Madras High Court
The Deputy Director vs Bharat Insulations & Enterprises on 5 January, 2024
C.M.A. No. 2105 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 05.01.2024
CORAM:
THE HONOURABLE MR. JUSTICE K. RAJASEKAR
C.M.A. No. 2105 of 2021
1. The Deputy Director
Employees State Insurance Corporation,
Regional Office (Tamilnadu)
143, Sterling Road, Chennai-600 034
2. The Recovery Officer,
Employees State Insurance Corporation,
Regional Office (Tamilnadu)
143, Sterling Road,
Chennai-600 034
... Appellants / Respondents 1 &2
Vs.
Bharat Insulations & Enterprises
41/2, Chetty Street,
Zamin Pallavaram
Chennai-600 043
Represented by its partner ... Respondent /Appellant
Civil Miscellaneous Appeal filed under Section 82(2) of Employees
State Insurance Act, against the Order and Decree dated 11.03.2021 passed
in E.I.O.P. No.116 of 2007 on the file of the Employees Insurance Court,
Principal Labour Court, Chennai.
1/16
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C.M.A. No. 2105 of 2021
For Appellants : Mr.G.Narmadha
For RR1 : No appearance
JUDGMENT
This Civil Miscellaneous Appeal has been filed by the ESI
Corporation to set aside the Order passed in E.I.O.P. No.116 of 2007, dated
11.03.2021, by the Principal District Judge, ESI Court, Chennai.
2. For the sake of convenience, the parties are referred to
hereunder according to their litigative status and ranking before the
Tribunal.
3. The respondent-Bharat Insulations & Enterprises is covered
under the provisions of ESI Act and that on 08.03.2006, the Social Security
Officer carried out inspection and submitted a report to the ESI Authorities.
Based on the Inspection Report, Adhoc Notice with Form C-18 was served
on the respondent seeking production of documents and other relevant
records for the period from 2000 – 2005 regarding labour charges paid by
the Engineering Division. However, the respondent has not participated or
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submitted any reply to the notice.
4. Based on the records available with the ESI Corporation,
Order under Section 45 A of the ESI Act was passed determining the ESI
contribution totally at Rs.1,92,342/- and ordered to be paid within a period
of 15 days from the date of receipt of a copy of this Order. Subsequently, on
06.08.2007 the appellant has initiated recovery proceedings and by issuing
Form C-19 notice. Thereafter, the respondent herein has approached the ESI
Court by invoking Section 75 of the ESI Act for declaration of the Order
passed by the appellant as null and void and also stalled the recovery
proceedings.
5. Before the ESI Court, the respondent has submitted that he is
the Manufacturer of Pharmaceuticals Machinery called as Bhuvaneswari
Industries. This establishment is covered under the provisions of the ESI
Act and they have been paying contribution regularly. Based on the report
of the Social Security Officer inspection, they have been served the Show
Cause Notice for the contribution period from 2000 – 2005 in respect of
labour charges paid to the third party establishment. However, they were not
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able to attend the hearing due to unavoidable circumstances and
subsequently, the Order under Section 45-A has been passed. Contributions
claimed under various payments were made to the third party establishments
wherein, certain lathing work, milling work and fitting jobs were carried out
in the third party establishments. These establishments were also covered
under the provisions of ESI Act and they have not having any supervising
control over the workmen for the third party establishment. Hence they are
not liable to pay compensation. The respondents have also produced Ex.P1
to Ex.P21 in support of their claims. They have also examined their
Manager as an witness.
6. The ESI Corporation has countered the petition stating that
inspite of sufficient opportunity provided, the respondent has not come
forward to submit the records. Hence, under Section 45-A of ESI Act, Final
Order has been passed and fixing the contribution to be paid by the
respondent. They have also disputed various bills and records produced in
support of the respondent herein to show that the manufacturing activities
were carried out by the third parties and payments were made by the third
parties has not been supported by any documents. Further it is contended
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that Form C-19 dated 06.08.2007 for Rs.2,21,367/- was also valid and the
respondent is liable to pay contribution. Based on the pleadings made, the
ESI Court has framed the following issues:
1. Whether the petitioner is not liable to pay ESI contribution in
terms of order of the first respondent dated 26.05.2007?
