Karnataka High Court

The Assistant Director vs M/S Sansera Engineering P Ltd on 30 July, 2025

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                                                     MFA No. 3687 of 2016


                   HC-KAR



                     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                            DATED THIS THE 30TH DAY OF JULY, 2025

                                           BEFORE
                                                                             R
                    THE HON'BLE MR. JUSTICE RAMACHANDRA D. HUDDAR
                   MISCELLANEOUS FIRST APPEAL NO. 3687 OF 2016 (ESI)


                   BETWEEN:

                   THE ASSISTANT DIRECTOR
                   ESI CORPORATION
                   REGIONAL OFFICE (KARNATAKA)
                   NO.10, BINNYFIELDS
                   BINNYPET, BANGALORE-560 023
                                                          ...APPELLANT
                   (BY SRI. KUMAR M.N, ADVOCATE)

                   AND:

                   M/S. SANSERA ENGINEERING P. LTD
                   261/C, BOMMASANDRA INDUSTRIAL AREA
                   HEBBAGODI POST, ANEKAL TALUK
                   BANGALORE DISTRICT
                                                            ...RESPONDENT
Digitally signed
by ANJALI M
Location: High     (BY SRI. SOMASHEKAR, ADVOCATE - [VIDEO CONFERENCE])
Court of
Karnataka

                        THIS MFA IS FILED U/S 82(2) OF EMPLOYEES STATE
                   INSURANCE ACT AGAINST THE JUDGMENT DATED:29.2.2016
                   PASSED IN E.S.I. APPLICATION NO.34/2008 ON THE FILE OF
                   THE EMPLOYEES STATE INSURANCE COURT, BENGALURU,
                   PARTLY ALLOWING THE APPLICATION FILED U/SEC 75 OF THE
                   ESI ACT, 1948.
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                                               NC: 2025:KHC:29355
                                             MFA No. 3687 of 2016


HC-KAR



     THIS MFA HAVING BEEN RESERVED FOR JUDGMENT,
COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT,
DELIVERED/PRONOUNCED THE FOLLOWING:


CORAM:         HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR

                           CAV JUDGMENT

(PER: HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR)

This Court is called upon to adjudicate upon this

Miscellaneous First Appeal preferred under Section 82(2)

of Employees State Insurance Act, 1948 (in short `the ESI

Act') at the instance of the Employees State Insurance

Corporation (hereinafter referred to as `Corporation')

assailing the legality and correctness of the order dated

29.02.2016 passed by the learned ESI Court, Bengaluru in

ESI Application No.34/2008. The impugned order, while

partly allowing the application filed by the respondent-

employer, reduced the statutory contribution demand

raised under Section 45-A of the ESI Act from

Rs.13,52,825/- to Rs.3,50,000/-.

2. The facts material for the disposal of this appeal

are not in serious dispute. The respondent is a private

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limited company engaged in the manufacture of

automobile components and is operating from multiple

units within the jurisdiction of ESI Corporation, Bengaluru.

It is admitted that, the respondent is a factory within the

meaning of Section 2(12) of the ESI Act, and, therefore,

squarely falls within the ambit of the Act.

3. During the course of inspection of records, the

Corporation found that, for the period from April 1999 to

March 2005, the respondent had engaged contractors for

various construction works, maintenance and repair

activities within its factory premises. However, no

contribution had been paid in respect of the labour

engaged in such activities nor were relevant wage records

or registers furnished despite multiple opportunities.

Corporation having formed an opinion that, respondent

had failed to comply with its statutory obligation,

proceeded to invoke the powers under Section 45-A of the

Act and passed an order determining contribution payable

in a sum of Rs.13,52,825/-.

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4. The impugned demand was challenged by the

respondent before the ESI Court primarily on the ground

that, the workers engaged for construction and repair

works were not under the control and supervision of the

respondent and that the amounts paid to the contractors

included substantial material costs rendering the labour

component indeterminate. It was further urged that, the

assessment was adhoc and lacked a rational basis.

5. The ESI Court, while recording a finding that,

the demand appear to include non-wage element,

proceeded to reduce liability from Rs.13,52,825/- to

3,50,000/- without assigning any precise calculation or

logic for the said quantification. It is this act of reduction

unsupported by evidentiary material or statutory rationale,

which forms the core grievance of the present appeal.

6. This Court has meticulously considered the rival

submissions advanced on behalf of both the parties and

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has perused the records in detail. Upon such

consideration, the following issues arise for adjudication:

(i) Whether the labourers engaged through contractors for construction and repair works undertaken within the factory premises are to be treated as `employees' within the meaning of Section 2(9) of ESI Act?

(ii) Whether the order passed by the Corporation under Section 45-A of the Act was validly made in accordance with law particularly in view of respondents failure to furnish necessary records.?

(iii) Whether the ESI Court was justified in modifying the statutory demands in the absence of cogent evidentiary basis or alternative computation?

(iv) What order is to be made in the facts and circumstances of this case?

7. It is imperative at the threshold to recall the

scheme and object of the ESI Act, 1948. The Act is a social

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welfare legislation designed to confer certain benefits upon

employees in case of sickness, maternity, employment

injury and related contingencies and for ensuring medical

care to insured persons and their family members. It is

well settled that the provisions of such a welfare statute

should be construed liberally to advance its beneficent

purpose and not in a manner that defeats its statutory

intent.

