[Cites 14, Cited by 0]
Madras High Court
Employees State Insurance ... vs M/S.Sterling Holiday Resorts (India) ... on 10 April, 2026
Author: M.Dhandapani
Bench: M.Dhandapani
C.M.A.No.634 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 24.02.2026
Pronounced on: 10.04.2026
CORAM
THE HONOURABLE MRS.JUSTICE K.GOVINDARAJAN THILAKAVADI
C.M.A.No. 634 of 2022 and C.M.P. No.4503 of 2022
1. Employees’ State Insurance Corporation,
Represented by its Regional Director,
143, Sterling Road, Chennai 600 034.
2. The Recovery Officer,
Employees’ State Insurance Corporation,
143, Sterling Road, Chennai 600 034. ... Appellants
vs.
M/s. Sterling Holiday Resorts (India) Limited,
Taurus Towers,
No.25, 1st Main Road,
United India Colony,
Kodambakkam, Chennai 600 024
Represented by its Vice President Mr.R. Mohan …Respondent
Prayer: This Civil Miscellaneous Appeal is filed under Section 82(2) of the
ESI Act, against the order of the Employees State Insurance Court (Principal
Labour Court), Chennai, dated 30.11.2021 made in E.I.O.P. No.37/2008.
1/16
https://www.mhc.tn.gov.in/judis
C.M.A.No.634 of 2022
For Appellants : Ms. G. Narmadha
For Respondent : Mr. K. Balamurali
for Mr. Shivakumar & Suresh
JUDGMENT
The appeal is directed against the order of the Employees State
Insurance Court (Principal Labour Court), Chennai, dated 30.11.2021 made in
E.I.O.P. No.37/2008.
2. The facts leading to the filing of this appeal are as follows:
2.1. The respondent is a public limited company. The 1 st appellant
handed over a notice to the respondent under Section 45G of the ESI Act
claiming dues of Rs.5,25,738/- pertaining to M/s. Sterling Healthcare Limited
for the period from May 1996 to March 2002, wherein it has been mentioned
that one P.N.Mohan was the Managing Director of M/s. Sterling Healthcare
Limited and Director in the respondent’s/petitioner’s company. On
13.08.2007 another notice was served by replacing the name of P.N. Mohan
with the name of Mr. R. Subramanian. In spite of their contention that they
are nothing to do with M/s. Sterling Healthcare Limited, based upon 45-G
order, the appellants proceeded to attach the amount of Rs.5,26,933/- from the
account of the respondent in HDFC Bank. Against the said action, the
https://www.mhc.tn.gov.in/judis
respondent has sent a letter to the Bank on 23.08.2007 and thereafter, a legal
notice was also issued to the 2nd appellant. According to the respondent,
M/s.Sterling Healthcare Limited is a public limited Company having different
ESI code and the appellants illegally recovered a sum of Rs.5,26,933/- from
their account. Therefore, filed E.I.O.P. No.37/2008 to set aside the attachment
order passed against the respondent and also prayed to direct the
appellant/ESIC to refund the recovered amount.
2.2. The appellants filed their written statement by contending that the
respondent is covered under ESI Act with a distinct Code No.51-36654-11
and M/s. Sterling Healthcare Limited, a sister concern of the respondent, who
is engaged in the manufacturing of pharmaceutical products, dietary foods and
healthcare products, is covered under another code No.51-58879-09. C-18
notice dated 21.03.2002 and 09.02.2002 were issued to M/s. Sterling
Healthcare Limited for the period January 1998 to September 2001 and
October 2001 to March 2002. The factory was closed in the year 1998.
Thereafter the appellants invoked power under Section 45A for determination
of contribution on 05.08.2003 and 11.08.2003. Since there was no compliance
of the direction, the appellants issued C-19 notice. Since the respondent /
https://www.mhc.tn.gov.in/judis
petitioner being the promoter company, the appellants proceeded against the
respondent under Section 45G for the dues of M/s. Sterling Healthcare
Limited and hence, according to them, their action is legal and valid and
prayed for dismissal of the petition.