2. Whether the petitioner is entitled for permanent injunction
restraining the respondents from claiming contribution in terms
of the first respondent's order dated 26.04.2007 and
consequential recovery proceedings dated 06.08.2007 issued to
the second respondent and the second respondent's attachment
order dated 23.08.2007 issued to the bankers of the petitioner?
3. To what relief, if any, the petitioner is entitled?
7. After appreciating the evidences placed on record, the
Principal Labour Court has held that the inspector of police, who conducted
the inspection has not examined any of the regular employees and so as to
establish that no work was given to the third parties in the manufacturing
process. Further the Principal Labour Court has held that the burden of
proof the fact that the manufacturing activities were carried out inside the
premises or by the employees of the respondent is on the appellant ESI
Corporation. But they have not proved the same hence they are not entitled
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to claim contribution as quantified by them. The E.S.I Court has also
accepted Exs.P6, P7, P9, P10 and P11 which are Delivery Challans, Stock
Receipts, Bills raised and copy of statement of contractors who have been
outsourced or sufficient to prove that the manufacturing activities were
taken place outside the respondent premises. These are the payments made
to the contractors and accepted the above bills and account statements to
show that there were no manufacturing activities carried on by the
respondent herein.
8. Aggrieved over the above finding, the ESI Corporation has
approached this Court by way of filing appeal by raising the following
substantial question of law.
1.Whether the ESI Court is correct in relying upon the delivery
challan/bills produced by the respondent to decide that there was
no supervision by the respondent on the employees of the
Contractors without knowing the terms of the execution of work?
2.Whether the finding of the ESI Court that the burden to
establish that the work was done at the premises of the
Contractors alone is not against the principal of onus of proof set
out in Sec.102 of Evidence Act?
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9. The learned counsel for the appellant - ESI Corporation has
submitted that the burden of proving the documents more particularly, the
Account Statements, Bills and Challans as genuine, on the respondent since
he has approached the ESI Court seeking quashing the Order passed by the
appellant herein. However, the ESI Court has shifted the burden on the
appellant herein on the ground that the appellant has to prove the
manufacturing activities. The Inspection Report itself is sufficient to show
that there was a manufacturing activity which was recorded based on the
observation made at the time of inspection in the premises. This has not
been properly appreciated. Further the evidence of R.W.1 is only to support
the case of ESI Corporation that inspite of opportunity given to the
respondent to produce all those documents and exhibits to show that the
manufacturing activity were not carried on by him and the manufacturing
activity were outsourced to the contractors. Hence, the Order of ESI Court is
not sustainable and prays to set aside the same.
10. In spite of notice served on the respondents they have not
come forward to contest the appeal herein.
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11. The learned counsel for the ESI Court has relied on the
Judgment of the Kerala High Court in E.S.I. Corporation vs. Hotel Amred
[1998 (79) FLR 961 : 1998 II-LLJ 1157 Ker] while deciding the question
of burden of proving the case of the factory or establishment by following
the Division Bench Judgment of the Kerala High Court in Paragraph No.8 is
extracted hereunder:
“8. The answer to the question of law now formulated by
us is available in the very recent decision of the Supreme
Court reported in E.S.I. Corporation v. F.Fibre
Bangalore (P) Ltd. (1997-II-LLJ-739). The said appeal
was filed before the Supreme Court by Special Leave
against the Judgment of the Division Bench of the
Karnataka High Court, which in turn followed the ratio of
the Judgment of the Full Bench in MFA 147/74 dated
April 19, 1978. The Full Bench of the Karnataka High
Court held thus:
“In the result, we answer the question referred tto
us as follows:
Where in cases to which provisions of
Section 45-A of the Act are attracted, the Corporation by
an order made in accordance with that Section determines
the amount of contribution payable and that claim is
disputed by the employer, it would not be necessary for
the Corporation to seek a resolution of the dispute before
the Insurance Court. Such a claim is recoverable as
arrears of land revenue. If the employer disputes the
claim it is for him to move the Insurance Court for relief.
