1. All these appeals are filed against the common order dated 12.9.2000 passed by the Employees State Insurance Court (hereinafter referred to as 'the ESI Court') in ESI Application No. 52/1998 and 28/1998. In the said applications, the Karnataka State Small Industries Development Corporation (hereinafter referred to as 'KSSIDC' for short) was the applicant and the Employees State Insurance Corporation (ESI Corporation) was the respondent. The ESI application No. 28/98 relates to claim of interest and ESI Application No. 52/1998 relates to the claim of damages by the ESI Corporation. The ESI Court by its order dated 12.9.2000 has limited the claim of interest only to the periods from 7.2.1997 to 25.10.1997 and damages at 25% for the said period. The ESI Corporation being aggrieved by the limiting of the interest has preferred MFA No. 272/01 and in so far as reducing the damages has filed MFA No. 270/01. The KSSIDC being aggrieved in so far as granting interest even for the said period has filed MFA No. 4679/00 and in so far as granting damages has filed MFA No. 4553/00. Since MFA Nos. 272/01 and 4679/00 relate to the issue pertaining to interest, the said appeals would be considered together and since the appeal Nos. 270/01 and 4553/00 relate to damages, the said appeals would be considered together.
2. In order to avoid confusion and for the sake of convenience, the parties would be referred to as ESI Corporation and KSSIDC respectively.
3. The issue relating to the coverage of KSSIDC under the ESI Act, 1948 ('the Act' for short) for the payment of contribution in respect of employees was initially disputed by KSSIDC. The ESI Corporation by an order dated 3.1.1989 passed under Section 45A of the Act had determined the contribution at the rate of 7.2.% of the wages of Rs. 2,65,82,725.58 for the period from 27.1.1985 to 31.3.1987 and thus determined the contribution in a sum of Rs. 19,27,248/-. The KSSIDC being aggrieved by the said determination of contribution challenged the same before the ESI Court, Bangalore in ESI application No. 39/89. Initially, it disputed the coverage itself under Section 1(5) of the Act and also the notification thereof, however, the challenge to the coverage was conceded subsequently and only the quantum of the contribution determined was under challenge in the said ESI Application No. 39/89. The ESI Court, after considering the rival contentions and taking into consideration the evidence available before it more particularly salary statement maintained by KSSIDC, by its order dated 7.2.1997 arrived at the conclusion that the order of the ESI Corporation dated 3.1.1989 pasted under Section 45A determining the contribution in a sum of Rs. 19,27,248/- is to be set aside and in its place came to the conclusion that the KSSIDC was liable to pay contribution on a sum of Rs. 89,29,386/- at the rate of 7.25% and therefore determined the contribution at Rs. 6,47,380.48. The said order attained finality and the contribution as determined was paid by the KSSIDC to the ESI Corporation on 25.10.1997.
4. Subsequent to the payment of the said contribution as stated supra, the ESI Corporation by its order dated 17.8.1998 under Section 85B of the Act levied damages of Rs. 3,89,698/- and by notice dated 22.4.1998 sought to recover the sum of Rs. 7,98,552/- towards interest for the period from 1.12.1986 to 25.10.1997 for belated payment of contribution. The KSSIDC being aggrieved by the levy of damages vide order dated 17.8.1998 preferred ESI Application No. 52/1998 under Section 75(1)(g) of the Act. In so far as the notice dated 22.4.1998 seeking to recover the interest, the KSSIDC filed ESI Application No. 28/1998. The said ESI Application Nos. 52/1998 and 28/1998 were clubbed together, considered and disposed of by the ESI Court by a common order dated 12.9.2000 whereby the damages claimed at Rs. 3,89,698/- was reduced to 25% of the contribution amount and the interest was limited for the periods from 7.2.1997 to 25.10.1997 i.e., the date of the order passed by the ESI Court till the date of payment of the contribution by the KSSIDC. It is against the said order, the appeals have arisen in the nature as indicated supra.
5. We have heard Smt. Geethadevi, learned Counsel appearing for the ESI Corporation and Sri P.S. Manjunath, learned Counsel appearing for the KSSIDC at length.
REGARDING INTEREST:
6. We would first advert to the issue relating to claim of interest and as such the appeals in MFA No. 272/01 and 4679/09 are considered.
