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2008 DIGILAW 271 (KER)

E. S. I. Corporation v. Qetcos Ltd.

2008-05-22

J.B.KOSHY, P.N.RAVINDRAN

body2008
Judgment:- J.B. Koshy, J. This appeal is filed by the Employees State Insurance Corporation. The first respondent in the appeal is a Co-operative Society organized by the Government of Kerala for providing employment opportunities to unemployed Engineers and Technicians. Since the unit was facing acute financial crisis due to erosion of working capital from 1992 onwards it was closed finally in March, 1996 and therefore the contributions to the Corporation were not remitted from August, 1994 onwards. During these periods, even the salary of the employees was not paid due to non-availability of funds. The Government took initiative to revive the Society and agreed to contribute Rs.105 lakhs to the share capital of the Society for which the members of the Society who are employees have to take shares worth Rs.27 lakhs forgoing certain amount of their salary arrears. The E.S.I. contribution arrears were paid with interest. The Corporation imposed damages on the delayed payment of contribution. The non-payment of contribution in time was not deliberate and there is no moda-fide intention and it was beyond the control of the Society and therefore, the imposition of damages was set aside by the Employees Insurance Court and the appeal was filed by the Corporation. 2. When the appeal came up before the learned single Judge, the respondent cited the decisions of this Court in E.S.I. Corporation v. Premanandan (2007 (2) KLT 666), wherein it was held that imposition of damages is by way of penalty and such damages can be imposed only in accordance with the principles applicable for imposing penalty for failure to carry out a statutory obligation and damages cannot be imposed unless the party acted either deliberately or in defiance of law or they were guilty of contumacious or dishonest conduct. It was also held that Reg. 31C of the Employees State Insurance (General) referred to a Division Bench, 3. If there is delay in the payment of contribution, the contribution is to be paid with statutory interest and interest cannot be waived in view of financial difficulties. The financial difficulty is not a ground for not paying the defaulted installment with interest. But as far as the question of imposition of damage is concerned, since it is penal in nature, the factual situation has to be considered by the authorities. The financial difficulty is not a ground for not paying the defaulted installment with interest. But as far as the question of imposition of damage is concerned, since it is penal in nature, the factual situation has to be considered by the authorities. The facts of case clearly show that the Society was unable to pay even the wages to the employees. But the salary arrears were paid by converting it into shares. The Society was once dosed due to financial difficulties and lack of funds. The contribution was paid with interest after the Government provided farther working capital. 4. Considering the facts of this case, weak the view that the waiver of damages was correctly done by the Employees Insurance Court. In this connection, counsel for the respondent also referred to a recent decision of the Supreme Court in Employees State Insurance Corporation V. H.M.T. Ltd. & Anr. (AIR 2008 SC 1322) wherein, the supreme Court held as follows: "It is well known principle of taw that a subordinate legislation must conform to the provisions of the Legislative Act S. 85B of the Act provides for an enabling provision. It does not envisage mandatory levy of damages. It does not contemplate computation of quantum of damages in the manner prescribed under the regulations. 13. The statutory liability of the employer is not in dispute. An employee being required to be compulsorily insured, the employer is bound to make his part of the contribution. An employee is also bound to make his contribution under the Act. But the same does not mean that levy of damages in all situations would be imperative. 14. S.85B of the Act uses the words ‘may recover’. Levy of damages thereunder is by way of penalty. The Legislature limited the jurisdiction of the authority to levy penalty, i.e., not exceeding the amount of arrears. Reg.31C of the Regulations, therefore, in our opinion, must be construed keeping in view the language used in the Legislative Act and not de hors the same." It was further observed as follows: "A penal provision should be construed strictly. Only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable from S.85B of the Act. Only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable from S.85B of the Act. When a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages by reason of an enabling provision, the same cannot be construed as imperative. Even otherwise, an end behaviour should be made to construe such penal provisions as discretionary, unless the statute is held to be mandatory in character." Relying on an earlier decision finally, the Apex Court held as follows: "21. Existence of mens rea or 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." A reading of Chandrasenan's Case (supra) would show that it was decided on the facts of that case. Mere financial difficulties alone or an order of the court granting installment facility to pay the amount of contribution at such is not aground for totally waiving the damages for delay in payment of contribution. In such circumstances, discretion has to be exercised by the authority concerned while imposing damages as the regulations only prescribe the maximum damages that can be imposed. But if there is no Mens rea and the employer was unable to pay the amount due to circumstances beyond his control to pay the, contribution in time, damages can be totally waived. The word used in S. 85B of the E.S.I. Act is the Corporation "may" recover damages and not "shall" recover. Therefore, it snot mandatory that in all cases, damages shall be recovered as per the regulations. If in all cases of delayed payment of contribution damages shall be recovered, at the flat rate prescribed by the regulations, there is no purpose for issuance of a show cause notice and grant of personal hearing. The language used in S.85B itself is clear that what is provided in the regulation is only the maximum amount of damages that can be imposed. It also provides that if the establishment is a Sick industrial company and is under the rehabilitation scheme by the Board for Industrial and financial Reconstruction, no damages need be imposed. S.85B of the E.S.I. Act reads as follows: "85B. It also provides that if the establishment is a Sick industrial company and is under the rehabilitation scheme by the Board for Industrial and financial Reconstruction, no damages need be imposed. S.85B of the E.S.I. Act reads as follows: "85B. 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 S.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." The mandate of S.858 and the rulings of the Apex Court clearly show that there is no reason to differ from the law laid down in E.S.I. Corporation v. Premanandan (2007 (2) KLT 666). Chandrasenan's case was decided on the facts of this case and there is no conflict of views. We fully agree with the impugned order of the E.I. Court on the facts of this case. The appeal is dismissed.