8. Turning to the first issue (supra), the

expression `Employee' under Section 2(9) of the Act has

been defined in conclusive and expansive terms. It not

only encompasses persons directly employed by the

Principal Employer but, also includes persons employed

through an immediate employer (such as a contractor) so

long as they are engaged in connection with the work of

the factory or establishment or work which is incidental or

preliminary to or connected with the main work of the

factory.

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9. In the instant case, the respondents are to

exclude the construction workers on the ground that they

were engaged by independent contractors and that their

work did not constitute regular factory activity. This

argument is devoid of merit. It is well established that,

construction and maintenance work undertaken for the

expansion or operational upkeep of the factory premises of

the factory are not alien or external to the functioning of

manufacturing unit. On the contrary, such works are

integral to the continuity, efficiency and safety of the

factory's operations.

10. The construction of additional sheds, installation

of new units, renovation of existing structures and

replacements to support utility systems are all activities

intimately connected with the efficient running of the

factory. Such works cannot be compartmentalized as non-

core or detached for the purpose of the establishment.

Therefore, persons employed in such work even though

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from contractors even they fall in the ambit of definition of

`Employee' under Section 2(9) of the Act.

11. As regards the second issue supra, the power

vested in the Corporation under Section 45-A is a

statutory mechanism designed to safeguard the integrity

of social securities system against non-co-operation of

employers. When an employer fails to submit report,

maintain records, obstructs the Corporation from verifying

compliance, Section 45-A empowers the Corporation to

determine the contribution payable based on the available

information and reasonable estimates.

12. In the present case, the records clearly

demonstrate that the respondent was provided sufficient

opportunities to furnish requisite details of the payments

made to the contractors including bifurcation of labour and

material components. Despite this, no such details are

provided. In such circumstances, the Corporation upon

evaluating the nature of work and based on prevailing

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wage patterns and internal assessments, estimated 25%

of the contractor payments to represent labour component

and computed contribution accordingly.

13. This Court finds no infirmity in the method

adopted by the Corporation. When an employer withholds

material records, it cannot later be heard to complain that

the assessment was speculative. The law does not permit

a defeating party to take advantage of its own wrong. The

statutory presumption under Section 45-A of the Act is not

merely procedural; it has substantial legal force and must

be given due weight.

14. On the third issue, the approach adopted by the

learned ESI Court is found to be perverse. The Court has

not recorded any finding to the effect that, the `Labour'

Component was less than 25% nor has it relied on any

contrary material or expert testimony. There is no

computation offered to support the revised figure of

Rs.3,50,000/- A judicial authority cannot indulge in

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conjectural quantification especially, when dealing with

statutory dues under a welfare legislation. Such

arbitrariness defeats the purpose of the Act and

undermines the powers conferred upon the Corporation.

15. The reduction of demand by nearly 75%

without any basis not only lacks legal justification but, also

sets a dangerous precedent whereby employers may feel

emboldened to suppress records and escape liability

through evasive tactics. Such an approach is neither

legally tenable nor socially desirable.

16. In summation, this Court is of the clear and

considered opinion that, the order passed by the ESI Court

modifying the demand is legally unsustainable and calls for

interference. The determination made by the Corporation

was in accordance with the statutory framework and

supported by the facts available. The respondent had

every opportunity to rebut the demand by furnishing the

records, but, failed to do so.

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17. The learned counsel for the appellant relied

upon Division Bench Judgment of this Court where, I am

one of the member i.e. in Misc.First Appeal No.7749/2013

(ESI) and submits that, in similar situation the Division

Bench of this Court has categorically discussed with regard

to the provisions of Section 45-A of the ESI Act. The

observation with regard to the said provision is found at

para.31 and 32 of the said judgment. They read as under:

"31. Considering Section 45A of the Act, the Hon'ble Supreme Court in para 15 of the judgment in C.C.Santhakumar's case referred to supra held that the order under Section 45A(1) of the Act shall be used as sufficient proof of the claim of the Corporation. It was further held that when there is a failure in production of records and when there is no cooperation, the Corporation can determine the amount and recover the same as arrears of land revenue under Section 45B of the Act.

32. In the present case since the records were not produced before the Corporation during determination under Section 45A of the Act, the ESI Court had to accept such determination unless and until the same was disproved by the appellant. Therefore the question is whether the appellant had let in such evidence to disprove the determination made by respondents under the order under Section 45A of the Act."

18. The said observation squarely applies to the

present facts of the case.

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19. In conclusion, for the reasons stated above, this

appeal deserves to be allowed and the impugned order

passed by the ESI Court is liable to be set aside and the

order passed by the Corporation under Section 45-A of the

ESI Act is to be restored.

20. Resultantly following :

ORDER

(i) Appeal is allowed.

(ii) Order dated 29.2.2016 passed by the ESI

Court, Bengaluru in ESI Application No.

34/2008, is hereby set aside.

(iii) The contribution demand raised by the

Corporation under Section 45-A of the ESI

Act, in a sum of Rs.13,52,825/- is

restored.

(iv) The respondent is directed to pay the said

amount to the Corporation within a period

of eight weeks from the date of receipt of

this Judgment. If the amount is not paid