In order to justify the claim of interest Smt. Geethadevi, learned Counsel appearing for the ESI Corporation would contend that the ESI Act is a self-implementing Act inasmuch as, the moment an establishment is covered under the provisions of the Act, it is the primary obligation of the employer to deduct the contribution from the employees' wages and pay the same to the ESI Corporation with a matching contribution of the employer as contemplated under Section 39 and 40 of the Act. Further, Section 44 of the Act creates an obligation on the employer to submit to the Corporation the returns pertaining to such deduction and payment of contribution. For delayed payment of contribution, Section 39(5)(a) of the Act makes the employer liable to pay interest as specified in the Employees State Insurance (General) Regulations 1950 (hereinafter referred to as the 'regulations'). In this regard, Regulation 31 prescribes the time for payment of contribution and Regulation 31-A provides for charging of interest if the contribution is not paid within the period specified in Regulation 31. Learned Counsel thus referring to the relevant provisions of the Act and the regulations relating to payment of contribution and interest for delayed payment of contribution would contend that at the first instance, the KSSIDC was liable to pay its contributions when the establishment was covered under the Act with effect from 27.1.1985 and since the KSSIDC had failed to pay the contribution, ESI Corporation had quantified the same by its order dated 3.1.1989. It is nodoubt true that the KSSIDC challenged the said quantification initially on the ground that the KSSIDC was not covered under the Act, but once they had conceded that aspect of the matter, what required was only the quantification of the amount by the ESI Court in ESI Application No. 39/89. The quantification of the contribution as had been done by the ESI Corporation by its order dated 3.1.1989 however was not accepted by the ESI Court and the contribution at Rs. 6,47,380.48 had been determined. The said determination of the contribution by the ESI Court had been accepted by both the parties and despite the same the amount had been paid only on 25.10.1997. The effect of such quantification of the contribution by the ESI Court in the earlier proceedings in ESI No. 39/1989 would relate back to the original date of the wage period for which the contribution was to be paid and therefore the payment ought to have been made during the said wage period and as such as per the provisions of the Act and the regulations, the interest was liable to be paid from the date of when the contributions became due and not from the date on which the ESI Court determined the quantum of the contributions at a reduced quantum. In this regard, white assailing the order passed by the ESI Court in ESI 28/1998, learned Counsel would contend that the ESI Court has seriously erred in this regard by limiting the interest only to the period from 7.2.1997 i.e., the date of the order passed in ESI Application No. 39/1989 up to the date of deposit made by KSSIDC i.e., 25.10.1997. The learned Counsel would contend that the ESI Corporation by its order dated 3.1.1989 passed under Section 45A of the Act had determined the contribution and it is from that period the interest accrues for non-payment of contribution even though for the reduced quantum. Even assuming for a moment that a lesser amount was liable to be paid, it was incumbent upon the KSSIDC to have paid the said amount at that stage and it cannot take advantage of the order of stay which had been granted by the ESI Court in the earlier proceedings.
7. Sri P.S. Manjunath, learned Counsel appearing for the KSSIDC sought to contend that if at all there is any error in the order passed by the ESI Court, it is to the extent of allowing the claim of interest for the period from 7.2.1997 to 25.10.1997 since according to the learned Counsel the payment of contribution itself was disputed by the KSSIDC since it was providing better medical facilities to its employees. Therefore the KSSIDC was not liable to pay contribution under the ESI Act. There was bonafide dispute which had been raised by the KSSIDC and therefore even assuming for a moment that some interest was required to be paid, it is only from the date the ESI Court determined the quantum of contribution in ESI No. 39/1989 and not for the earlier period. The learned Counsel would further contend that in fact the KSSIDC has been subsequently exempted from the coverage of the Act from 1.1.1992 in view of the better medical facilities being given to the employees. Even though for the earlier period the coverage has been considered before the ESI Court, even then the interest cannot be levied since no medical facilities have been availed by the employees.
8. In the light of the contentions advanced by the respective learned Counsel and in order to appreciate the same, keeping in view the scheme of the ESI Act on this aspect of the matter, it is necessary to refer to the relevant provisions of the Act which have been referred at the time of the argument.
Section 39.Contributions.-1) The contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer's contribution) and contribution payable by the employee (hereinafter referred to as the employee's contribution) and shall be paid to the Corporation.
