent and meaningful.

15. The counsel also referring the judgment (1994) 1

SCC 219 Wellman (India) Pvt. Ltd., V/s Employees' State

Insurance Corporation the counsel referring this judgment

would vehemently contend that the Apex Court held that the

attendance bonus payable to the employees' is under the terms

of the settlement which has become part of the contract of

employment. Hence, the said bonus will fall within the first part

of the definition of wages under Section 2(22) of the Act. It is,

therefore, really not necessary to consider whether it will be

"other additional remuneration" and if so whether it is to be

excluded from the definition of the "wages" because it is not

payable within a period of 2 months from the date it is due. The

counsel also brought to notice of this Court that paragraph No.12

wherein also discussed with regard to the argument that in view

of the unqualified use of the word bonus, all kinds of bonus

including production bonus were excluded from the said

definition and hence, production could not be taken into

consideration for calculating the contribution. But, in paragraph

No.14 having consider the said contention, comes to the

conclusion that the attendance bonus payable to the employees'

is under the terms of the settlement which has become a part of

the contract of employment. Hence, the same is fall within first

part of the definition of the "wages" under Section 2(22) of the

Act which covers all remuneration paid or payable in cash to an

employee in the terms of contract of employment, the express or

implied or fulfilled.

16. The counsel also relied upon the judgment reported

in 1994 Supp (3) Supreme Court Cases 580 in case of

Modella Woollens Ltd., V/s Employees' State Insurance

Corporation and another wherein also discussed Section 2(22)

and definition of "wages", amount payable at the end of each

quarter whether constitutes wages or not- test to determine- not

the period but the nature of payment, held, material-hence,

although payable at the end of each quarter, production bonus

given for additional production and against which the employee

could even claim advance, held, wages and it is brought to the

notice of this Court in paragraph No.2 of the judgment held that

the mere term in agreement that the payment of bonus would

be made at the end of the quarter, therefore, does not make the

bonus, a payment other than remuneration for the labour put in

during the said quarter. Hence, the stipulation in the agreement

that the payment of bonus would be made at the end of the

quarter is not material for deciding the question whether the

payments would be covered by the first part of the definition or

not. What the Court has to look into is the nature of the

payment. The term production bonus itself shows that it is a

payment connected with or relatable to the production over a

period. Hence, it cannot be a payment other than "wages" within

the meaning of the said definition.

17. The counsel referring these judgments would

vehemently contend that the Trial Court has not committed an

error in passing such an order. The counsel also vehemently

contend that the amount which is claimed by the corporation

i.e., towards liability and the contention that the same is not

payable and the same is towards exempted employees cannot

be accepted and the same is not substantiated by producing any

material before the ESI Court and same cannot considered.

18. In reply to the arguments, the counsel appearing for

the appellant would vehemently contend that the ESI Court has

also comes to the conclusion that Rs.46,76,035/- is ascertained

and difference amount of Rs.10,70,270/-, the appellant is ready

to pay the same. Hence, the Court has to consider the same and

remit the matter to Trial Court for consideration of the additional

document placed before the Court with a direction to consider

the payment regarding coverable and non coverable employee

since there is an admission on the part of the RW1.

19. Having heard the appellant's counsel and also

counsel appearing for the respondent and also considering the

ground urged in the appeal, the following substantive question of

law arises for the consideration of this Court.

1) Whether the ESI Court has committed an error in coming to the conclusion that annual bonus constitute wages as defined under Section 2(22) of ESI Act?

2) Whether the ESI Court committed an error in directing the appellant to pay the contribution even to exempted employees'?

3) Whether the appellant has made out the ground to allow the application filed under Order 41 Rule 27 of Code of Civil Procedure?

4) What Order?

POINT No.1:

20. Having considered the contention of the appellant's

counsel that the company is not liable to pay any contribution in

respect of the annual bonus is concerned and also considering

the very Section 2(22) of Empolyees' State Insurance Act, 1948,

this Court has to consider whether contribution is requires to be

paid for annual bonus. This Court would like to extract Section

2(22) of ESI Act and the same is extracted as below:

" Wages" means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorized leave, lock-out, strike which is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months, but does not include-

(a) any contribution paid by the employer to any pension fund or provident fund, or under this Act;

(b) any traveling allowances or the value of any traveling concession;

(c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or

(d) any gratuity payable on discharge;

21. Having read the Section 2(22), it is clear that, (a) to

(d) does not includes "wages" but having read the same it is

clear that any remuneration paid in terms of contract of

employment, express or implied and the word is used any

payment to an employee in respect of any period. No doubt

there is an insertion paid at intervals not exceeding two months.

