Karnataka High Court
Employees State Insurance Corporation vs M/S Binny Ltd on 3 February, 2020
Author: B.M.Shyam Prasad
Bench: B.M.Shyam Prasad
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 03RD DAY OF FEBRUARY, 2020
BEFORE
THE HON'BLE MR.JUSTICE B.M.SHYAM PRASAD
MISCELLANEOUS FIRST APPEAL NO. 4004 OF 2010 (ESI)
BETWEEN:
EMPLYOYEES STATE INSURANCE CORPORATION
NO.10, BINNY FIELDS
BINNYPET, BENGALURU - 560 023
REPRESENTED BY ITS DEPUT DIRECTOR.
... APPELLANT
(BY SMT. GEETHA DEVI N.P, ADVOCATE)
AND:
M/S BINNY LTD.,
P.B. NO. 2301, AGRAHARAM ROAD
BENGALURU - 560 023
REPRESENTED BY ITS DIRECTOR.
... RESPONDENT
(RESPONDENT IS SERVED AND UNREPRESENTED)
THIS MISCELLENEOUS FIRST APPEAL IS FILED UNDER
SECTION 82(2) OF THE EMPLOYEES STATE INSURANCE ACT
AGAINST THE ORDER DATED 11.03.2010 PASSED IN E.S.I
APPLICATION NO.35/2008 ON THE FILE OF THE JUDGE,
EMPLYEES INSURANCE COURT, BENGALURU, ALLOWING THE
APPLICATION FILED UNDER SECTION 75 OF THE EMPLOYEES
STATE INSURANCE ACT, FOR CHALLENGING THE ORDER.
THIS MISCELLANEOUS FIRST APPEAL HAVING BEEN HEARD
AND RESERVED ON 17.01.2020 AND COMING ON FOR
PRONOUNCEMENT OF JUDGMENT THIS DAY, THE COURT
DELIVERED THE FOLLOWING:
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JUDGMENT
The State Employees Insurance Corporation, Bengaluru (for short, 'the E.S.I Corporation') has filed this appeal impugning the order dated 11.03.2010 in E.S.I Application No.35/2008 on the file of the Employees State Insurance Court, at Bengaluru (for short, 'the ESI Court'). The ESI Court by the impugned order dated 11.03.2010 has allowed the respondent's application under Section 75(2) of Employees State Insurance Act, 1948 (for short, 'the ESI Act') setting aside the order dated 17/20.03.2008 under Section 45-A of the ESI Act calling for contribution in a sum of Rs.2,72,168/- for the wage period between 01.07.2005 and 31.03.2006.
2. The respondent stopped manufacturing in its Bangalore Mill in the month of February 2003. The respondent paid 'Ideal Wages' to its employees on a staggered basis for the period upto December 2003. The -3- respondent's mill was closed as of 22.05.2004. The respondent and the Employees' representatives entered into a Memorandum of Conciliation on 30.06.2005 agreeing to a Scheme in terms of which, the respondent agreed to pay 'Voluntary Retirement Compensation' to the employees who would opt to avail the benefits under such Scheme. The respondent agreed to pay its employees 'Voluntary Retirement Compensation' at the rate of 25 days of wages for every completed year of service as of 21.05.2004. Insofar as the employees who would retire between 22.5.2004 and 30.6.2007, the respondent agreed to pay compensation, apart from gratuity, either at the rate of Rs. 2000/- per month and another sum of Rs. 1500/- per month as Ex- gratia from 22.5.2004 to the date of retirement or the Voluntary Retirement Compensation at the rate of 25 days wages for every completed year of service. But subject to the condition that the lesser of the two amounts would be paid in the case of second category of employees. -4-
3. The Insurance Inspector conducted inspection of the respondent's factory premises on 08.05.2007. After this inspection and the Report filed pursuant thereto, the respondent was issued with Notice dated 25.09.2007 to show cause as to why contribution for the period between 2004-2005 to 2005-2006 should not be determined and recovered on the basis that the respondent paid to its employees subsistence allowance in a sum of Rs.4,04,609/- for the period 2004-05 and in a sum of Rs.3,62,889/- for the period 2005-06. The respondent was also offered a personal hearing. The respondent filed its reply, and one of its officers appeared for the personal hearing. Thereafter, order dated 20.03.2008 under Section 45-A of the E.S.I.Act is issued determining the contribution payable by the respondent for the period between 01.07.2005 and 31.03.2006 in a sum of Rs.2,72,168/- treating the amounts paid by the respondent between this period to its employees under the Memorandum of -5- Conciliation agreement as 'Idle Wages' coming within the definition of 'Wages' under Section 2(22) of the E.S.I.Act.