2) xxxxxxxxxxx
3) xxxxxxxxxxx
4) The contributions payable in respect of each (wage period) shall ordinarily fall due on the last day of the (wage period), and where an employee is employed for part of the (wage period), or is employed under two or more employers during the same (wage period), the contributions shall fall due on such days as may be specified in the regulations.
5(a) If any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has become due, he shall be liable to pay simple interest at the rate of twelve percent per annum or at such higher rate as may be specified in the regulations till the date of its actual payment:
Provided that higher interest specified in the regulations shall not exceed the lending rate of interest charged by any scheduled bank.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 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 deduction 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. 44(1).- Employers to furnish returns and maintain registers in certain cases.- 1) Every principal and immediate employer shall submit to the Corporation or to such Officer of the Corporation as it may direct such returns in such form and containing such particulars relating to persons employed by him or to any factory or establishment in respect of which he is the principal or immediate employer as may be specified in regulations made in this behalf.
9. In the instant case, the KSSIDC is a covered establishment under the ESI Act with effect from 27.1.1985. The quantum of contribution was determined by the ESI Court on 7.2.1997 and paid by KSSIDC on 25.10.1997. The question to be considered in this back ground is:
i) Whether the KSSIDC would be liable to pay interest on the determined contribution of Rs. 6,47,380.48ps from 1.12.1986 to 25.10.1997 i.e., after 21 days from the date of issuing the notice dated 11.11.1986 to the date of deposit of contribution or whether the interest is payable for the period from 7.2.1997 to 25.10.1997 i.e., for the period from the date of order in ESI No. 39/89 till the date of deposit or whether no interest is payable at all?
10. What is required to be kept in mind while examining this question is that the ESI Act is a social welfare legislation whereunder the deduction and payment of contribution has been mandated for the health and welfare of the employees who are employed in the covered establishment. In the instant case, as already noted above, the fact that the establishment is covered with effect from 27.1.1985 cannot be in dispute since the same was conceded by the KSSIDC in the original ESI proceedings itself. If that be so, the next question would be as to the liability of KSSIDC to pay the contribution and the period during which such liability had arisen. In this regard the dates are quite clear inasmuch as once the establishment is covered under the Act, the contribution would have to be paid for every wage period from the date of coverage. In these appeals, the wage periods in question is February 1985 to March 1987. With regard to payment of contribution for the said wage period, nodoubt at the first instance, ESI Corporation by its order dated 3.1.1989 had determined the contribution at Rs. 19,27,248/- and against such determination, the KSSIDC had filed ESI Application No. 39/1989 and the same was pending before the ESI Court till its disposal on 7.2.1997. It is not in dispute that during the pendency of the said proceedings, the order dated 3.1.1989 had been stayed by the ESI Court. Subsequently when the ESI application was disposed of by the ESI Court on 7.2.1997, the contribution which had been determined by the ESI Corporation was reduced by the ESI Court to Rs. 6,47,380.48ps. The said determined contribution was deposited on 25.10.1997. Further, the provisions of the Act and the regulations extracted above would clearly indicate that the Act has cast a duty on the employer himself to deduct the contribution from the employee and pay his contribution and for the delayed payment, the levy of interest is also contemplated under Section 39(5)(a) read with Regulations 31 and 31A. On these aspects there is no confusion whatsoever nor can the power of the ESI Corporation to levy interest be disputed in view of the unambiguous language in the provisions referred to above.