22. In view of the judgments referred supra by the Apex

Court which have been discussed, the Apex Court categorically

held with regard to what are all it includes in the word "wages"

and only omission in the definition of Section 2(22) is with

regard to items (a) to (d). But it is clear that whatever

remuneration paid or payable for overtime work forms, wages

under the implied term of the contract. Thus forms the part of

wages under Section 2(22) of the Act.

23. The Apex Court also discussed in Indian Drug's

case, Section 2(22) of the Act in paragraph No.2 and held that it

is settled position that the word include would be given vide

interpretation so as to bring within it ambit exhaustively all

entries akin to or analogous to the main part of the wage, except

to the extent the enumerated entity is except those expressly

excluded by the legislation would within its sweep. The said

bonus will not come within excluded clause (a) to (d) of Section

2(22) of the Act.

24. The Apex Court also discussed in Wellman's case

also that the attendance bonus payable to the employees' is

under the terms of settlement which has become the part of the

contract of employment. Hence, the said bonus will fall within

the first part of the definition of "wages" under Section 2(22) of

the Act. The very contention of the appellant's counsel that the

same will not come within the definition of Section 2(22) of the

ESI Act cannot be accepted.

25. In the judgment of Modella Woollens' case also

discussed the Section 2(22) regarding test to determine not the

period for nature of payment held material and hence, the

contention that the annual payment is not come within the

purview of Section 2(22) cannot be accepted, in paragraph No.2

of the judgment Apex Court that when the stipulation in the

agreement that the payment of the bonus would be made at the

end of the quarter is not material for deciding the question

whether the payments would be covered by the first part of the

definition or not. What the Court has to look into is the nature

of payment. The term production bonus itself shows that it is

payment connected with or relatable to the production over a

period. Hence, it cannot be a payment other than wages within

the meaning of the definition.

26. Having considered the principles laid down in the

judgment, the very contention of the appellant's counsel cannot

be accepted with regard to the payment of contribution for

having made the payment of bonus. Hence I answer the point

No.1 as Negative.

Point No.3

27. The point No.3 is considered prior to consideration of

point No.2 and the document is placed before this Court invoking

under Order 41 Rule 27 and this Court already comes to the

conclusion that the payment of bonus is also a part of wages and

production of documents as additional document i.e., submitting

the Form-D annual return for their employees' under Payment of

Bonus Ac, 1965 for the year 2002-03 will not comes to the aid of

the appellant though the Form-D is with regard to the annual

return bonus paid to employees' of the account in the ending

year i.e., on 31.03.2023. The document discloses with regard to

the total amount payable as bonus under Section 10 or 11 of the

Payment of Bonus Act, 1965 as the case may be Rs.17,27,120/-

and percentage of bonus declared to be paid is 8.33% and also

discloses that payment was made on 30.04.2003. The issue is

not with regard to the payment of bonus is concerned and issue

is only with regard to the payment of contribution on bonus

amount and the said document does not comes to aid of the

appellant though the same was filed prior to the assessment.

Hence, I answer point No.3 as Negative.

Point No.2:

28. Now, the dispute is with regard to the payment of

contribution amount of Rs.58,89,090/-, whether the same is

considered to be paid as contribution. The main contention of the

appellant's counsel that the appellant has produced salary sheets

for the period April-2002 to March -2003 to establish that a sum

of Rs.58,89,090/- is paid as salary to exempted employees i.e.,

employees' whose salary is above Rs.6,500/- and as such not

coverable under the Act and the said document is also marked

as Ex.A9.