4. The respondent impugned this order dated 17/20.03.2008 in the aforesaid application filed under Section 75 of the E.S.I. Act before the E.S.I Court. The respondent asserted inter alia that the employer - employee relationship between the respondent and its employees in terms of Clause 3 of the terms and conditions of Memorandum of Conciliation ceased w.e.f. 21.05.2004 and the respondent agreed to pay only sustenance allowance for the employees who retired between 22.05.2004 and 30.06.2007 as part of 'Voluntary Retirement Compensation.' This payment in the light of the definition of expressions of an "Employee" and "Wage" under the ESI Act cannot be considered as wages requiring the respondent to pay contribution.
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5. The respondent did not lead any evidence, however a copy of Memorandum of Conciliation agreement between the respondent and the employees' representatives and its response dated 11.10.2007 (to the notice issued on 25.09.2007) were marked as Exs.A1 and A2. The ESI Corporation examined its Insurance Inspector as RW.1, and marked Inspection observation and ESI's letter dated 16.08.2007 as Exs.R1 and R2.
6. The ESI Court has concluded that the payments made by the respondent under the Memorandum of Conciliation could only be an expenditure incurred by the respondent to pay the employees opting for voluntary retirement and the expenditure booked cannot be Wages as contemplated under Section 2(22) of the ESI Act. The ESI Court based on this reasoning has set aside the order dated 17/20.03 2008 under section 45-A of the ESI Act. The ESI Corporation being aggrieved by the ESI Court's judgement has filed this appeal.
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7. The learned Counsel for the ESI Corporation argued in support of the appeal canvassing that it is undisputed that the respondent agreed to pay Sustenance Allowances to its employees at the rate of 25 days of wages for every completed year of service as of 21.05.2004, and insofar as the employees who would retire between 22.5.2004 and 30.6.2007, at the rate of Rs. 2000/- per month and another sum of Rs. 1500/- per month as Ex- gratia from 22.5.2004 to the date of retirement or at the rate of 25 days wages for every completed year of service. Therefore, the ESI Court could not have set aside the demand for contribution in a sum of Rs.2,72,168/- for the period from 2004-05 and 2005-06 as ESI contribution on the ground that the amounts paid during this period could only be booked as expenditure.
8. The learned counsel relying upon the decision of the Hon'ble Supreme Court in Indian Drugs And -8- Pharmaceuticals Ltd., and others vs Employees State Insurance Corporation and others1 argued that the Hon'ble Supreme Court, while considering the question whether payment of "Overtime Wages" in terms of an agreement between the employer and it's workmen would be Wages, has declared that if remuneration is paid to the employees in terms of the original contract of employment or in terms of a settlement which by necessary implication becomes part of the contract of employment, such payment would be Wages within the definition contained in Section 2(22) of the ESI Act. The Sustenance Allowance paid by the respondent to its employees for the period between 2004- 2005 and 2005-2006 as part of the Memorandum of Conciliation would therefore by necessary implication be part of the wages on which the respondent would be liable to pay contribution.
1 (1997) 9 Supreme Court Cases 71 -9-
9. The learned counsel also argued that the ESI Act is a welfare legislation and the definition of Wages thereunder is widely designed, and any ambiguity should receive a beneficent construction in favour of the Scheme under the ESI Act, and this proposition has been reiterated regularly by the Hon'ble Supreme Court. The learned counsel relied upon different decisions of the Hon'ble Supreme Court preceding the decision in Indian Drugs and Pharmaceuticals Ltd., supra and also upon the decision in Whirlpool of India Ltd., vs. Employees State Insurance Corporation2. The learned counsel relied upon paragraph 5 of the decision in Whirpool of India Limited, supra which reads as follows:
"The Act is a social legislation enacted to provide benefits to employees in case of sickness, maternity and employment injury and to make a provision for certain other matters in relation there to. Broadly, this is the purpose for which the Corporation has been established under section 3 of the Act. The 2 (2000) 3 Supreme Court Cases 185
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main source of the Employees' State Insurance Fund is the contributions paid to the Corporation (section 26). The benefits to be provided to ensure that persons and others are as provided in Chapter V, in particular, section 46 thereof. The words and expressions used but not defined in the Act and defined in the Industrial Disputes Act, 1947 are to have the meanings respectively assigned to them in the Industrial Disputes Act. Undoubtedly, any provision of which two interpretations may be possible would deserve such construction as would be beneficial to the working class but, at the same time we cannot give a go by to the plain language of the provision."
