Oral Judgment:
1. This appeal filed under Section 82 of the Employees State Insurance Act, 1948 (for short, the said Act) takes exception to the order dated 02.02.2007 passed by the learned Member, Employees State Insurance Court Nagpur, in proceedings under Section 75 of the said Act. By the said order the application under Section 75 of the said Act came to be dismissed and the demand towards contribution made by the respondent has been confirmed.
2. The facts giving rise to the present proceedings are that, the appellant is a registered partnership firm carrying on business of exhibition of films. Four theaters are being run by the appellant in which it had engaged its own employees. The establishment conducted by the appellant is governed by the provisions of the said Act and the coverage is with effect from 27.11.1976. On 15.02.1978 an inspection was carried out by the Inspector of the Corporation. During said inspection the coverage of employees of the cycle stand and canteen in the theaters was directed to be done. According to the appellant the persons working on the cycle stand and in the canteen were not the employees of the appellant. According to the appellant this explanation was accepted and no further demand was raised till about February 1994. It is the further case that in the year 1982 a writ petition came to be filed in the matter of payment of provident fund dues. This writ petition was withdrawn in the year 1989. Thereafter again inspections were carried out by the officers of the Corporation. After exchange of communications between the parties the Assistant Regional Director of the Corporation issued two notices dated 21.02.1995 seeking to determine the amount of contribution payable under Section 45A of the said Act. In the first notice a demand of contribution of Rs.1,29,052/- was made for the period from 27.11.1976 till 31.12.1992. By the second notice a demand of Rs.10,928/- for the period from April 1985 till March 1989 was made.
3. In response to the aforesaid notices the appellant submitted its reply on 09.03.1995. It was stated in the reply that the appellant was not the employer of the persons working on the cycle stand or in the canteen. The cycle stand and the restaurant had been given on lease and the persons who were working therein were the employees of the lessee who was a separate entity. It was further stated that the demand as made from the year 1976 was belated. As all records had been produced during the course of inspection it was stated that the appellant was not liable to pay any amount of contribution as demanded.
In so far as the second notice is concerned a similar reply was given and the liability to pay contribution was denied.
4. The appellant on 05.04.1995 placed on record of the Assistant Regional Director of the Corporation various licence agreements from the year 1986-87 onwards. Thereafter on 26.05.1995 Assistant Regional Director of the Corporation passed an order under Section 45A of the said Act and directed payment of contribution of Rs.1,29,052/- for the period from 27.01.976 till 31.03.1985 and from 01.04.1989 till 31.12.1992. This amount was directed to be paid with interest at the rate of 18% P. A.
5. The appellant company being aggrieved by the aforesaid adjudication filed an application under Section 75 of the said Act. It reiterated its stand that was taken in the reply to the show cause notice issued before passing the order under Section 45A of the said Act. It was denied that the appellant was the "immediate employer" and also the fact that it was not liable to pay any amount of contribution.
The written statement came to be filed on behalf of the respondent-Insurance Inspector. After the issues were framed the appellant examined its General Manager as well as the representative of various lessees in support of its case.
After considering the entire evidence on record the learned Member of the Employees' State Insurance Court held that though the cycle stand and the canteen in the theaters were meant for cinema viewers, the said facilities were not restricted only for outsiders and that even the cinema viewers could avail the same. The demand as made in the notice was held to be valid. It was then observed that actual wages paid to the employees of the cycle stand and the canteen were not brought on record and therefore the adhoc calculation as made was just and reasonable. The learned Member relied upon the decision of the Hon'ble Supreme Court in Royal Talkies, Hyderabad and others Vs. Employees' State Insurance Corporation through its Regional Director, Hill Fort Road, Hyderabad AIR 1978 Supreme Court 1478 and by order dated 02.02.2007 dismissed the application filed under Section 75 of the said Act.
6. The appellant being aggrieved by the aforesaid adjudication has filed the present appeal. On 24.04.2007 the following substantial questions of law were formulated:
1] Whether the order dated 26.05.1995 was bad in law for non compliance of the principles of natural justice as well as lack of jurisdiction as the E.S.I. Department had failed to furnish requisite material to the appellant on the basis of which the liability for past recovery was confirmed?
2] Whether the burden was on the appellant to prove that the employees employed by the Canteen and Cycle Stand owners were not its own employees and as such were not covered under the E.S.I. Act?
3] Whether the findings recorded by the E.S.I. Court that "the activity of canteen and cycle stand run by the appellant's tenant in the leased premises was primarily meant for the Cinema viewers though outsiders were permitted to enjoy the said facility" is perverse and whether the liability fastened upon the appellant to pay E.S.I. Contribution on the basis of the said finding is bad in law and deserves to be set aside?
4] Without there being any physical identification of the beneficiaries, i.e. the employees purported to have been employed by the owners of the canteen and cycle stand/appellant's tenants during the period from 1976 to 1992 who could be covered under the E.S.I. Act whether the order dated 26.05.1995 passed under Section 45A fastening liability upon the appellant to pay arrears of E.S.I. Contribution is valid and sustainable in law?
