Telangana High Court

Employees State Insurance ... vs M/S Vijay Marie Hospital And ... on 18 January, 2023

Bench: Sambasivarao Naidu

    HONOURABLE SRI JUSTICE SAMBASIVA RAO NAIDU

                        CMA.NO.159 of 2022



JUDGMENT :

The appellant herein is Employees State Insurance

Corporation, herein after will be referred as Employees State

Insurance Corporation and this Civil Miscellaneous Appeal has been

preferred against the order of Employees Insurance Court,

Hyderabad in E.I.C.No.95 of 2019 dated 29-10-2021 by which the

petition filed by one M/s. Vijay Marie Hospital and Educational

Society, Khairtabad, Hyderabad, herein after will be referred as

respondent was allowed by the trial Court. The appellant-

Employees State Insurance Corporation preferred the present Civil

Miscellaneous Appeal on the following grounds.

2. E.S.I. Court failed to consider the fact that the stay

granted by the High Court in W.P.No.17977 of 2009 on

06-08-2009 was only limited to the stay of prosecution, but not

against the other proceedings arising for default of the

contributions and damages. The E.S.I. Act, 1948 containing penal

provisions resulting in prosecution of the default entities and

persons responsible but E.S.I. Court failed to consider that the

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interim protection given by the High Court in the above referred

Writ Petition is only to the extent of stay of prosecution, thereby at

no point of time, there was stay against the contributions or

payment of damages liable to be paid under the E.S.I. Act, 1948.

The E.S.I. Court failed to consider the respondent herein comes

within the purview of E.S.I. Act, 1948 because the Government

order vide G.O.M.S.No.582 dated 14-10-2008 was not stayed.

When once the respondent comes within the purview of E.S.I. Act,

it has statutory liability to pay contribution under Section 40 of

E.S.I. Act and under Regulation 31 of E.S.I. (General) Regulation,

1950. The respondent having failed to pay contribution within the

time period is liable to pay damages for the delayed payment

under Section 85-B of E.S.I. Act. The E.S.I. Court failed to

consider that already Courts have held that Section 85-B is a valid

legislation and it is not arbitrary. Therefore, E.S.I. Court ought not

to have interfered with the order of the appellant under Section

85-B. The E.S.I. Court failed to consider that the respondent was

given D-18 notice dated 28-09-2016 and an opportunity for

personal hearing was given to the respondent but it did not choose

to represent before the Employees State Insurance Corporation.

The finding of E.S.I. Court that the respondent had no malafide

SSRN,J CMA No.159 of 2022

intention in paying the contributions with delay pending the Writ

Petition is untenable and erroneous and not borne by any record.

The appellant has followed the procedure contemplated under the

E.S.I. Act and there is no irregularity in the order issued under

Section 85-B of the E.S.I. Act, and the recovery certificate dated

26-06-2019. Therefore, the E.S.I. Court ought to have considered

that the respondent has been given an ample opportunity to

present his case and there was no infringement of principles of

natural justice.

3. The appellant further pleaded that E.S.I. Court ought

to have considered that the respondent is a Factory/Establishment

covered under E.S.I. Act, 1948, thereby, required to pay

contributions and submit returns of contributions under Sections

40/44 of the Act r/w E.S.I. (General) Regulations but the E.S.I.

Court failed to consider that E.S.I. Act is a beneficial legislation

had to be construed in its correct perspective, the technical or

narrow construction, even if permissible, cannot be countenanced

as that would frustrate the legislative intent underlying the social

security scheme. With this, the appellant sought for setting aside

the order of the E.S.I. Court.

SSRN,J CMA No.159 of 2022

4. As could be seen from the record, the respondent

herein approached the E.S.I. Court by filing E.I.C. No.95 of 2019

under Section 75(1)(g) of the E.S.I. Act, 1948, with a prayer to set

aside the order issued by the appellant herein under Section 85-B

of E.S.I. Act dated 07-09-2018 and 22-04-2019 for a sum of

Rs.96,630/- for the period from June 2010 to June 2016.

5. The following was brief case of the respondent herein

before the E.S.I. Court. The petitioner is a Hospital represented by

its Director Sr.Theresa run by the Sisters Society namely "Sisters

of Charity Non-Profitability Hospital" established in 1948. The

Hospital was covered under E.S.I. Act, 1948, under Gazette

notification vide G.O.No.582. The petitioner's private hospitals and

other nursing homes association preferred Writ Petition challenging

the said Gazette notification and inclusion of Medical

Institution/Hospital under E.S.I. Act by filing W.P.No.17977 of

2009. The petitioner had obtained interim order by filing a petition

vide W.P.M.P.No.23559 of 2009. The said interim order was

subsisting till date of respondent filing the above referred petition.

The respondent had informed about filing the Writ Petition to the

appellant herein. They have paid the entire due contribution from

the date of coverage without any demand and interest also

SSRN,J CMA No.159 of 2022

claimed by the Corporation from the date of coverage and the

same was paid without any protest.