29. It is the contention of the counsel for appellant that

RW1 in his cross examination admitted that he has verified those

salary sheets produced by the appellant and marked as Ex.A9

and also in the cross examination he categorically admitted that

out of the total amount of Rs.1,22,95,246/- paid by the

appellant as wages to their employees', the same includes wages

paid both to coverable and non coverable employees' and

perused the document Ex.A9 and also the findings of the Trial

Court inconsonance with the evidence of witnesses who have

been examined before the Trial Court, the AW1 in his chief

evidence has relied upon the evidence both oral and

documentary evidence and in the chief examination of AW1 he

says that wage register at Ex.A9 series contain the names of the

some of the employees' not covered by the ESI by virtue of

salary more than the coverable limit. The names of non covered

employees' are separately listed month wise in the wage

register, the said wage register at Ex.A9 series is verified by the

ESI authority as well as PF authorities and nothing is cross

examined in the evidence of AW1 with regard to the Ex.A9 which

is marked. In the cross examination of RW1, he categorically

admits that he has noticed that as per ledger entry for the period

2002-03, the expenditure mentioned towards salary and wages

account was Rs.1,22,95,246/- as against the wages as per the

salary register of the salary sheets of Rs.46,34,017/- paid as

salary/wages. The claims that the applicant did not produce

salary sheets or wage register with regard to the expenditure of

Rs.76,16,210/- and applicant did not produce any record with

respect of the said expenditure of Rs.76,16,210/-. But in the

cross examination he categorically admits that the wage register

at Ex.A9 series bears a signature affixed for having verified them

during the course of inspection. In the cross examination he

admits that it is true that the expenditure of Rs.1,22,95,246/-

comprises of wages paid to both coverable and non coverable

employees', but he claims that since no records were produced

he cannot comment on the amount of Rs.1,22,95,246/-

comprises an amount of bonus paid to employees'. But

categorical admission is given that the amount of

Rs.1,22,95,246/- comprises of wages paid to both coverable and

non coverable employees' and when such admission is given and

when the AW1 was not cross examined with regard to the A9, it

was produced in his evidence. The ESI Court ought to have

taken note of the said fact into consideration. But further he

admitted that he had ascertained about coverable portion of the

wages out of the total expenditure of Rs.1,22,95,246/-. But,

further he admits that he has not mentioned the said figure of

wages related to coverable employees' in his inspection report.

But, it is suggested that more than 50% of the said amount of

Rs.1,22,95,246/- related to non coverable employees' and the

said suggestion was denied. But, it is clear that when the said

total amount is comprises of wages paid to both coverable and

non coverable employees' and the same ought to have been

segregated. Since, the RW1 has also categorically admitted

though he inspected the Ex.A9 during inspection and he had put

his signature and he has also categorically admits that he has

not mention the said figure of wages related to coverable

employees' in his inspection report and ought to have considered

the same and segregated the same with regard to the coverable

and non coverable employees'. Hence, without cross examining

the AW1 with regard to the document Ex.A9 and also the

admission elicited from the mouth of RW1 that the same

comprises both coverable and non coverable employees' and he

did not mention the said figure of wages related to coverable

employees' in his inspection report. The ESI Court ought not to

have dismissed the application filed by the appellant without

looking into both oral and documentary evidence. Hence, it

requires remand to ascertain the same what is the extent of the

amount covers with regard to the exempted employees' and

determine the same and after segregating the same coverable

and non coverable employees' and then consider this liability of

the appellant and unless the same is segregated and fixed by the

ESI Court, this Court cannot sit as an appellate Court and

adjudicate the same as an appellate authority under Section 82

of the ESI Act. Therefore, it requires interference. Hence, I

answer the point No.2 as Affirmative.

In view of the discussions made above, I pass the

following:

ORDER

The appeal is allowed.

The matter is remanded to ESI Court to consider the

matter afresh for the limited purpose to ascertain regarding

coverable and non coverable employees' for payment of wages

as observed in the order and dispose of the same within 3

months from the date of appearance of parties i.e., 19.09.2023.

The ESI Court is directed to give an opportunity to lead

further evidence if any in view of an observation made with

regard to Ex.A9 to both parties if desires to lead evidence.

The Registry is directed to communicate this order to ESI

Court forthwith.

The parties are directed to appear before the ESI Court on

19.09.2023 without expecting any notice.

Sd/-

JUDGE

RHS