Kerala High Court

The Employees State Insurance ... vs Kerala State Electricity Board Ltd on 17 March, 2025

Author: Amit Rawal

Bench: Amit Rawal

                                                       2025:KER:23676

              IN THE HIGH COURT OF KERALA AT ERNAKULAM

                              PRESENT

               THE HONOURABLE MR. JUSTICE AMIT RAWAL

                                 &

             THE HONOURABLE MR.JUSTICE K. V. JAYAKUMAR

     MONDAY, THE 17TH DAY OF MARCH 2025 / 26TH PHALGUNA, 1946

                         WA NO. 411 OF 2025

        AGAINST THE JUDGMENT DATED 11.11.2024 IN WP(C) NO.18214 OF

                    2023 OF HIGH COURT OF KERALA

APPELLANTS/RESPONDENT NOS. 1 TO4 IN WPC:

    1      THE EMPLOYEES STATE INSURANCE CORPORATION
           REPRESENTED BY DIRECTOR GENERAL, EMPLOYEES STATE
           INSURANCE CORPORATION, HEADQUARTERS, PANCHDEEP BHAVAN,
           COMRADE INDERJEET GUPTA (CIG MARG),
           NEW DELHI, PIN - 110002

    2      THE REGIONAL DIRECTOR
           THE REGIONAL OFFICE, EMPLOYEES STATE INSURANCE
           CORPORATION, PANCHDEEP BHAVAN, NORTH SWARAJ ROUND,
           TRICHUR, PIN - 680020

    3      THE DEPUTY DIRECTOR
           SUB REGIONAL OFFICE, EMPLOYEES STATE INSURANCE
           CORPORATION, PANCHDEEP BHAVAN, THYCAUD,
           THIRUVANANTHAPURAM, PIN - 695014

    4      THE RECOVERY OFFICER
           OFFICE OF THE RECOVERY OFFICER, REGIONAL OFFICE,
           EMPLOYEES STATE INSURANCE CORPORATION, DIMS OFFICE
           COMPOUND, NEAR GUEST HOUSE, THYCAUD,
           THIRUVANANTHAPURAM, PIN - 695014


           BY ADVS.
           ADARSH KUMAR
           SHASHANK DEVAN
                                                      2025:KER:23676
WA NO. 411 OF 2025

                                 2




RESPONDENT:

           KERALA STATE ELECTRICITY BOARD LTD.,
           REPRESENTED BY ITS SECRETARY (ADMINISTRATION), VYDUDHI
           BHAVANAM, PATTOM, THIRUVANANTHAPURAM, PIN - 695004


           BY ADVS.
           JOSEPH ANTONY C
           JOSEPH JOSE
           RAJU JOSEPH (SR.)(R-191)



     THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 17.03.2025,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
                                                          2025:KER:23676
WA NO. 411 OF 2025

                                    3


                               JUDGMENT

AMIT RAWAL,J.

The present Intra-Court appeal is directed against the

judgment of the Single Bench, whereby orders,Exts.P4 and P7

of the Employees State Insurance Corporation, dated

29.03.2021 and 29.04.2022, for periods from 30.03.2017 to

30.09.2017 and 01.10.2017 to 30.11.2021, have been set

aside by remanding the matter to the authority to consider

afresh by looking at the alleged register to be maintained, on

the ground that the 'immediate employer' is responsible for

the disbursement. The Kerala State Electricity Board (KSEB),

writ petitioner/ respondent herein, was brought under the

regime of the Employees State Insurance Act (hereinafter

referred to as "the ESI Act") when the department had framed

a scheme called 'SPREE Scheme' (Special Scheme for

Promoting Registration of Employers and Employees) and as

per the survey report dated 30.03.2017, was brought under

the regime of the Employees State Insurance Corporation,

and the arrears of the liability from 16.11.2014 to 15.11.2016, 2025:KER:23676 WA NO. 411 OF 2025

were considered as exempted. Though the KSEB had moved

an application for granting the exemption from the

applicability of the Act, which was rejected vide decision

dated 01.04.2017, Ext.R1(e). The KSEB had been availing the

services of the contractors having more than 20 employees

for administration, distribution, maintenance, and repair work

of the Electricity and for that purpose, entering into the

agreements. Though the agreements for the period under

question have not been placed on record before the

authorities or before the writ court, but for the first time, an

agreement of April 2022 has been placed to make out a case

of non-payment of the ESI charges, as the employees

employed by the contractor are covered under the insurance

policies taken by the contractor.

