Kerala High Court
M/S House Master Facility Management ... vs E.S.I Corporation on 14 July, 2025
Ins.Appeal No.2 of 2025
1
2025:KER:51562
CR
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE M.A.ABDUL HAKHIM
MONDAY, THE 14TH DAY OF JULY 2025 / 23RD ASHADHA, 1947
INS.APP NO. 2 OF 2025
AGAINST THE ORDER DATED 30.10.2024 IN EIC NO.19 OF 2021 OF E.I.COURT,
KOZHIKODE
APPELLANT/APPLICANT
M/S HOUSE MASTER FACILITY MANAGEMENT SERVICES PVT. LTD
CHUNGAM, WEST HILL, CALICUT, REPRESENTED BY ITS MANAGING
DIRECTOR, SRI. TOMY JOSEPH., PIN - 673005
BY ADVS.
SRI.R.MURALEEDHARAN
SHRI.JIMMY GEORGE
DR.ANIES GEORGE
RESPONDENT/OPP. PARTY:
E.S.I CORPORATION
SUB REGIONAL OFFICE, HOUSE FED COMPLEX, SASTHRI NAGAR ROAD,
ERANHIPALAM, KOZHIKODE, PIN - 673006
BY ADVS.
SHRI.T.V.AJAYAKUMAR
KUM.RIMJU P.H.
SHRI.JOTHIS CHACKO
THIS INSURANCE APPEAL HAVING BEEN FINALLY HEARD ON 14.07.2025, THE
COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
Ins.Appeal No.2 of 2025
2
2025:KER:51562
CR
JUDGMENT
1. Appellant was the Applicant before the Employees Insurance
Court, Kozhikode in E.I.C. No.19/2021. The appellant filed the
Application under Sections 75 & 77 of the Employees' State
Insurance Act, 1948 (for short 'ESI Act'), challenging Ext.P2
Actual notice dated 21.01.2020 and Ext.P3 Recovery Notice
dated 22.04.2021 before the E.I. Court. The Applicant is a
covered establishment. The Respondent-Corporation issued
Ext.P2 notice alleging that the Applicant is liable to pay
contribution for the omitted wages for the period from 03.2017
to 05.2018 demanding an amount of Rs.7,88,731/-. In Ext.P2
notice, the Respondent alleged that the total wages for the said
period is Rs.1,26,86,776/-, the total contribution payable is
Rs.8,24,641/-, the contribution paid is Rs.35,910/- and the
balance contribution payable is Rs.7,88,731/-. The Applicant
2025:KER:51562
was given an opportunity of hearing to appear on 19.02.2020 at
10.30 a.m. Thereafter, the Respondent issued Ext.P3 C-19
notice to the Recovery Officer of the Respondent to recover
Rs.7,88,731/- + interest @ 12% per annum from 21.04.2017
from the Applicant. A copy of the said notice was marked by the
Applicant.
2. The Applicant challenged Exts.P2 & P3 on the ground that the
Respondent initiated the proceedings against the Applicant
establishment without observing the mandatory provisions
under Section 45A of the ESI Act. It is alleged that no
opportunity of hearing was granted and Exts.P2 & P3 notices
were issued without passing a speaking order as contemplated
under Section 45A of the ESI Act.
3. The Respondent defended the Application by contending that
Ext.P2 notice was issued demanding contribution of
Rs.7,88,731/- for the period from 03.2017 to 05.2018, affording
2025:KER:51562
opportunity for personal hearing on 19.02.2020 to raise
objection, if any, against the assessment of contribution. But the
Applicant neither attended the personal hearing nor submitted
any objection to the proposed assessment even after receipt of
Ext.P2 notice. The contribution claimed in Ext.P2 was prepared
on the basis of salary register in the computer system
maintained at the head office of the Applicant; that the
contribution payable was not assessed on the basis of assumed
wages but assessed on the ESI Actual wages reflected by the
salary register maintained by the Applicant and hence there is
no need to issue separate order under Section 45A of the ESI
Act.
4. The E.I. Court dismissed the Application holding that the
Respondent afforded ample opportunity to the Applicant for
personal hearing and the same was not availed by the
Applicant; that the Applicant has not adduced any reliable
2025:KER:51562
evidence to prove their contention with regard to the payment of
wages made to their employees at Kozhikode office and that the
Applicant has not explained the reasons for their non-
appearance in the personal hearing nor for the non-production
of documents.