7. Shri H.V. Thakur, the learned Counsel for the appellant submitted that the initial order passed by the Assistant Regional Director of the Corporation under Section 45A of the said Act was bad in law as it had been passed in breach of principles of natural justice. It was submitted that the notice dated 21-2-1995 (Exhibit-27) had been issued to the appellant on the basis of the information that was available with the Corporation. On the basis of said information a demand of contribution of Rs.1,29,052/- came to be made. In response to aforesaid notice the appellant by its reply dated 9-3-1995 (Exhibit-56) made a request to the Corporation to furnish all relevant material that was relied upon for issuing the show cause notice. It was submitted that certain records available with the appellant were made available by the appellant along with the communication dated 5-4-1995 (Exhibit-58). However, without supplying the material demanded and without grant of any further hearing, the order under Section 45A of the said Act came to be passed on 26-5-1995. According to the learned Counsel, it was necessary for the Corporation to have supplied the material on the basis of which the show cause notice was issued. However, without doing so, the order under Section 45A of the said Act came to be passed. In that regard, the learned Counsel placed reliance on the judgment in ESI Corporn. v. Central Press and anr.(1977) 2 SCC 581 and Bharat Heavy Electricals Ltd. v. ESI Corpn. (2008) 3 SCC 247. It was urged that this aspect of the matter was urged before the Insurance Court but the same was not considered.
It was then submitted that the Assistant Regional Director proceeded to demand contribution by relying upon the judgment of the Hon'ble Supreme Court in Royal Talkies, Hyderabad (supra) without noticing various distinguishing features. He submitted that the premises where the cycle stand and the canteen were being operated had been given on license. The employees of the licensees were not the employees of the appellant and, therefore, the liability could not have been fastened on the appellant to pay the amount of contribution. He sought to distinguish the aforesaid judgment. It was further urged that the identification of the concerned employees for whose benefit the insurance contribution was sought was required to be made. In absence of any identification of such employees, no order saddling liability to pay contribution could have been fastened. The burden in that regard was on the Corporation, but it had failed to discharge the same. The learned Counsel relied upon the decisions in Sandeep Dwellers pvt. Ltd., Nagpur v. Union of India and Ors. 2006(III) CLR 748, ESI Corpn. v. Bhakra Beas Management Board and another, (2009) 10 SCC 671, ESIC v. Om Prakash and others 2010 II LLJ 524 and ESIC Vs. Pioneer Laundry 1966 II LLJ 425 in that regard. It was further urged that though the demand of contribution was required to be made within reasonable period the same was not done. He submitted that even as per the decision in ESI Corpn Vs. C.C. Shanthkukar (2007) 1 SCC 584, the demand was made beyond reasonable period. The demand for the period from 1976 to 1985 and from April 1989 to March, 1992 was being made in February, 1995. The demand of interest @ 18% per annum was also illegal. It was, therefore, submitted that the substantial questions of law as formulated while admitting the appeal were liable to be answered in favour of the appellant.
8. Smt. B.P. Maldhure, the learned Counsel for the respondent No.1 supported the impugned order. According to her, the exercise of power under Section 45A of the said Act was justified in the facts of the present case. It was submitted that the Assistant Regional Director was justified in relying upon the ratio of the judgment in the case of Royal Talkies, Hyderabad (supra) while passing the order under Section 45A of the said Act. She submitted that initially a notice dated 1-6-1978 had been issued seeking contribution for the period from December 1976 to December 1977. Between the period from 1978 to 1994, steps were not taken by the Corporation as the writ petition filed by the appellant was pending. It was submitted that it was the responsibility of the appellant to maintain the relevant records and as the same were not submitted despite demand, an ad hoc assessment was required to be made. The facility of canteen and cycle stand was for the benefit of cinema viewers and in that backdrop the appellant as the principal employer was liable to pay contribution. It was submitted that the demand of contribution under Section 45A of the said Act was made after grant of full opportunity to the appellant and there was due compliance with the principles of natural justice. In support of her submissions, the learned Counsel placed reliance on the following judgments:
(1) Transport Corpn. Of India v. Employees State Insurance Corpn. (2000)1 SCC 332.
(2) Saraswath Films V. ESI Corpn. (2010)11 SCC 553
(3) ESIC v. M/s Harrison Malayalam Pvt. Ltd. AIR 1993 SC 2655.
(4) ESIC v. Hotel Kalpaka International 1993 (1) CLR 332 and
(5) Regional Director ESIC Corpn. v. Amalgamation Repco Ltd. 1982 LIC 1691.
It was, therefore, submitted that the appeal did not give rise to any substantial question of law and the same was liable to be dismissed.