2. ESI Corporation for the period referred to above,

issued a show cause notice to the KSEB/respondent/writ

petitioner to supply the material with regard to the list of

contractual employees working by taking into consideration

the provisions of Sections 40 and 41 of the ESI Act, which 2025:KER:23676 WA NO. 411 OF 2025

provides that the liability may or may not be of the principal

employer, but, in case it is found that the employees engaged

by the contractor are not being taken care of in the absence

of an insurance cover, they have to be protected under the

regime of the ESI Act with liberty to the KSEB to deposit the

contribution and recover it from the contractor as per the

provisions of Section 41 of the Act.

3. Though, the KSEB gave a reply that they need

time to supply the list of contractors to ascertain the number

of the contractual employees engaged for the purpose of the

different nature of duties referred to above, the same was not

supplied, resulting into passing of two assessment orders,

Exts.P4 and P7 (supra), fixing a liability to the tune of

Rs.1,70,29,595/- in respect of 3020 workers and

Rs.16,40,12,977/- in respect of 4399 workers. The

aforementioned orders, concededly as per the provisions of

Section 75A of the ESI Act, are appealable before the

Insurance Court. But without availing the aforementioned

remedy, KSEB approached the writ court by assailing both the 2025:KER:23676 WA NO. 411 OF 2025

orders conjuctively and placed on record the agreement of

April 2022 and insurance cover, agreement entered with one

of the contractors. The contentions raised in the writ

petitions were that they are not liable to make the

contribution, much less the ESI Corporation does not have

any jurisdiction to initiate the proceedings as contemplated

under Section 45 of the ESI Act, for the reason that they are

neither the 'immediate employer' nor the 'principal employer'

is in the absence of any relationship of employer and

employee. It was also contended that the authorities failed to

adjudicate the issue of jurisdiction and decided the matter on

merits, therefore, alternative remedy would have been a

farcical exercise.

4. The stand of the ESI throughout before the

authorities as well as before the writ court was that umpteen

number of opportunities were granted to the KSEB for supply

of following materials:

1. List of the workers.

2. List of the contractors.

3. Wages register vis-a-vis the permanent and contractual 2025:KER:23676 WA NO. 411 OF 2025

employees to deal with the question of jurisdiction or any

exigibility under the provisions of the ESI Act.

5. The learned Single Bench, noticing that the liability

is of the immediate employer, ie., the contractor, quashed

Exts.P4 and P7 and remitted the matter to the authority to re-

adjudicate the issue in the absence of availability of the data,

ie., the number of the contractual workers for the particular

period.

6. Adv. Adarsh Kumar, the learned counsel appearing

on behalf of the appellant, submitted that while giving the

finding in paragraph 16, the learned Single Bench, failed to

adjudicate the following legal issue:

i). Provisions of Section 41 of the ESI Act protects

the right of the principal employer to recover the amount

from the immediate employer. In other words, the

principal employer cannot feel agitated, as it is only to

protect the contractual employees in the absence of

insurance coverage by depositing the contribution and

recovering it by raising the demand from the contractor, 2025:KER:23676 WA NO. 411 OF 2025

owing to the fact that it is a primary liability.

In support of the aforementioned contention,

relied upon the judgment of the Supreme Court in

Employees' State Insurance Corporation v.

Harrison Malayalam Pvt.Ltd.[(1993)4 SCC 361] and

Employees' State Insurance Corporation v.

Harrison Malayam Ltd. (1998 KHC 1394 SC).

ii) The agreement placed on record is of 2022

and not of the period involved in the present case. Had

the material been examined, it would have been referred

to in the order subject to judicial scrutiny.

Iii) The writ petition was not maintainable in the

absence of non-availability of the alternative remedy as

provided under Section 75 of the ESI Act.

iv) No additional material as sought to be urged

before the Single Bench and Before this Court had been

placed on record in support of the findings given by the

learned Single Bench.

2025:KER:23676 WA NO. 411 OF 2025

7. On the contrary, Adv. Raju, learned senior counsel

submitted that the authorities failed to adjudicate the issue of

jurisdiction as time and again requests were sent for

collecting the data with regard to the list of contractors. But

the authorities did not grant ample opportunity or time to

collate the data and provide the same.

8. Issue of jurisdiction was the core issue decided as a

preliminary instead of addressing the issue on merits. The

agreement entered with the contractor, Ext.P6, ex facie

reveals that there was no relationship of employer and

employee with regard to the contractual employees, as a

lumpsum amount is being paid to the contractor. It is the

contractor, ie., the immediate employer, who is responsible

for disbursement. Both the impugned orders are based upon

the figment of imagination much less the list of employees

submitted by the Employees Association without verifying

actual data.

9. We have heard the learned counsel for the parties

and appraised the paper book.