5. This Court formulated the following substantial question of law
in this Appeal:
1. Whether the Employees Insurance Court is justified in
dismissing the Application filed by the appellant in the
absence of a determination order under Section 45A of
the Employee's State Insurance Act, 1948.
6. I heard the learned counsel for the appellant, Sri.
Muraleedharan R., and the learned counsel for the Respondent,
Sri. T.V. Ajayakumar.
7. The learned counsel for the appellant contended that in view of
the specific provision under Section 45A of the ESI Act, passing
2025:KER:51562
of a determination order is mandatory before issuance of C-18
& C-19 notices. Admittedly, in the present case, the Respondent
has not issued any determination order as required under
Section 45A of the ESI Act. The evidence would reveal that no
effective opportunity of hearing was afforded to the Applicant for
providing his objection against the demand of additional
contribution alleging omitted wages. Hence, the E.I. Court
should have allowed the Application filed by the Applicant
setting aside Ext.P2 C-18 notice & Ext.P3 C-19 notice. The
learned counsel relied on the decisions of the Bombay High
Court in Employees State Insurance Corporation v. M/s. P.Y.C. Hindu
Gymkhana in First Appeal No.2372/2011 and Paramount Agencies Pvt.
Ltd. v. The Deputy Regional Director, E.S.I. Corporation in First Appeal
No.651/2003, the Division Bench decision of the Patna High Court
in Civil Writ Petition No.6882/2014 and the judgment of the learned
Single Judge of this Court in W.P.(C) No.4510/2018 in support of his
2025:KER:51562
contentions. Learned Counsel concluded the submissions by
praying to allow the appeal, allowing the Application before the
E.I. Court and answering the substantial question of law in
favour of the appellant.
8. Per contra, the learned counsel for the Respondent-Corporation
contended that a determination order under Section 45A of the
ESI Act is not required in all cases where contribution is
demanded. The learned counsel pointed out that Section 45A
was incorporated in the ESI Act by the Amendment Act of 1966.
The heading of the Section itself would reveal that it is the
determination of contributions only in certain cases. The
determination under Section 45A of the ESI Act is required only
in case the conditions in the said provision are attracted. There
is no need to pass a determination order when the contribution
is assessed on an actual basis by issuing C-18 (Actual) Notice
relying on the records maintained by the employer himself. The
2025:KER:51562
determination of contribution is required only in the case of C-
18 Adhoc notice. The learned counsel relied on the decisions of
the Hon'ble Supreme Court in ESI Corporation v. Hotel Kalpaka
International [1993 (1) KLT 281] and E.S.I.C. v. C.C. Santhakumar [(2007)
1 SCC 584], the decisions of the Punjab and Haryana High Court
in Narula Enterprises, Ludhiana v. Employees' State Insurance
Corporation, Chandigarh [F.A.F.O. No.176/1980] and Employees State
Insurance Corporation, Chandigarh v. T.C. Vermani [1984 LIC 1406], the
decision of the Madras High Court in The Regional Director of
Employees State Insurance Corporation v. Amalgamation Repco Ltd.
[1982 2 MLJ 126], the Division Bench decision of this Court in
Regional Director, E.S.I. Corporation v. Fashion Fabrics [1990 (2) KLT
713], the decision of the High Court of Delhi in Bombay Ammonia
Private Limited v. Employees State Insurance Corporation [1995 (3) LLJ
848 ] and the decision of the High Court of Andhra Pradesh in
Hind Metal Industries, Hyderabad v. Employees' State Insurance
2025:KER:51562
Corporation, Hyderabad [CMA No.219/1992] in support of his
contentions. The learned counsel contended that the decision
of the learned Single Judge of this Court in W.P. (C) No.4510/2018
was rendered without considering the binding decisions of the
Hon'ble Supreme Court on the point. The learned counsel
concluded the argument, praying to dismiss the appeal,
answering the substantial question of law in favour of the
Respondent - Corporation.
9. I have considered the rival contentions.
10. It is a pure question of law which is to be decided in this appeal
with reference to Section 45A of the ESI Act.
11. Let me first examine the precedents cited by the counsel on
either side.
