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Karnataka High Court

Employees State Insurance Corporation vs M/S Ballal Motor Service on 7 February, 2023

Author: H.T. Narendra Prasad

Bench: H.T. Narendra Prasad

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                                                    MFA No. 3530 of 2012




                    IN THE HIGH COURT OF KARNATAKA AT BENGALURU

                      DATED THIS THE 7TH DAY OF FEBRUARY, 2023

                                         BEFORE
                    THE HON'BLE MR JUSTICE H.T. NARENDRA PRASAD
               MISCELLANEOUS FIRST APPEAL NO. 3530 OF 2012 (ESI)
               BETWEEN:

               1.    EMPLOYEES STATE INSURANCE CORPORATION
                     NO.10, BINNY FIELDS, BINNYPET
                     BANGALORE-560023
                     REP BY ITS DEPUTY DIRECTOR.    .. APPELLANT

               (BY SRI. GEETHA DEVI M P., ADVOCATE)

               AND:

               1.    M/S BALLAL MOTOR SERVICE
Digitally
signed by C          HAMPANKATTA, MANGALORE-575001
MALATHI              REP BY ITS PARTNER SHRI K V BALLAL
Location:      2.    THE ASSISTANT REGIONAL DIRECTOR
High Court
of Karnataka         EMPLOYEES STATE INSURANCE CORPORATION
                     NO.10, BINNY FIELDS, BINNYPET
                     BANGALORE-560023.             .. RESPONDENTS

                (BY SRI. K ANANDARAMA, ADVOCATE FOR SRI CHANDRANATH
               ARIGA FOR R1.: R2 DELETED VIDE COURT ORDER DATED
               23.02.2018)


                    MFA FILED U/S 82(2) OF THE EMPLOYEES STATE
               INSURANCE ACT, AGAINST THE ORDER DATED 31.1.2012
               PASSED IN E.S.I. APPLICATION NO.35/1994 ON THE FILE OF
               THE PRESIDING OFFICER, LABOUR COURT-CUM-E.S.I.COURT,
               D.K, MANGALORE, ALLOWING THE APPLICATION FILED U/SEC
               75 OF THE E.S.I. ACT, 1948.

                    THIS APPEAL, COMING ON FOR FINAL HEARING, THIS
               DAY, THE COURT DELIVERED THE FOLLOWING:
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                                         MFA No. 3530 of 2012




                          JUDGMENT

This appeal is filed by the Employees State Insurance Corporation (hereinafter referred to as 'the ESI Corporation') under Section 82(2) of the Employees State Insurance Act, 1948 (hereinafter referred to as 'the ESI Act') challenging the order dated 31.01.2012 passed by the Employees State Insurance Court at Bangalore (hereinafter referred to as 'the ESI Court') in E.S.I. Application No.35/1994, whereby the application filed by the respondent herein is allowed and the claim of the ESI Corporation/appellant herein is set aside.

2. For the sake of convenience, the parties are referred to as per their rankings before the E.S.I. Court.

3. The case of the applicant is that it is a Motor Transport Undertaking which operates stage carriages in and around Mangalore, Dakshina Kannada District and the establishment is covered under the ESI Act. It is also the further case of the applicant that it is paying the contribution to the ESI Corporation regularly. The further -3- MFA No. 3530 of 2012 case of the applicant is that the Social Security Officer has inspected the applicant - Establishment and verified all the records. The applicant - Establishment has co- operated with the Social Security Officer and furnished all the records. The Social Security Officer has submitted a report to the ESI Corporation. On the basis of the report submitted by the Social Security Officer, the ESI Corporation has initiated proceedings under Section 45-A of the ESI Act and passed an order on 19.04.1988 and asked the applicant to pay Rs.44,820/- and also passed an order under Section 45-B of the ESI Act for recovery of the contribution. Being aggrieved by the same, the applicant has approached the ESI Court in E.S.I. Application No.35/1994. The ESI Court, by the impugned order dated 31.01.2012 allowed the application. Being aggrieved by the same, the ESI Corporation is before this Court.