6. Therefore, according to the respondent as on the date

of filing the above said petition, they have paid contributions and

there was no default. The above said case was filed challenging

the order issued by the appellant herein under Section 85-B for

damages. The respondent has claimed that the notice issued by

the appellant on 28-09-2016 was received by the respondent on

13-02-2018, date of hearing was fixed on 07-05-2018. The

respondent got filed its reply through their Advocate on

20-04-2018 along with necessary documents. The respondent

claims since the matter was pending before the High Court and as

there was interim order in its favour, the respondent has paid the

damages including the interest as on the date of filing the

application. Therefore, according to the respondent, the notice

issued by the appellant under Section 85-B is illegal and arbitrary,

thereby sought for setting aside the said order.

7. The appellant herein made its appearance before the

E.S.I. Court, filed written statement disputing the material

averments of the petition filed by the respondent. According to

the appellant, it was specifically stated that the respondent herein

SSRN,J CMA No.159 of 2022

failed to pay the contributions within the stipulated time from the

period from April, 2010 to September, 2010, December 2010 to

March 2011, April 2015 to June 2015, as such notice in Form

No.D-18 has been issued to the respondent proposing to impose

damages to Rs.96,630/- for the delay in payment of contributions.

A date was fixed for personal hearing of the respondent on 07-05-

2018. The notice was duly served on the respondent. But the

respondent failed to submit any valid reasons for non-payment of

contributions within the stipulated time. The appellant having

admitted the filing of Writ Petition and interim order, further stated

that the stay is only against prosecution and the respondent failed

to attend the personal hearing on 07-05-2018, since the

respondent failed to attend the personal hearing, it was assumed

that the respondent does not intend to say anything against the

proposed damages. The appellant further stated that if the

employer failed to pay contributions as required under Section 40

of E.S.I. Act within the stipulated time, the employer is liable to

pay damages for the delayed payment of contribution under

Section 85-B of E.S.I. Act. Therefore, the authorized Officer

passed an order under Section 85-B dated 22-04-2019 and

imposed damages of Rs.96,630/- for the period from June, 2010 to

SSRN,J CMA No.159 of 2022

January, 2016. The order has been duly served but the

respondent failed to comply with the order, thereby recovery

certificate in Form No.D-19 dated 22-06-2019 was issued for

recovery of the damages. The said notice was served on the

respondent herein, therefore, the appellant sought for dismissal of

the petition.

8. On the basis of above rival contentions, the E.S.I. Court

framed the following issues:

1. Whether the order under Section 85-B of E.S.I. Act dated 07-09-2018 and 22-04-2019 for Rs.96,630/- for the period from June, 2010 to June, 2016 passed by the respondent is against the principles of natural justice and consequently to set aside the same?

2. To what relief?

9. During the enquiry, the parties did not choose to

adduce any evidence but Exs.P1 to P7 are marked on behalf of the

respondent and the appellant herein marked Exs.R1 to R14. The

E.S.I. Court having considered the oral arguments of the parties

and having appreciated the documents, came to a conclusion that

the respondent proved its bonofides by paying contributions

pending Writ Petition. Therefore, imposing damages against the

respondent under Section 85-B does not arise. The Authorised

Officer imposed damages in a mechanical way. With this, the

SSRN,J CMA No.159 of 2022

order under Section 85-B and consequential recovery notice in the

Form of D-19 was set aside.

10. Heard both parties.

11. Now the point for consideration is :

Whether the E.S.I. Court committed an error in allowing the petition filed by the respondent and by setting aside the order under Section 85-B recovery notice under D-19, if so, whether the said order is liable to be set aside?

12. This Court disposed of C.M.A.No.158 of 2022 vide

order dated 21-10-2022 and the present case is covered by the

same Judgment.

13. The learned Standing Counsel for the appellant herein

has submitted that all the private school institutions are covered

by E.S.I. Act. This Court in a batch of writ petitions categorically

held that the educational institutions were required to pay

contributions from the date of notification of the Government

order. Therefore, the respondent herein is required to pay the

contribution. In fact the respondent used to pay contributions and

there is no dispute about the order issued by the appellant under

Section 85-B of E.S.I. Act. In support of the contention, the

learned Standing Counsel placed reliance on a Judgment between

"Horticulture Experiment Station Gonikoppal, Coorg Vs.

SSRN,J CMA No.159 of 2022

Regional Provident Fund Organization"1, and another

Judgment between "Union of India and Others vs.

Dharmendra Textile Processors and Others"2. The

respondent, who was served with the notice did not choose to

oppose the application.

14. I have perused the order impugned in the present

appeal. The learned Chairman, E.S.I. Court has allowed the

petition filed by the respondent herein mainly on the basis of a

Judgment between "Employees State Insurance Corporation

Vs. HMT Limited and another"3, and another case between

"Assistant Provident Fund Commissioner EPFO and another

vs. Management of RSL Textiles India Private Limited"4.