11. The short question however is whether the ESI Corporation is empowered to levy interest even for the period when the matter was pending before the ESI Court where stay had been granted by the Court against the order of determination of the contribution. Even though the learned Counsel for ESI Corporation has relied on several decisions of the Hon'ble Supreme Court and the other Courts, we would rely on one relevant decision on this aspect which is rendered by the Hon'ble Supreme Court in the case of Rajasthan Housing Board and Ors. v. Krishna Kumari 2005(13) SCC 151 wherein the Hon'ble Supreme Court while considering the effect of a temporary injunction granted under Order 39 of CPC has explained the effect of the interim order during the pendency of the case and the liability for payment of interest for the said period. While rendering the said decision, the Hon'ble Supreme Court has referred to the other decisions on this aspect which have been referred to by the learned Counsel for the ESI Corporation. We therefore would not advert to in detail to all the other decisions except to look into the said case of RAJASTHAN HOUSING BOARD referred supra. The Hon'ble Supreme Court, while considering this aspect of the matter, has referred to the legal maxim actus curiae neminem gravabit which would mean that an act of the Court shall prejudice no man. In the said case, the respondent therein had filed a complaint under the provisions of the MRTP Act against the Rajasthan Housing Board questioning the demand of enhanced amount of consideration for the house allotted to her. During the pendency of the proceedings the MRTP Commission had granted the interim order restraining the Housing Board from cancelling the allotment. However, subsequently the complaint came to be dismissed but the commission while doing so, had directed the Housing Board not to claim interest on the amount due from the respondent during the period of stay granted by it. Against the said order when the Housing Board was before the Hon'ble Supreme Court, the Hon'ble Supreme Court has come to the conclusion that grant of interim order is at the risk and responsibility of the person who obtains it and ultimately if the case is decided against such person, he would be liable to pay interest on the arrears of amount due which was stayed by an interim order. Therefore, the Hon'ble Supreme Court held that MRTP commission was not justified in waiving claim of interest.
12. On the other hand Sri P.S. Manjunath, learned Counsel appearing for KSSIDC sought to justify the contention of KSSIDC that the liability for payment would arise only after determination by the ESI Court and in this regard sought to place reliance on a decision of the Hon'ble Supreme Court in the case of Good Year India Limited v. Regional Director, ESI Corporation : (1997)IILLJ366SC wherein according to the learned Counsel, the Hon'ble Supreme Court has declared that cause of action for contribution would arise only after decision by the Insurance Court in a proceedings under Section 75 of the Act. We have carefully perused the said judgment and we notice that the liability to pay contribution as contemplated under Section 39(1) and (4) of the Act was not the issue. On the other hand the Hon'ble Supreme Court was considering the limitation period for the purpose of recovery to be made by the ESI Corporation with reference to Section 45B and application under Section 77(1-A). In that context, no doubt the cause of action for contribution would arise on the decision of the Insurance Court and therefore the limitation period would have to be computed from that date since till then recovery cannot be made, whereas in the instant case levy of interest for the period when the covered establishment has enjoyed the benefit of stay before the Insurance Court is the question. Therefore the said decision cannot be of assistance to the KSSIDC.
13. In the instant case, it is the KSSIDC who had approached the ESI Court challenging the determination of contribution by the ESI Corporation and had obtained the interim order of stay which was in operation till the application was disposed of. No doubt, ultimately the quantum of amount which had been determined by the ESI Corporation was reduced by the ESI Court and the entire determination had not been set aside. Therefore the resultant position would be that quantum determined by Order dated 3.1.1989 which was under challenge had been scaled down from 19,27,248/- to Rs. 6,47,380.48 which would mean that the said amount of Rs. 6,47,380.48 would become payable as on the date the contribution was determined by the ESI Corporation. More particularly keeping in view the scheme of the Act, even assuming for a moment that KSSIDC had disputed the quantum, it was incumbent on them to deposit at least the admitted contribution more particularly since the Act casts a duty on the employer to deduct, pay the contribution and to maintain records with regard to the same and as such the KSSIDC being the employer ought to have been aware of the wage period and appropriate contribution which was due according to them ought to have been deposited. This is more so because even the ESI Court had relied on the wage registers maintained by KSSIDC itself to scale down the contribution and therefore they could have paid atleast that amount at an earlier point. If not earlier atleast it could have been paid at the point when exemption was granted on 1.1.1992 since the implication is that the exemption is made only if there is coverage, atleast that would have established their bonafides. Without doing so, it could not have taken advantage of the stay till the ESI Court disposed of the application and thereafter contend that the contribution was determined for the first time when the ESI Court disposed of the application. Therefore in the present case since the KSSIDC is making an attempt to take advantage of the stay which was operating in its favour cannot do so in view of the law laid down by the Hon'ble Supreme Court in the case of Rajasthan Housing Board.
14. The order determining the contribution had been made by the ESI Corporation on 3.1.1989. The ESI application No. 39/89 had been preferred before the ESI Court and stay had been granted on 2.3.1989. Even though the coverage had been initially questioned by the KSSIDC, the same was conceded subsequently. Once the coverage which had been questioned is accepted or negatived, the law is well settled that the coverage would relate back to the date on which the establishment was covered under the Act. Further the relevant provisions extracted and noticed by us supra would indicate a duty is cast on the employer himself to deduct and pay the contribution. Hence we see force in the contention of the learned Counsel for the ESI Corporation in this regard. That being so, we are of the view that the ESI Court was not justified in limiting the interest only for the periods from 7.2.1997 to 25.10.1997. On the other hand, the KSSIDC is liable to pay interest for the entire wage period till the date of deposit of the amount as claimed by the ESI Corporation by its notice dated 22.4.1998.