In other cases- other than cases where determination of
the amount of contributions under Section 45-A is made –
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the Corporation if its claim is disputed by the employer
should seek an adjudication of the dispute before the
Insurance Court before enforcing recovery.”
“The above ruling was reversed by the
Supreme Court in the decision referred to above. The
Supreme Court was of the view that the Full Bench of the
Karnataka High Court ws clearly in error to reach the
above conclusion. The Supreme Court held that though
Section 75 of the Act does not envisage as to who has to
approach the Insurance Court, by necessary implication
when the employer denies the liability or aplicability of
the provisions of the Act or the quantum of the
contribution to be deposited by the employer, it is for him
to approach the Insurance Court and seek adjudicated
and it is not for the Corporation in each case, whenever
there is a dispute, to go to Insurance Court and have the
dispute adjudication. Otherwise the Act would become
unworkable and defeat the object and purpose of the Act.
The Supreme Court also held that the Division Bench of
Karnataka High Court, having followed the Full Bench
Judgment, fell into the same error and set adie that part
of the Judgment of the Full Bench and of the Division
Bench which was not consistent with the declaration of
law by the Supreme Court. The Insurance Court was
directed to determine the contribution payable by the
respondent before it. We are of the view that the stand
taken by the applicants praying the Court to direct the
Corporation to lead evidence first in the application filed
under Section 75 of the Act for declaration that they will
not come under the purview of the Act is fallacious. The
person who comes to the Court with a grievance has a
duty to establish his case by leading evidence, oral and
documentary and substantiate his claim. The basic
principle has been set out in Section 102 of the Evidence
Act which reads as follows:
“102. On whom burden of proof lies-The burden
of proof in a suit or proceeding lies on that person who
would fail if no evidece at all were given on either side.”
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The respondents have no case that they are
entitled to succeed if no evidence at all is let in by either
side. So necessarily the onus lies on the respondents
herein to let in evidence first and establish their case.”
12. The learned counsel also relied on the Judgment of this Court
in C.M.A. No.300/2021, dated 26.03.2021 [Employees State Insurance
Corporation vs. M/s. Broadline Computer Systems]. In this case, the
principal employer of the factory was served with Show Cause Notice, Form
C-18, Adhoc Notice, to produce all the documents to support their account
which is accounts relating to the year 2000-2001 to 2004-2005 for the five
years period, the labour charges paid on the side of the engineering
divisions. These entries were made after inspection of the records. But the
respondent has not come forward to submit the records to show that he is
not liable to pay the contributions. Thereafter, the Order under Section 45-A
has been passed by the Authority. After issuance of Form C-19, the
respondent herein has approached the ESI Court. According to him, the
manufacturing activity were outsourced and he has produced the various
bills to show i.e., Exs.P6, P7, P9, P10 and P11.
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13. On perusal of Ex.P6 - Delivery Challan issued by
Bhuvaneswari Industries in favour of Sri Kannan Engineering Industries
shows that it is the case of the respondent herein that Easwari Industries is
none other than the respondent herein. It is an admitted fact that both
Bhuvaneswari Industries and Bharat Insulations & Enterprises are different
factory and units and it is also an admitted case of the respondent that the
respondent was having two divisions and one of the division is called
Bhuvaneswari Industries. This shows that Ex.P6-Copy of deliver note was
issued by Bhuvaneswari Industries in favour of Sri Kannan Engineering
Industries, dated 13.12.2003 which was relating to delivery of 5 numbers of
machineries. Ex.P7 is the delivery challans issued by Sri Kannan
Engineering Industries in favour of Bhuvaneswari Industries. Similarly,
Ex.P8 is also a Copy of stock/receipt challan, dated 31.12.2003. Ex.P9 is the
Copy of bill issued in favour of Bhuvaneswari Industries by Sri Kannan
Engineering Industries which is dated 31.12.2003.