In the first case i.e., E.S.I. Corporation, the Hon'ble Apex Court

was pleased to observe that :

"The existence of mens rea/actus reus to contravene a statutory provision must also be held to be a necessary ingredient for levy of damages and/or the quantum thereof".

15. In the other case, Assistant Provident Fund

Commissioner, referred above, the Hon'ble Apex Court was

pleased to observe as follows :

(2022) 4 Supreme Court Cases 516

(2008) 13 Supreme Court Cases 369

Laws(SC)‐2008‐1‐122

(2017) 3 Supreme Court cases page 110

SSRN,J CMA No.159 of 2022

"This issue is now wholly covered against the appellants in the decision render by this Court in Mcleod Russel India Limited Vs. Regl Provident Fund Commissioner reported in (2014) 15 SCC 263, where in it has been held in para 2 that the High Court has taken a view in the absence of a finding regarding mens rea/actus reus on the part of the employer, action under Section 14-B as also the quantum thereof since it is not inflexible that 100% of the arrears have to be imposed in all the cases. Alternatively stated, if damages have been imposed under Section 14-B it will only logical that mens rea and or actus reus was prevailing at the relevant time".

16. The learned Chairman found that there was no

malafide intention in the delayed payment of contribution, thereby

the respondent need not pay any damages and in view of that

matter, allowed the petition filed by the respondent. In fact there

is no finding nor there is any argument that the respondent paid

the damages claimed in the order under Section 85-B of E.S.I. Act.

17. As per the material averments made in the petition

and counter placed before the trial Court, it was specifically alleged

that the respondent failed to pay the contributions for a particular

period and in view of the said failure, a notice was issued to the

respondent directing this school to pay damages. The respondent

did not deny the receipt of order under Section 85-B. It was not

the case of the respondent that the Hospital was not given any

opportunity of personal hearing. The appellant had categorically

SSRN,J CMA No.159 of 2022

stated in the counter filed before the trial Court that while issuing

the order/notices, the respondent was given an opportunity of

personal hearing and the said notice was acknowledged by the

respondent but they did not avail the opportunity. The respondent

claimed in the petition that the order issued by the appellant

herein under Section 85-B is contrary to the provisions of E.S.I.

Act and violation of the Article 14 of the Constitution of India. The

respondent has claimed that the impugned order was passed

mechanically and there was failure of Principles of Natural Justice.

The entire focus of the respondent is on the aspect of mens

rea/actus reus. Therefore, in view of the above averments made

in the petition, the respondent did not dispute the receipt of notice

but claimed that they have no intention to avoid the payment of

contribution and damages. As already stated in the previous

paragraphs herein before, the learned Chairman having relied on

the Judgments referred in the order found that in view of the

absence of mens rea/actus reus, no damages can be levied against

the respondent.

18. However, in a recent Judgment i.e., Horticulture

Experiment Station, referred above, the Hon'ble Apex Court was

pleased to observe that :

SSRN,J CMA No.159 of 2022

"Any default or delay in payment of EPF contribution by employer is sine qua non and sufficient for imposition of damages under Section 14-B - Mens rea or actus is not essential for imposing penalty/damages for breach of civil obligations/liabilities".

19. Section 85-B of E.S.I. Act reads as follows :

85-B : Power to recover damages :

1. Where an employer fails to pay the amount due in respect of any contribution or any other amount payable under this Act, the corporation may recover from the employer by way of penalty such damages not exceeding the amount of arrears as may be specified in the regulations.

Provided that before recovering such damages, the employer shall be given a reasonable opportunity of being heard.

Provided further that the Corporation may reduce or waive the damages recoverable under this Section in relation to an establishment which is a sick industrial company in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Financial Reconstruction established under Section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) subject to such terms and conditions as may be specified in regulations :

2. Any damages recoverable under sub-section (1) may be recovered as an arrear of land revenueor under Section 45-C to Section 45-I.

The respondent school is covered by the E.S.I. Act and there is no dispute about it even by the respondent. The record placed by the appellant clearly show that there was failure on the part of respondent in payment of contribution. It was not the case of respondent that no proper opportunity was provided for hearing.

SSRN,J CMA No.159 of 2022

20. In the above referred Judgment, the Hon'ble Apex

Court referred Judgment of Apex Court in Shriram Mutual Fund

case5, wherein it was observed that :

"mens rea is not an essential element for imposing penalty for breach of civil obligations".

21. In Para No.16 of the above referred Judgment i.e.,

Horticulture Experiment Station, the following observations was

made :

The Judgment on which the learned counsel for the

appellant(s) has placed reliance i.e. ESI Corpn. V. HMT Ltd., , the Division Bench in ignorance of the settled judicial binding precedent of which a detailed reference has been made, while examining the scope and ambit of Section 85-B of the Employees State Insurance Corporation Act, 1948 which is in pari materia with Section 14-B of the 1952 Act placing reliance on the judgment of Division Bench of this Court in Dilip N.Shroff v. CIT7, held that for the breach of civil obligations/liabilities, existence of mens rea or actus reus to be a necessary ingredient for levy of damages and/or the quantum thereof.