REGARDING DAMAGES
15. Next, we would advert to the issue relating to claim of damages and as such the appeals in MFA Nos. 270/01 and 4553/00 are considered. This issue does not admit of serious controversy between the parties inasmuch as the power available with the ESI authorities under Section 85B of the Act to recover damages cannot be disputed. Further Regulation 31-C provides a definite guideline for the imposition of damages at the percentage specified therein depending on the period of delay in payment of contribution. In so far as recovery of damages is concerned, the discretion vests with the ESI authorities taking into the facts and circumstances of the case but within the framework of Section 85B and the regulations in that regard.
16. We have perused the order dated 17.8.1998 passed under Section 85B of the Act whereunder the order for recovery of damages has been made. With regard to the issue of damages the period prior to 7.2.1997 is not a contentious issue since the Regional Director while passing the said order has excluded the said period between 2.3.1989 to 7.2.1997 using his discretion and thereafter has levied the damages in accordance with the guidelines prescribed under Regulation 31-C of the Regulations. The perusal of the order would indicate that the Regional Director has not specified any percentage at which the damages has been quantified but, has mentioned the total amount of Rs. 3,89,698/- which works out approximately about 60% of the contribution amount determined by the ESI Court. Even though the said order imposing damages is made after excluding the period from 2.3.1989 to 7.2.1997 the period thereafter i.e., from 7.2.1997 to 25.10.1997 would be more than six months. Regulation 31-C(iv) provides that in respect of the period of delay for six months and above, the minimum rate of damages to be levied is 25%. Therefore, even though the Regional Director has excluded the period from 2.3.1989 to 7.2.1997 the remaining period would, in any event, be more than six months and would have to levy the damages at more than 25% of the amount due. Hence, the exclusion of the period in any event has not added to the advantage of KSSIDC. The Regional Director while exercising the discretion to levy damages at more than 25% has not indicated any specific reasons to impose the damages at Rs. 3,89,698/-. As we have already noted, the exclusion of the earlier period has not been of any advantage to KSSIDC and therefore if that is one of the circumstances which has been taken by the Regional Director and thereafter the damages is levied, the same would indicate non-application of mind and the same has been done only in mechanical fashion without indicating the reasons nor taking into account the facts and circumstances of this case since the delay is not much from the last slot of six months and above. The ESI Court while examining such orders nodoubt has the power to examine as to whether Regional director has exercised the discretion vested in him under Section 85B of the Act and if any interference it required, it is open to the ESI Court to do so. In this regard, the ESI Court, taking into consideration the totality of the circumstances involved in the present case, has limited the levy of damages to 25% since that is the rate which is the minimum prescribed under Regulation 31-C(iv). We do not see any serious error in the order passed by the ESI Court in fixing the levy of damages at 25%.
17. This we say taking into consideration the long history of this case and there were certain disputes in the matter at an earlier point of time and the minimum of the damages has been levied by the ESI Court. Therefore, the ESI Corporation cannot make any grievance in this regard. Similarly, the KSSIDC also cannot have any grievance since as stated by us, even if the said period from 2.3.1989 to 7.2.1997 is excluded and thereafter the date of deposit of the contribution i.e., 25.10.1997 is taken into account, there is a delay of more than six months and therefore the minimum damages leviable under Regulation 31-C(iv) is 25% and the same has been levied. Therefore, both the appeals filed by the KSSIDC and the ESI Corporation are without merit.
18. In the result, the following:
ORDER
i) MFA No. 272/01 filed by the ESI Corporation relating to interest is allowed.
ii) The Order dated 12.9.2000 passed by the ESI Court in ESI No. 28/98 limiting the claim for interest is set aside.
iii) MFA No. 270/01 filed by the ESI Corporation and MFA Nos. 4553/00 and 4769/00 filed by the KSSIDC are rejected.
iv) In the peculiar facts and circumstances of these cases no order as to costs.