9. With the assistance of the learned Counsel for the parties, I have perused the records of the case and I have given due consideration to their respective submissions. For the purposes of considering the substantial question of law framed at Sr. No.1, it would be necessary to consider certain facts. On 21-2-1995, the Corporation through its Assistant Regional Director issued show cause notice to the appellant (Exhibit-27) as to why the contribution under Section 45A of the said Act of an amount of Rs.1,29,052/- should not be determined and recovered. In para 2 of the show cause notice, it has been stated that on the basis of information laid before the Assistant Regional Director and on its consideration, the Assistant Regional Director had a reason to believe that the contribution in respect of cycle stand and canteen for the period specified had not been paid. In response to aforesaid notice, the appellant submitted its reply on 9-3-1995 (Exhibit-56). In said reply, the appellant requested the Authority to furnish relevant material which was mentioned in para 2 of the notice so as to enable it to reply to the same. A right was also reserved for filing an additional reply after the said material was supplied. The claim as made by the Assistant Regional Director was, however, denied. Thereafter on 5-4-1995 (Exhibit-58) the request for supply of material was reiterated. However, certain records available with the appellant were supplied to the Assistant Regional Director. On 25-5-1995, the order under Section 45A of the said Act came to be passed.
10. The provisions of Section 45A of the said Act require submission or furnishing of records as per provisions of Section 45 of the said Act. The Corporation on the basis of information available to it can pass an order demanding the amount of contribution payable in respect of the employees of the establishment. This is, however, to be done after giving a reasonable opportunity of being heard to the principal or immediate employer or person in-charge as the case may be. In Employees State Insurance Corporation, Bhopal (supra), the Hon'ble Supreme Court observed that where there is an omission on the part of the employer to maintain records as per Section 44 of the said Act, it has to determine the amount of contribution on the strength of such information as it may collect. It can then make the demand. It has further observed that the Corporation has to itself collect the information initially and make a provisional demand. In Bharat Heavy Electricals Ltd. (supra), it was observed that in proceedings initiated under Section 45A of the said Act an immediate employer or principal employer may show that it is not liable to pay any contribution on behalf of the employees as the establishment did not come under the purview of the said Act.
From the aforesaid it is clear that the Corporation can demand the amount of contribution acting on the information available with it and after giving a reasonable opportunity to the person from whom such contribution is demanded.
11. The facts of the present case indicate that the show cause notice at Exhibit-27 was issued on the basis of the information that was available and placed before the Assistant Regional Director who after considering the same had reason to believe that the contribution for the employees of the cycle stand and the canteen was not paid. The appellant demanded the information/material which was relied upon by the Assistant Regional Director for issuing a show cause notice with a view to contest the proceedings. This demand was reiterated in the communication dated 5-4-1995 (Exhibit-58). The order passed under Section 45A refers to the reply dated 9-3-1995 as well as the communication dated 5-4-1995. It, however, does not reflect any consideration of the demand made by the appellant for supply of relevant material to it. The request for supply of the material on the basis of which the show cause notice was issued has not been rejected, nor has it been held that the demand for such information was unjustified. Without considering the request to supply information as sought, the demand of contribution has been made. It is, therefore, clear that failure to consider the request for supply of material on the basis of which the demand of contribution was made has resulted in reasonable opportunity not being granted to the appellant thus vitiating the entire exercise. It need not be reiterated that a reasonable opportunity of being heard would include supply of material on the basis of which the impugned action of demand was initiated. The request for supply of information has not been refused. There is, thus, failure to consider the request as made.
Similarly, after the appellant supplied copies of the license agreements on 5-4-1995, no further hearing was granted and the impugned order came to be passed. Thus, there was no effective hearing before the impugned order was passed. These aspects going to the root of the mater have been lost sight of by the Employees State Insurance Court also. The order passed under Section 45A of the said Act cannot be sustained. The substantial question of law at Sr. No.1 is answered in favour of the appellant.
12. As it has been found that the order dated 26-5-1995 passed by the Assistant Regional Director under provisions of Section 45A of the said Act is bad in law on account of failure to furnish requisite material resulting in non-compliance of the principles of natural justice, it is found necessary that the Authority under the said Act should reconsider the matter on the basis of the show cause notice dated 21-2-1995 issued to the appellant. In that view of the matter, it would not be necessary to answer substantial questions of law framed at Sr. Nos.2 to 4. As the entire matter is required to be reconsidered, consideration of these questions at this stage is not warranted. As a consequence of the answer to the substantial question of law at Sr. No.1, the following order is passed:
(1) The order dated 25-5-1995 passed by the Assistant Regional Director under Section 45A of the said Act as well as order dated 2-2-2007 passed by the Employees State Insurance Court in Application No.12/1995 stand set aside.
(2) The proceedings are remanded to the Assistant Regional Director for fresh consideration in accordance with law and in the light of the observations made herein above. It is made clear that the respective contentions of the parties on merits are kept open for due adjudication.
(3) As the proceedings have been initiated in the year 1995, the same are expedited. The Assistant Regional Director shall take necessary decision in accordance with law expeditiously.
(4) The records of the case be sent to the Employees State Insurance Court, Nagpur.
(5) The first appeal is allowed in aforesaid terms with no order as to costs.