Karnataka High Court

The Joint Regional Director vs M/S. Creative Dresses Pvt. Ltd on 17 February, 2025

   IN THE HIGH COURT OF KARNATAKA AT BENGALURU

       DATED THIS THE 17TH DAY OF FEBRUARY, 2025

                        PRESENT

        THE HON'BLE MRS. JUSTICE ANU SIVARAMAN

                          AND

       THE HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL

MISCELLANEOUS FIRST APPEAL NO. 3716 OF 2017 (ESI)

BETWEEN:

THE JOINT REGIONAL DIRECTOR
ESI CORPORATION
No.10, BINNY FIELDS
BINNYPET
BENGALURU-23
                                            ...APPELLANT
(BY SRI. NARASIMHA SWAMY N.S., ADVOCATE)

AND:

M/s. CREATIVE DRESSES PVT. LTD.
No.50 B1, 50 C1
BOMMASANDRA INDUSTRIAL AREA
HOSUR ROAD
BENGALURU-560 099
BY ITS MANAGING DIRECTOR
MR. ABHISHEK AGARWAL
                                           ...RESPONDENT
(BY SRI. JOSEPH KANIKARAJ, ADVOCATE)

     THIS MFA IS FILED U/S 82(2) OF EMPLOYEES STATE
INSURANCE ACT, 1948, AGAINST THE ORDER DATED 31.01.2017
PASSED IN ESI APPLICATION No.53/2011 ON THE FILE OF THE
EMPLOYEES STATE INSURANCE COURT, BENGALURU, PARTLY
ALLOWING THE APPLICATION FILED UNDER SECTION 75 OF THE
ESI ACT, 1948.
 -

                                2




      THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT     ON   04.02.2025  AND  COMING   ON   FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, ANU SIVARAMAN
J., PRONOUNCED THE FOLLOWING:

CORAM:    HON'BLE MRS. JUSTICE ANU SIVARAMAN
          and
          HON'BLE MR. JUSTICE VIJAYKUMAR A. PATIL

                       CAV JUDGMENT

(PER: HON'BLE MRS. JUSTICE ANU SIVARAMAN)

This MFA is filed by the appellant - ESI assailing the

order dated 31.01.2017 passed by the Employees State

Insurance Court, Bengaluru in E.S.I. Application

No.53/2011.

2. We have heard Shri. N.S. Narasimha Swamy,

learned counsel appearing for the appellant and Shri. Joseph

Kanikaraj, learned counsel appearing for the respondent.

3. Respondent - Establishment is a Company

covered under the Employees State Insurance Act, 1948

('ESI Act' for short) engaged in manufacturing of Dress

Materials business. They have not paid the contribution from

January 2007 to March 2009. The same was observed on

verification of records on 13.08.2010, 07.09.2010 and

09.09.2010. A detailed inspection report along with the

additional remarks was sent to regional office.

Subsequently, appellant issued a show-cause notice dated

04.11.2010 to respondent, proposing to determine the

contribution under Section 45-A of ESI Act. Respondents

were given opportunity of personal hearing and called upon

to produce the records and an order under Section 45-A of

ESI Act was passed on 02.05.2011 assessing the

contribution of Rs.29,18,281/-. The said order was

challenged by the respondent. On 29.08.2011, appellant

authority passed a detailed order and rejected the appeal.

Respondent has approached the ESI Court and sought to set

aside the order dated 31.01.2007, has partly allowed the

said application, restoring the quantum of contribution due

to Rs.50,000/- only.

4. The learned counsel appearing for the appellant

submits that the contribution amount of Rs.29,18,281/-

claimed for the period from 2006 to 2008 was regular

contribution, in respect of the amount spent towards

payment of wages of laborers.

5. The respondent had been issued with a show-

cause notice dated 04.11.2010. The respondent failed to

utilize the opportunity to produce records and prove that the

amount of Rs.3,84,58,357/- booked after the manufacturing

process started w.e.f. 01.01.2007 was actually spent before

the commencement of manufacturing process as contended

by the respondent. Accordingly, contribution was worked

out at Rs.24,99,794/-. He further contended that respondent

spent a sum of Rs.77,72,171/- only towards material and

labour charges. The nomenclature indicates both material

and labour are involved, but the respondent failed to

produce bifurcation figures of labour and material. Hence,

25% of the said expenditure was treated as labour charges

and a sum of Rs.1,26,298/- was treated as contribution due.

Contribution was claimed in the Labour element involved in

the accounting heads "Furniture and Fixtures" and "Plant

and Machinery" which was worked out at Rs.35,510/- plus

Rs.8,619/-.

6. Further, it is contended that as verified from the

records of the respondent, a sum of Rs.3,48,68,207/- was

spent by the respondent, before the commencement of the

manufacturing process i.e., 01.01.2007. This amount being

spent before the commencement of the manufacturing

process, no contribution was determined or claimed. In the

absence of production of relevant records by the respondent

to dislodge the order under Section 45-A of the Act, the

order needs to be upheld and recovery to be allowed. He

further contends that the trial Court is not justified in not

considering the evidence in proper perspective. The trial

Court has not given any justification for reducing the claim

of contribution from Rs.24,99,794/- to 50,000/-. The Trial

Court order is arbitrary and not reliable on any of the

provisions under the ESI Act. Therefore, by virtue of Section

45-A(2) of the ESI Act, the 45-A order dated 02.05.2011

and appellate order dated 29.08.2011 passed by the

statutory authorities prevails.

7. In support of his contention, he has relied on the

following judgments:-

(i) RDESIC v. South India Flour Mills(P) Ltd., reported in AIR 1986 SC 1686;

(ii) ESIC v. Harrison Malayalam Pvt. Ltd., reported in (1993) 4 SCC 361;

(iii) ESIC v. The Central Press and another reported in (1977) 2 SCC 581; and

(iv) RDESIC v. P.R Packaging Company and Others reported in 2001 (2) KLLR 1026.

8. The learned counsel appearing for the respondent

however submits that all the aspects raised by the appellant

are appropriately considered by the ESI Court and that the

findings recorded are perfectly legal and justified. It is

further contended that an appeal under Section 82(2) of the

ESI Act is maintainable only on a substantial question of law.

It is submitted that as far as the present case is concerned

all that is raised in the appeal are questions of facts and

there is no question of law raised, much less a substantial

question of law and therefore the appeal itself would not be

maintainable. It is further submitted that it was in the

peculiar facts and circumstances of the instant case that the

determination has been made by the ESI Court and that

there is absolutely no fault committed by the said Court.

9. We have considered the contentions advanced.

We notice that the specific contentions raised by the parties

have been considered by the ESI Court. The ESI Court

specifically found that the manufacturing process started

only on 01.01.2007. Each head of account on which

contribution was claimed was specifically examined by the

ESI Court with reference to the oral and documentary

evidence adduced. After considering the statutory

provisions and the binding precedents, the ESI Court held as

follows:-

"40. Therefore, considering the Section 2(22), Section 2(9), 2(12) & Section 2(14)(AA) of the Act, the applicant establishment does not come fall within the scope of ESI provisions protract the ESI coverage and not claim the contribution. As the factory was not manufacturing prior to 01.01.2007, the law mandates under the ESI provisions and Factories Act, that there should be manufacturing activities, preliminary or incidental to the establishment work. Hence, considering