10. The learned counsel summed up her submissions emphasizing that the sustenance allowance admittedly paid by the respondent for the period between 2004-2005 and 2005-2006 in terms of Memorandum of Conciliation concluded by the respondent with its employees' representatives would therefore have to be construed as payment made under the original contract of
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employment and treated as Wages under section 2(22) of the ESI Act.
11. The questions that arise for consideration in this appeal are:
(i) Whether the ESI Court is justified in treating the admitted payment of Subsistence Allowance by the respondent to its employees under the terms of Memorandum of Conciliation dated 30.06.2005 as Expenditure and concluding that no contribution is payable on such amount, and
(ii) Is the ESI Corporation justified in treating such payment as "Wages" and in raising a demand for contribution under Section 45-A of the ESI Act on such payment.
12. The Hon'ble Supreme Court in the recent decision in Employees State Insurance Corporation and Another vs. Mangalam and Publications (India) Private
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Limited3 has considered whether payment of Interim Relief by Mangalam Publications, the employer, to its employees in terms of a Notification issued by the Government of India could be part of the contract of employment and therefore, the employer liable to pay contribution on such payment. The Hon'ble Supreme Court has reiterated the declaration in Harihar Polyfibres vs. Employees State Insurance Corporation and Another4 that the definition of Wages under Section 2(22) of the ESI Act comprises of inclusive and exclusive parts, and insofar as the inclusive part, it comprises of three categories of remuneration paid. The first category would be whatever remuneration that is paid, or payable, to an employee under the terms of the contract of the employment, express or implied. If remuneration is paid in terms of a settlement arrived at between the employer and the employees, by necessary implication in law such payment becomes part of the contract of 3 (2018) 11 Supreme Court Cases 438 4 (1984) 4 Supreme Court Cases 324
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employment. Therefore, payment of such remuneration would be Wages within the definition as contemplated under section 2(22) of the ESI Act. Further, the Hon'ble Supreme Court in the facts of case on its hand has concluded that Mangalam Publications paid remuneration as interim relief to its employees as per Scheme voluntarily promulgated by it in terms of the relevant notification issued by the Government of India. Therefore, the payment of Interim Relief would be part of the contract of employment, and as such, the payment would be remuneration within the first category of the inclusive part of the definition of Wages in Section 2(22) of the ESI Act.
13. The undisputed facts are that the respondent closed its manufacturing activities in the month of February 2003 and paid sustenance allowance in a staggered manner for the period upto December 2003. Thereafter, the dispute is referred for conciliation under the provisions of the Industrial Disputes Act, 1947 which
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culminates in Memorandum of Conciliation dated 30.06.2005. The respondent has agreed to pay to its employees benefits5 viz., identified as VRS Compensation, Gratuity, Leave Encashment, wages for the period from 01.01.2004 to 21.05.2004, and Sustenance allowance for the period from 22.05.2004 to the date of signing of the Memorandum of Conciliation. It is further agreed that in addition to the Gratuity and other payments, the respondent shall pay Sustenance Allowance at the rate of 25 days of wages for every completed year of service as of 21.05.2004. Insofar as the employees who would retire between 22.5.2004 and 30.6.20076, the respondent has agreed to pay Subsistence Allowance, apart from gratuity, either at the rate of Rs. 2000/- per month and another sum of Rs.1500/- per month as ex-gratia from 22.5.2004 to the date of retirement or the Voluntary Retirement Compensation at the rate of 25 days wages for every 5 Clause 5 of the Memorandum of Conciliation dated 30.06.2006 6 Clause 7 of the Memorandum of Conciliation dated 30.06.2006
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completed year of service with the employees being entitled to receive lesser of the two amounts. Thus, though the agreement is that the employees should accept that they retire with effect from 21.05.2004, the respondent has agreed to pay Subsistence Allowance in correlation to the tenure of service. The payment of Subsistence Allowance by necessary implication will be relatable to the contract of employment, given the wider amplitude ascribed to the definition of Wages under Section 2(22) of the ESI Act and the requirement that an ambiguity should receive beneficent construction. The ESI Court without considering the definition of Wages under the provisions of Section 2(22) of the ESI Act in the light of the pronouncements in that regard by the Hon'ble Supreme Court has erred in concluding that the payment of Subsistence Allowance by the respondent for the period between 2004-05 and 2005-06 should be treated as Expenditure and therefore to be excluded for the purposes
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of contribution. The ESI Corporation is justified in raising a demand for contribution on the payment of such amount. The questions framed are answered accordingly.
For the foregoing, the appeal is allowed and the order dated 11.03.2010 in E.S.I Application No.35/2008 on the file of the Employees State Insurance Court, at Bengaluru is set aside.
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JUDGE SA Ct:sr