14. The above documents shows that delivery of machineries
taken place in the Month of December 2003, whereas, the Order passed
under Section 45-A relating to the five year period starts from 2000-2001
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and 2004-2005. No documents relating to the labour charges paid to the
Engineering division during the financial years 2000-2001, 2001-2002,
2003-2004 and 2004-2005 have been produced by the respondent herein.
Since it is the admitted case of the respondent that they are having two
divisions, the documents produced which are relating to the division namely
Bhuvaneswari Industries whereas, the amount claimed after inspection with
regard to the division namely Bharat Insulations & Enterprises situated in
41/2, Chetty Street, Zamin Pallavaram, Chennai. Bhuvaneswari Industries is
situated at Old Trunk Road, Chennai-43. It shows that both the divisions are
functioning in different places and the documents issued in favour of
Bhuvaneswari Industries during the financial year 2003-2004 in the Month
of December 2004 has been utilized to support the case of the respondent
for the 5 year period which is not at all sustainable. There is no iota of
evidence produced before the ESI Corporation to show that any bills or
vouchers relating to other periods have been produced. Even bills produced
as Ex.P6 to Ex.P9 before this Court also related to Bhuvaneswari Industries
which is admittedly a separate unit which is functioning at different
place/unit, could not be accepted as related to the respondent. Hence this
Court is of the view that without any basic evidence connecting the
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respondent manufacturing activity with Bhuvaneswari Industries. The
finding of ESI Court that documents exhibited clearly shows that to prove
the outsourcing of work is perverse and it is based on the records which are
inadmissible in favour of the respondent herein and based on no evidence
and perverse.
16. As far as the question of law relating to burden of proof is
concerned as stated by the Full Bench Judgment of the Karnataka High
Court followed by the Division Bench Judgment of the Kerala High Court
and this Court, it is the burden on the part of the person who has approached
the E.S.I. Court seeking Order in his favour. Admittedly, the Respondent
has not produced any document in pursuance of Adhoc Notice Form C-18,
and not participated in the enquiry. The respondent herein has directly
approached the ESI Court by invoking Section 75 of the Act, initiated
original proceedings to set aside the Section 45-A Order of the Authorities.
Respondent produced new documents and he has to prove the same by
producing Corroborative materials. The production of some delivery
challans alone is not sufficient to support his case that he has proved his
claim that he has carried out the manufacturing activity by way of
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outsourcing. The important fact to be proved by the Respondent is factum of
outsourcing by way of producing outsourcing contract or any other
documents. But it has failed to prove the outsourcing activity and in the
absence of proving the outsourcing activities by probability its case, the
burden has not been shifted on the ESI Corporation. Further apart from
outsourcing other facts of payments made to contributions also not
produced. Thus, the finding of the ESI Court that the ESI Corporation has
failed to discharge their burden of proof is against the Principles of Rules of
evidence relating to burden of proof, and the same is hereby liable to be
rejected.
17. Accordingly, the Civil Miscellaneous Appeal filed by the ESI
Corporation is allowed. The Impugned Order passed by the Employees
Insurance Court, (Principal Labour Court), Chennai in E.I.O.P.No.116 of
2007, dated 11.03.2021 is hereby set aside. There shall be no order as to
costs in the present appeal.
05.01.2024
ssi
Index:Yes
Speaking Order:Yes
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Neutral Citation Case: Yes
To:
1. The Principal Labour Judge,
Employees Insurance Court
Chennai
2. The Section Officer,
V.R.Section,
High Court,
Chennai.
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K. RAJASEKAR, J.
ssi
05.01.2024
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