12. In P.Y.C. Hindu Gymkhana (supra), the Bombay High Court upheld
the finding of the Trial Court that in the absence of any order
under Section 45A of the ESI Act, recovery proceedings cannot
2025:KER:51562
be issued; that Section 45A of the ESI Act provides for a
reasonable opportunity of being heard before passing an order
under Section 45A of the ESI Act and that admittedly there is no
order passed under Section 45A of the ESI Act and therefore no
recovery could have been issued. In Paramount Agencies Pvt. Ltd.
(supra), the Bombay High Court held that it is the ESI Corporation
that has to give an opportunity of hearing as contemplated in
Section 45A of the ESI Act while determining the amount of
contribution in respect of conveyance allowance. The learned
counsel contended that the said decision also mandates a
determination under Section 45A of the ESI Act. In Civil Writ
Petition No.6882/2014 (supra), the Division of the Patna High Court
considered whether determination of the amounts due as
contributions under the ESI Act, as per Section 45A of the ESI
Act would be required mandatorily in circumstances where the
Social Security Officer had conducted an inspection in the
2025:KER:51562
premises of the employer and proceeded on the basis of
admitted record maintained by the employer. The learned Single
Judge of the Patna High Court decried the recovery
proceedings without determination of contribution under Section
45A, which admittedly was not preceded by any opportunity of
hearing to the Applicant. The Division Bench of the Patna High
Court dismissed the appeal against the judgment of the Single
Bench, finding that the statutory requirement has not been
complied with. After referring to the Revenue Manual issued
strictly for official use by the headquarters of the Employees
State Insurance Corporation which provided for Form C-18
(Adhoc) notice and Form C-18 (Actual) Notice, it is held that
whether the notice is on adhoc or on actual basis, there should
be a well-reasoned speaking order under Section 45A of the ESI
Act preceded by the mandatory requirement affording employer
a reasonable opportunity of being heard as per the Manual
2025:KER:51562
itself. In W.P. (C) No.4510/2018, the learned Single Judge of this
Court considered the challenge against the recovery of short
payment of contributions on the ground that unpaid/short-paid
contributions have to be determined under Section 45A, which
contemplates an order passed by the Corporation for
unpaid/short-paid contributions and allowed the Writ Petition
remitting the matter back to the ESI Corporation for passing
order under Section 45A for the alleged short payment of
contribution holding that on proper construction of Section 45A
and 45AA, it may be said that the payable contribution has to be
determined only by an order passed under Section 45A and the
Corporation cannot say that on the basis of the documents
submitted by the employer of a factory or establishment, the
amount has been arrived at for payable contribution; that
payable contribution would include short payment of the
contribution besides the non-payment of the contribution; and
2025:KER:51562
that if there is short payment or non-payment of the contribution,
that amount has to be determined under Section 45A by an
order passed by the Corporation/competent authority.
13. Learned Counsel for the Respondent cited the decision of the
Hon'ble Supreme Court in Hotel Kalpaka International (supra) to
contend that payment of contribution is statutory and hence the
employer has to pay the contribution even without any notice or
order. It is held in the said decision that notice calling upon to
pay the contribution is only a reminder to the employer to
discharge his statutory obligation. The said decision does not
specifically deal with the question whether determination order
under Section 45A is required for initiating recovery
proceedings. In Santhakumar (supra), the Hon'ble Supreme Court
was considering the question of limitation provided in the
Proviso to Explanation (b) of Section 77(1A) of the ESI Act. The
learned counsel for the Respondent is relying on certain
2025:KER:51562
observations of the Hon'ble Supreme Court in the said decision
to contend that the order under Section 45A is required only in
certain cases mentioned therein and not in all cases. It is
observed in the said decision that Section 45A of the ESI Act
contemplates a summary method to determine contribution in
case of deliberate default on the part of the employer. Section
45A provides for determination of contributions in certain cases;
that when the records are not produced by the establishment
before the Corporation and when there is no cooperation, the
Corporation has got the power to make assessment and
determine the amount under Section 45A and recover the said
amount as arrears of land revenue under Section 45B of the ESI
Act; that where the records are produced, the assessment has