2.3. The Employees Insurance Court, after framing necessary issues,
vide its order dated 30.11.2021, allowed the petition filed by the respondent
and set aside the order of attachment made by the appellants by holding that
there is no functional integrity between M/s. Sterling Healthcare Limited and
the respondent so as to enable the appellants to attach the petitioner’s bank
account and directed the appellants to refund the amount of Rs.5,26,933/- to
the respondent within 3 months from the date of the order, failing which, the
respondent is entitled to have interest at the rate of 12% per annum.
2.4. Aggrieved over the same, the present Civil Miscellaneous appeal is
filed by the appellants.
3. The learned counsel for the appellant /ESI would contend that there is
functional integrity between the M/s. Sterling Healthcare Limited and the
respondent and also some of the Directors are same in M/s. Sterling
https://www.mhc.tn.gov.in/judis
Healthcare Limited and the respondent Company and that the respondent
being the promoter of M/s Sterling Healthcare Limited, the attachment and the
consequential recovery are all within the contour of the ESI Act. While so, the
ESI Court had erred in ordering refund of sum of Rs.5,26,933/-. As per
Regulation 40, the contribution paid under the erroneous belief only may be
refunded with interest. But in the present case, in the letter produced before
the ESI Court, M/s. Sterling Healthcare Limited have stated that the said
company was promoted by the respondent and further the respondent had
admitted in the said letter that the contributions of M/s. Sterling Healthcare
Limited is paid along with their contributions and therefore, the amount due
from M/s. Sterling Healthcare Limited was recovered by attaching the bank
account of the respondent under Section 45G of the Act. The learned judge
having failed to take into account the admission made by the respondent in the
documents marked on behalf of the appellants, more particularly in Ex.R1, R2
and R19, had erred in setting aside the order of attachment dated 13.08.2007
and consequently ordering refund of Rs.5,26,933/- which had been recovered
by the appellants after following due process and provisions under the ESI
Act. Hence, prayed for setting aside the order passed in EIOP No. 37/2008
dated 30.11.2021 by the ESI Court.
https://www.mhc.tn.gov.in/judis
4. On the other hand, the learned counsel for the respondent would
contend that, even according to the appellants / ESIC, M/s. Sterling Healthcare
Limited and the respondent Company are having two distinct ESI Code.
Further it is submitted that, the appellants have miserably failed to prove
functional and financial integrity of both the companies. It is further stated
that, the respondent is not the promoter company of the said M/s. Sterling
Healthcare Limited. The learned counsel would further submit that, in the
absence of any evidence establishing the unity of ownership, functional
integration, interchangeability of employees or inter dependability between the
two companies, it cannot be presumed that the two are deemed to be one and
the same. Therefore, the respondent company cannot be held liable to the dues
recoverable from Sterling Healthcare Limited merely on the ground that they
are sister concerns sharing the same registered office or having accounts in the
same bank, while the two entities have been incorporated as distinct entities.
The learned counsel further submitted that, the ESIC can recover the dues
from the defaulting Company only from the assets of the said Company.
Therefore, the recovery by the ESI Corporation from the respondent is totally
illegal and perverse and the respondent is entitled to get the refund of the
https://www.mhc.tn.gov.in/judis
amount recovered by the ESIC. His further contention is that, an individual or
a group of people who come up with the concept of starting a business are the
promoters of a company. They carry out the required process to establish the
firm. A promoter is not the owner of the company and he only helps to
establish and run the company, but the company's shareholders are actual
owners of the company. A promoter cannot be considered a trustee, employee
or agent of a company. The role of the promoter ceases when the company is
established and is handled by the Board of Directors and the company
management. Therefore, a promoter is not liable for ESI dues simply by
virtue of being a promoter. His further submission is that there is no law which
prohibits a father and a son from carrying on two separate and independent
business from the same premises. What has to be considered is whether there
is functional integration or there is no proximity in the two businesses. There
is no functional integrity in the matter of ownership, control and supervision in
the affair of the business of the two entities. The prima facie test for
determination of the relationship between master and servant is the existence
of the right in the master to supervise and control the work done by the
servant not only in the matter of directing what work the servant is to do but
also the manner in which he shall do his work. In the present case, the
https://www.mhc.tn.gov.in/judis
appellants / ESIC failed to produce any evidence to establish that the
respondent is the alleged promoter company. To support his contentions he
has relied upon the following judgments.