2025:KER:23676 WA NO. 411 OF 2025

10. No doubt there is some merit in the arguments on

behalf of the KSEB in not adjudicating the issue of jurisdiction,

but the fact remains the issue of jurisdiction cannot solely be

dependent upon the objection, it has to be supported by

some materials like:

1. Agreement to sell for a particular period, ie.,

01.10.2017 to 30.11.2021 and 30.03.2017 to

30.09.2017, as well as the insurance coverage.

2. Wages register of the permanent/contractual

employees which may prima facie establish that the

KSEB was not responsible in making the payment of the

wages to the contractual employees.

3. Whether the contractual employees were liable to be

reimbursed in case of any accident the expenses to the

employers having employment of more than 20 or less

workers.

11. On perusal of the orders under challenge before

the writ court, it is found that the proceedings before the

competent authority continued for more than three months, 2025:KER:23676 WA NO. 411 OF 2025

but the stand of the KSEB had been that they need time to

collate the documents and supply the list of documents, but

the said documents had not seen in the light till the passing

of impugned order. Even before the writ court, a fainted

attempt had been made to place on record an agreement of

2022, which has no relevancy as the liabilities in question is

of a different period.

12. It would be also apposite to extract paragraph 16

of the judgment under challenge:

"Going by Section 41 of the ESI Act, the basic liability is on the immediate employer, even though a principal employer has the liability to recover and to pay contribution from the immediate employer. The immediate employer is bound to maintain a register of employees engaged by him. In the case of the petitioner, the respondents have not taken any steps to gather such details. In the afore circumstances, I am of the view that the respondents shall reconsider the assessments made as per Ext.P4 and P7 after giving an opportunity of hearing to the petitioner."

13. Sections 40 and 41 of the ESI Act also need to be

extracted. The same reads as follows:

40. Principal employer to pay contributions in the first instance.-- (1) The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an 2025:KER:23676 WA NO. 411 OF 2025

immediate employer, both the employer's contribution and the employee's contribution.

(2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, made thereunder, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employee's contribution by reduction from his wages and not otherwise :

Provided that no such deduction shall be made from any wages other than such as relate to the period or part of the period in respect of which the contribution is payable] or in excess of the sum representing the employee's contribution for the period.

(3) Notwithstanding any contract to the contrary, neither the principal employer nor the immediate employer shall be entitled to deduct the employer's contribution from any wages payable to an employee or otherwise to recover it from him.

(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted.

(5) The principal employer shall bear the expenses of remitting the contributions to the Corporation.

41. Recovery of contributions from immediate employer.-- (1) A principal employer, who has paid contribution in respect of an employee employed by or through an immediate employer, shall be entitled to recover the amount of the contribution so paid (that is to say the employer's contribution as well as the employee's contribution, if any,) from the immediate employer, either by deduction from any amount payable to him by the principal employer under any contract, or as a debt payable by the immediate employer.

[(1-A) The immediate employer shall maintain a register of employees employed by or through him as provided in the regulations and submit the same to the principal employer before the settlement of any amount payable under sub- section (1).] 2025:KER:23676 WA NO. 411 OF 2025

(2) In the case referred to in sub-section (1), the immediate employer shall be entitled to recover the employee's contribution from the employee employed by or through him by deduction from wages and not otherwise, subject to the conditions specified in the proviso to sub-section (2) of section 40."

14. On perusal of Section 41 of the ESI Act, it is

evident that no harm and prejudice is caused to any principal

employer who pays the contribution under the ESI in respect

of the contractual employees who had been employed by the

contractor (immediate employer) and raise a claim/demand to

the contractual employees. But the question which arises for

adjudication is the number of the employees. The alleged

admission in respect of an order passed in respect of the

period from 30.03.2017 to 30.09.2017 of employing 3020

contractual employees, though, had not been seriously

disputed in the grounds of writ petition, but the fact remains

there was no such material ascertained either making any

roving enquiry by questioning the contractual workers

regarding the details of the immediate employer in the

absence of any information given by the KSEB. But the fact

remains the finding of the Single Bench vis-a-vis the liability 2025:KER:23676 WA NO. 411 OF 2025

of the immediate employer is totally contrary to the

provisions of Section 41 of ESI Act and cannot be permitted to

sustain in view of the ratio decidendi culled out in paragraph

2 of the judgment in Employees' State Insurance Corpn.

v. Harrison Malayam Ltd. (1998 KHC 1394, which reads

thus:

"The respondent is a public limited construction company engaged in the business and the work of undertaking construction work at various places in the State of Kerala. During the period 1971 to 1982 it had undertaken construction work for building factory premises of M/s McDowell Company at Ghertallei. During the relevant time the Employees' State Insurance Act, 1948 (hereinafter referred to as "the Act") was applicable in the State of Kerala. The appellant Corporation raised the demand against the respondent Company in connection with the contribution which should have been remitted to the Corporation both consisting of employees' contribution as well as employer's contribution amounting to Rs 2 lakhs and odd for the period from 1971 to 1982. This demand by the Corporation resulted in an application by the respondent Company before the Employees' Insurance Court, Alleppey being IA No. 62 of 1988. The Insurance Court after hearing the parties took the view that as the claim pertains to an earlier period i.e. from 1971 to 1982 and there was no clear evidence to show whether the workmen concerned, who were said to be employed by the respondent Company during the relevant time, were available on the payroll of the Company and as the appellant Corporation had not taken steps in time to activise the respondent in this connection, the claim put forward by the Corporation against the respondent for that period could not be effectively entertained. However, the Insurance Court noted that there was some evidence regarding continuity of employees at least from 1983 onwards till the coverage was effected in 1986. The 2025:KER:23676 WA NO. 411 OF 2025

appellant Corporation was held entitled to collect contribution in respect of those employees who are employed by the respondent during 1983 and who continued under employment thereafter till they were brought under coverage w.e.f. 1-12-1986. In the result the respondent's application was allowed to the aforesaid extent. The appellant Corporation being aggrieved by the said decision of the Employees' State Insurance Court carried the matter in appeal before the High Court of Kerala under S.82 of the Act. The High Court by the impugned judgment agreed with the decision rendered by the Insurance Court and dismissed the appeal. The High Court observed that the Insurance Court was justified in arriving at the finding that the Corporation could not insist for payment of contribution from the respondent in respect of employees whose particulars were not available. Moreover, the request for contribution was made after several years and there was nothing on record to show that inspection had been conducted at any time prior to 1982. In the result, the High Court dismissed the appeal of the Corporation."

As also in Employees' State Insurance Corporation v.

Harrison Malayalam Pvt.Ltd.[(1993)4 SCC 361],

paragraph 3 reads thus:

3. We are afraid that the ground given by both the courts is not justifiable. Under the Act, it was the duty of the respondent-Company to get the necessary details of the workmen employed by the contractor at the commencement of the contract since the primary responsibility of payment of the contribution is on the principal employer. On the admitted fat that the respondent-Company had engaged the contractor to execute the work, it was also the duty of the respondent- Company to get the temporary identity certificates issued to the workmen as per the provisions of Regulations 12, 14 and 15 of the Employees' State Insurance (General) Regulations, 1950 and to pay the contribution as required by Section 40 of the Act: Since the respondent-Company 2025:KER:23676 WA NO. 411 OF 2025

failed in its obligation, it cannot be heard to say that the workers are unidentifiable. It was within the exclusive knowledge of the respondent-Company as to how many workers were employed by its contractor. If the respondent-Company failed to get the details of the workmen employed by the contractor, it has only itself to thank for its default. Since the workmen in fact were engaged by the contractor to execute the work in question and the respondent-Company had failed to pay the contribution, the appellant-Corporation was entitled to demand the contribution although both the contribution period and the corresponding benefit period had expired. The scheme under the Act for insuring the workmen for conferring on them benefits in case of accident, disablement, sickness, maternity etc. is distinct from the contract of insurance in general. Under the Act, the scheme is more akin to group insurance. The contribution paid entitles the workman insured to the benefit under the Act. However, he does not get any part of the contribution back if during the benefit period, he does not qualify for any of the benefits. The contribution made by him and by his employer is credited to the insurance fund created under the Act and it becomes available for others or for himself, during other benefit periods, if he continues in employment. What is more, there is no relation between contribution made and the benefit availed of. The contribution is uniform for all workmen and is a percentage of the wages earned by them. It has no relation to the risks against which the workman stands statutorily insured. It is for this reason that the Act envisages automatic obligation to pay the contribution once the factory or the establishment is covered by the Act, and the obligation to pay the contribution commences from the date of the application of the Act to such factory or establishment. The obligation ceases only when the Act ceases to apply to, the factory/establishment. The obligation to make contribution does not depend upon whether the particular employee or employees cease to be employed/employees after the contribution period and the benefit period expire."

15. In order to bring quietus to the issue, we deem it 2025:KER:23676 WA NO. 411 OF 2025

appropriate to relegate the respondent/KSEB to avail the

remedy of appeal before the Insurance Court under Section

75 of the ESI Act to be filed within a period of one month from

the receipt of a copy of the order, and in case such appeal is

filed, the objection qua limitation shall not be taken, with a

liberty to place on record all the documentary evidence by

taking the assistance of provisions akin to Order 41 Rule 27

provided under the Code of Civil Procedure. In case such an

appeal along with the initial documents, is filed and rebutted

by the ESI, it will be the domain of the Insurance Court to

decide the controversy involved, including the issue of