to be made under Section 75(2)(a) of the ESI Act; that when
there is a failure in production of records and when there is no
cooperation, the Corporation can determine the amount and
2025:KER:51562
recover the same as arrears of land revenue under Section 45B,
but, on the other hand, if the records are produced and if there
is cooperation, the assessment has to be made and it can be
used as a sufficient proof of the claim of the Corporation under
Section 75 before the ESI Court. This decision also is not an
answer to the question involved in this Appeal as to whether a
determination order is required in all cases of recovery of
contributions on omitted wages. But the finding that if the
records are produced and if there is cooperation, the
assessment has to be made and it can be used as sufficient
proof of the claim of the Corporation would indicate that in such
a case, the determination order under Section 45A is not
required. In Narula Enterprises (supra), the Punjab and Haryana
High Court considered the decisions of various High Courts and
held that even without receiving demand notice, the Applicant
was under a statutory duty to deposit the employer's as well as
2025:KER:51562
employees' contribution under Sections 39 and 40 of the ESI
Act. In T.C. Vermani (supra), the Punjab and Haryana High Court
held that there is no provision under the ESI Act which enjoin
the duty on the Corporation to keep on informing the factory
owners that they are covered under the ESI Act; that the
Corporation is not their advisor; that the duty is enjoined on the
principal employer of the factory the moment it stands covered
by the provisions of the ESI Act and for that matter to deduct the
employees' contributions from their pay and send the same to
the Corporation along with the employers' contribution; that if
the employer fails to deduct the employees' contribution, no fault
can be found with the Corporation; and that Section 40 of the
ESI Act places responsibility to pay the contributions on the
principal employer. These decisions of the Punjab and Haryana
High Court deal with payment of regular contribution and do not
deal with the demand of additional contribution by the ESI
2025:KER:51562
Corporation over and above the contributions paid by the
employer. In Amalgamation (supra), the Madras High Court held
that contribution under Employees' State Insurance is leviable
under Section 39 of the ESI Act by which the management is
liable to contribute on its own accord and such payment is not
made conditional on any demand by the Employees' State
Insurance Corporation. In Fashion Fabrics (supra), the Division
Bench of this Court held that the liability to pay the entire
contribution under Section 39 is with the employer; that the
mandatory obligation fastened by the ESI Act under Section 39
read with Section 40; that Section 40(1) of the ESI Act says that
the principal employer shall pay in respect of every employee,
whether directly employed by him or by or through an immediate
employer, both the employer's contribution and the employee's
contribution and that the circumstances that it was not detected
at the appropriate time by the ESI Corporation will not absolve
2025:KER:51562
the employer from its liability to pay the contribution. In Hind Metal
Industries (supra), the High Court of Andhra Pradesh held that to
expect that every time if any due is found from an employer
liable to contribute to determine the contribution under Section
45A of the ESI Act appears to be totally alien to the provisions
therein and if such argument is accepted, it may mean that the
persons liable to contribute may keep quiet and every time the
corporation should determine the amount to recover and every
time some dispute is raised, there must be some allegation or
determination under Section 77 of the ESI Act and that cannot
be real scope of the ESI Act.
14. Out of the decisions cited before me, the decision of the Bombay
High Court in P.Y.C. Hindu Gymkhana (supra), the Division Bench
decision of the Patna High Court in Civil Writ Petition No.6882/2014
(supra) and the decision of the learned Single Judge of this Court
in W.P(C) No.4510/2018 are directly on the point. The Decisions
2025:KER:51562
cited by the learned counsel for the Respondent is not directly
on the point. Even though the learned counsel for the
Respondent contended that the decision of the learned Single
Judge of this Court in W.P(C) No.4510/2018 is rendered without
considering the binding decision of the Hon'ble Supreme Court,
I do not find any decision of the Hon'ble Supreme Court directly
on the point, which was omitted to be considered by the learned
Single Judge in W.P(C) No.4510/2018. The Respondent has no
case that the said decision in W.P(C) No.4510/2018 is varied or
modified in appeal. All these decisions say that a determination
order under Section 45A of the ESI Act is necessary before
recovery.