1. Judgment of the High Court of Delhi dated 13.08.2013 in CS(OS)
No.312/2005 in the case of Maharishi Solar Tech Pvt. Ltd., vs. ICICI
Bank Ltd. and others.
2. Judgment of the High Court of Judicature at Bombay, dated 10.07.2024,
in First Appeal No. 731 of 2992, in the case of the Employees State
Insurance Corporation, Bombay vs. Dinendra Ratansi and others.
3. Judgment of the High Court of Karnataka dated 22.10.2008 in First
Appeal Nos.6344 of 2003 and 1391 of 2004 in the case of Regional
Director, ESI Corporation, Bangalore and others vs. The
Management of Shagil Precision India, Mangalore.
4. E.S.I.C. vs. Ved Prakash Gupta reported in 2008 SCC OnLine Del
1426 .
5. Judgment of the High Court of Madhya Pradesh dated 10.01.2006 in
M.A. 658 of 1998 in the case of Regional Director, ESI Corporation,
vs. Ram Kumar Suresh Kumar Timber Merchant.
6. Balwant Rai Saluja and another vs. Air India Limited and others
https://www.mhc.tn.gov.in/judis
reported in (2014) 9 SCC 407.
5. In reply, the learned counsel for the appellants / ESIC would submit
that, by virtue of the admission by the Employer itself that both the
establishments had been paid under one code number by the respondent, the
general requirements to establish unity of establishments as per the guidelines
laid down in Maharishi Solar Tech Pvt. Ltd., vs. ICICI Bank, relied by the
respondent is not applicable in the present case. She would further contend
that in the case of ESIC vs. Dinendra Ratansi and others, the issue was
whether the Director of a company can be held personally liable for the dues
of the establishment. In the case on hand, the individual Directors have not
been burdened with any personal liability and therefore, reliance placed on this
judgment is baseless and irrelevant. She would further contend that, the case
of Balwant Rai Saluja vs. Air India Limited, is in respect of a decision
rendered under the Factories Act and the same cannot be relied upon to
determine the relationship of employer – employee under the ESI Act as the
latter prescribed the definition of employee which is of wider ambit. Further
the said decision deals with the employees of an outside contractor, which is
not the issue in the present case and more so, the respondent having admitted
https://www.mhc.tn.gov.in/judis
that it had paid previous dues of Sterling Home Products, which is a division
of Sterling Healthcare, have by its own action, committed to the financial
responsibility for any subsequent dues as well. The learned counsel for the
appellants / ESIC further submits that, in the case of ESIC vs. The
Management of Shagil Precision India, the issue was whether the principle
employer can be held liable for payment of contribution towards the
employees of a contractor. It is in this context, that the nature of relationship
between the employer and employee, as well as the necessity for supervision
was discussed. The said judgment has no relevance to the facts and
circumstances of the present case as Sterling Healthcare is not an independent
contractor but a division promoted and run by the respondent itself.
6. Heard on both sides. Records perused.
7. The present Civil Miscellaneous Appeal is filed by the appellants /
ESIC against the order dated 30.11.2021 passed by the ESI Court in ESI OP
No. 37/2008 filed by the respondent Company against the appellants /
Corporation , seeking to quash the Demand Notice dated 13.08.2007 issued by
the appellants / Corporation to the respondent under Section 45G(3) (1) of the
https://www.mhc.tn.gov.in/judis
ESI Act and to direct the appellant corporation to return the amount of
Rs.5,26,933/- deducted from the respondent's bank account for non payment
of contributions by another entity Sterling Healthcare Limited.
8. It is the case of the appellants that one M/s. Sterling Healthcare
Limited is a sister concern promoted by the respondent company. According to
the appellants Corporation, the said M/s. Sterling Healthcare Limited having
ESI No.51/58849 failed to pay the ESI contribution for May 1996 to
December 1997 and also for the period January 1998 to September 2001 and
October 2001 to March 2002. An order under Section 45A of ESI Act was
passed against the said company to pay a sum of Rs.2,50,965/- for the dues
from 1.1.1998 to 30.09.2001. Since the said company failed to pay, notices
were issued to ex-Directors of the said company. Since payments were not
made by the said company, the appellants corporation issued notice under 45G
on 13.08.2007 claiming a sum of Rs.5,25,738/- and another notice was issued
under 45G on 20.08.2007 claiming a sum of Rs.5,26,933/- from the
respondent company. Despite refuted by respondent company, the same was
recovered from the respondent's bank by invoking garnishee order.