15. The decisions of the various High Courts cited by the learned
counsel for the Respondent relate to the payment of regular
contribution by the employer. The payment of contribution is
statutory under Sections 39 and 40 of the ESI Act. Once the
2025:KER:51562
establishment is covered under the ESI Act, the employer shall
submit regular returns as required under Section 44 and should
pay contributions as per the returns even without any notice,
demand or order from the ESI Corporation. But the situation is
different when the ESI Corporation initiates action on the basis
of an Inspection Report of the Social Security Officer under
Section 45. If an Authority acts on the basis of an Inspection
Report to fix any liability on any person, it is elementary that the
Authority shall give opportunity to such person to represent
against the proposed action after providing copy of the
inspection report and thereafter pass a speaking order
considering the representation, if any, made by such person. If
the authority arrives at a conclusion based on the inspection
report without providing an opportunity of hearing to the affected
party, the proceedings will be in violation of the principles of
natural justice. It is quite unreasonable to hold that no order is
2025:KER:51562
to be passed after providing an opportunity of hearing to the
affected party. Opportunity of hearing is provided to the affected
party to present their case against the proposed action, and in
such a case, the authority is bound to pass an order expressing
its decision on the case presented by the affected party. If no
order is to be passed after providing the opportunity of hearing,
the opportunity of hearing would be of futile exercise. Of course,
the determination order under Section 45A is not required in
cases where the ESI Corporation demands contribution on the
basis of records admitted and provided by the employer. Section
45A mandates the passing of a determination order in certain
cases covered by the said Section. Section 45A(1) of the ESI
Act is extracted hereunder for easy reference.
"45A. Determination of contributions in certain cases.
(1) Where in respect of a factory or establishment no returns,
particulars, registers or records are submitted, furnished or
2025:KER:51562
maintained in accordance with the provisions of section 44 or 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 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.
Provided further that no such order shall be passed by the Corporation
in respect of the period beyond five years from the date on which the
contribution shall become payable."
2025:KER:51562
16. An order under Section 45A of the ESI Act is required only under
two situations.
1. When no returns, particulars, registers or records are submitted,
furnished or maintained by the employer in accordance with the
provisions of Section 44.
2. When an Officer 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.
17. When an inspection is conducted by the Social Security Officer
under Section 45 and he obtains any record, it is a case of non-
production of relevant records by the employer and the same
would attract the first limb of Section 45A as there is no voluntary
submission of particulars, registers or records by the employer.
Section 45 does not authorise the Social Security Officer to pass
any order or to issue any demand. The further proceedings on
2025:KER:51562
the basis of the inspection reports are to be taken under Section
45A of the ESI Act. In such a case, a determination order under
Section 45A is mandatory. For such determination, a reasonable
opportunity of being heard is mandatory in view of the first
Proviso to Section 45A(1). Even in the absence of the Proviso,
the principles of natural justice demand to provide a reasonable
opportunity of being heard before passing any determination
order under Section 45A, resulting in adverse civil
consequences on the employer.
18. In the case on hand, as per Ext.P2 C-18 Notice, the Applicant
was given an opportunity of hearing. But at the same time,
demand is made to pay the contribution within 30 days, which
would make the opportunity of hearing meaningless. It is quite
unreasonable to assume that no order is to be passed after
giving an opportunity of hearing. Even if the Applicant does not
appear, the Respondent has to pass a determination order
2025:KER:51562
recording the refusal of the Applicant to avail the opportunity of
hearing and based on the materials before it. The Respondent
has no case that the challenge against C-18 Notice and C-19
Notice is not maintainable before the Court under Section 75 of
the ESI Act. The EI Court will not be able to understand the
basis for the demand from such Notices. Section 45AA of the
ESI Act provides for an appeal against the order passed under
Section 45A to the Appellate Authority. Only if the Respondent
passes a reasoned order under Section 45A, the Appellate
Authority will be able to adjudicate the legality of the demand,
considering the reasons stated in the order. A reasoned order
under Section 45A is mandated on this ground also.
19. Since in the present case, the Respondent is demanding
additional contribution on the allegation of omitted wages found
out in the inspection of the Social Security Officer, an order
under Section 45A of the ESI Act is mandatory after providing
2025:KER:51562
the copies of the Inspection Reports to the Applicant and after
giving an opportunity of hearing to the Applicant.
20. Accordingly, I set aside the impugned order of the EI Court and
allow the Application filed by the Applicant before the EI Court
setting aside Ext.P2 C-18 Notice and Ext.P3 C-19 Notice and
direct the Respondent to pass an Order under Section 45A of
the ESI Act after giving copies of the Inspection Reports to the
Applicant and after giving an opportunity of hearing to the
Applicant.
Sd/-
M.A.ABDUL HAKHIM
JUDGE
Jma/shg
2025:KER:51562
PETITIONER ANNEXURES
Annexure 1 CERTIFIED COPY OF THE ORDER DATED 30-10-2024 IN
E.I.C NO.19/2021 OF EMPLOYEES INSURANCE COURT,
KOZHIKODE