https://www.mhc.tn.gov.in/judis
9. The claim of the appellants corporation was resisted by the
respondent company stating that the two entities are independent and that the
respondent company is engaged in business of running holiday resorts in many
places in India and having separate ESI code number 51-36654-1114. One
Mr.P.N. Mohan, mentioned in the notice of appellants corporation, ceased to
be the Director of the respondent company long back and the respondent
company has nothing to do with M/s. Sterling Healthcare and therefore, the
recovery made from the respondent's bank by the appellants corporation is
illegal.
9.1. The first and foremost contention of the respondent company is
that, it is a company engaged in the business of running holiday resorts having
separate code number 51-36654-1114. The Sterling Healthcare Limited has
been allotted code No.58849. The respondent company never defaulted in
paying the contribution as per Section 2(4) of the ESI Act to the Corporation.
Though the Sterling Healthcare Company had defaulted in making the
payments to the corporation, the respondent company is not liable to pay the
contributions to the Corporation. Therefore, the issuance of notice by the
appellants corporation under 45G of the Act to the respondent company with
https://www.mhc.tn.gov.in/judis
the code number of 58849, which is not allotted to the respondent company, is
illegal.
9.2. On a perusal of records it is seen that, the appellants corporation
failed to establish the unity of ownership, functional integration,
interchangeability of employees or inter dependable between the two entities.
Therefore, it cannot be presumed that the two entities are deemed to be one
and the same. Having the same registered office address for the two entities,
that alone cannot be sufficient to legally club the two entities together. The
two entities have been incorporated as distinct entities. Therefore, the
respondent company cannot be held liable to the dues recoverable from
Sterling Healthcare Limited on the ground that they are having accounts in
the same bank. Any dues by the defaulting company can be recovered only
from the assets of the said company. As rightly pointed out by the learned
counsel for the respondent company, a promoter is not the owner of the
company and also cannot be considered as a trustee, employee or agent of a
company. In fact, the appellants corporation failed to establish that the
respondent company is the alleged promoter company. Even assuming that
the respondent compenay is a promoter company of Sterling Healthcare
https://www.mhc.tn.gov.in/judis
Limited, they cannot be made liable to pay the ESI dues of the said company.
The appellants corporation failed to establish about the functional integration
of the two entities and proximity in the two businesses. There is nothing on
record to show that the employees of the two firms were being interchanged.
The ESI Court, on the basis of the materials on record, rightly concluded that
the respondent company and the defaulted company are two separate and
independent entities having no functional or business relations with each other.
The ESI court has rightly held that, the commonality of the Directors in two
different companies will not make those companies to become liable for the
dues of other company, as both the companies are two different judicial
persons as per the Companies Act. Therefore, the ESI Court directed the
appellants Corporation to proceed against M/s. Sterling Healthcare Limited for
recovery of dues by invoking appropriate provisions under the Companies Act
and directed the appellants corporation to refund the amount recovered from
the respondent's company account. No perversity or infirmity is found in the
said findings of the ESI Court, which warrants any interference.
https://www.mhc.tn.gov.in/judis
10. In the result,
i. The Civil Miscellaneous Appeal is dismissed. No costs. Consequently
connected miscellaneous petition is closed.
ii. The order of the Employees State Insurance Court (Principal Labour
Court), Chennai, dated 30.11.2021 made in E.I.O.P. No.37/2008, is
upheld.
10.04.2026
bga
Internet:Yes/No
Index:Yes/No
Speaking/Non-speaking order
To
1. The Employees State Insurance Court (Principal Labour Court), Chennai,
2. M/s. Sterling Holiday Resorts (India) Limited,
Taurus Towers, No.25, 1st Main Road, United India Colony,
Kodambakkam, Chennai 600 024
Represented by its Vice President Mr.R. Mohan
https://www.mhc.tn.gov.in/judis
K.GOVINDARAJAN THILAKAVADI, J.
bga
Pre-delivery Judgment made in
C.M.A.No. 634 of 2022 and
10.04.2026
https://www.mhc.tn.gov.in/judis