4. Smt. Geethadevi M.P., learned counsel appearing for the appellant has raised the following contentions: -4- MFA No. 3530 of 2012

Firstly, the ESI Corporation, after giving opportunity to the applicant has passed an order under Sections 45-A and 45-B of the ESI Act. Even though it is contended that it has paid an amount of Rs.4,704/- to the legal heirs of the deceased employees as compensation, no document has been produced to prove that this amount has been paid as compensation to the legal heirs and it has not been established before the ESI Court. Without considering the same, the ESI Court has erred in holding that the amount of Rs.4,704/- is paid to the legal heirs, hence it is not 'wages' as defined under the ESI Act.

Secondly, a sum of Rs.1,99,494/- is paid to the drivers and conductors and this amount is paid as daily bata or traveling allowance which is called mileage allowance. Except stating that, it has not proved that the same is not 'wages', it is bata and traveling allowance paid to the driver and conductors. On the other hand, the applicant has taken a contention in the application before the ESI Court that it is paying this amount on the basis of -5- MFA No. 3530 of 2012 the contract. But it has not produced the same either before the authority or before the ESI Court. Under these circumstances, the ESI Court has erred in holding that it is not wages. In support of her contentions, she has relied on the following judgments of the Hon'ble Apex Court:

(1) (1997) 9 SCC 71 (Indian Drugs & Pharmaceuticals Ltd. And others vs. Employees State Insurance Corporation and others) (2) (1984) 4 SCC 324 (M/s.Harihar Polyfibres vs. Regional Director, ESI Corporation) (3) (1994) 1 SCC 219 (Wellman (India) Pvt. Ltd. Vs. Employees' State Insurance Corporation) Thirdly, an amount of Rs.2,68,780/- is paid towards the salary and over-time to garage employees, but it is not proved that the garage employees are not employed by the applicant and it has not produced any document to show that they are the employees of the Ballal Motor Works and the Ballal Motor Works has paid the contribution in respect of garage employees. The ESI -6- MFA No. 3530 of 2012 Court has erred in shifting the burden on the ESI Corporation that the ESI Corporation has failed to prove that they are not the employees of the applicant.

Lastly, in respect of National Security Service Personnel is concerned, it is the primary duty of the principal employer to pay the contribution of contract employees or they have to produce the document to show that the employer has paid the contribution towards the contract employees. But, no document has been produced to show that contribution has been paid in respect of Security personnel. Therefore, the finding given by the ESI Court in respect of National Security Service Personnel is contrary to Sections 39 and 44 of the ESI Act. Hence, she sought for allowing the appeal.

5. Per contra, Sri K.Anandarama, learned counsel for Sri K.Chandranatha Ariga appearing for the respondent has raised the following contentions:

MFA No. 3530 of 2012

Firstly, even though the applicant has not filed any appeal challenging the finding given by the ESI Court in respect of the order passed under Section 45-A of the ESI Act, they can challenge the very same order in view of Order 41 Rules 22 and 33 of the Civil Procedure Code. Therefore, the order passed under Section 45-A is contrary to the provisions of the ESI Act.

Secondly, the Social Security Officer has inspected the applicant - Establishment and the applicant has co- operated with the officer and it has furnished all the records as per Section 44 of the ESI Act. He has inspected all the records, there is no obstruction from the applicant - Establishment. On the basis of the records submitted by the applicant, the Social Security Officer has submitted a report.

Thirdly, the applicant - Establishment has also submitted returns. Since it has complied with the -8- MFA No. 3530 of 2012 provisions of Section 45-A of the ESI Act, the order passed under Section 45-A of the ESI Act is unsustainable. Fourthly, relying on the judgment of the Hon'ble Apex Court in the case of ESI CORPORATION vs. C.C.SANTHAKUMAR reported in (2007) 1 SCC 584 submitted that the returns are filed and if there is a co- operation from the establishment at the time of inspection, if any order is passed under Section 45-A of the ESI Act, the assessment has to be made and it can be used as a sufficient proof of the claim of the Corporation under Section 75 before the ESI Court. They cannot pass an order under Section 45-B of the ESI Act for recovery of the amount.

Fifthly, any dispute in respect of any payment to the employees need not be reflected in the returns. Considering the facts, it cannot be held that improper returns submitted by the applicant - Establishment. In support of his contention, he has relied on the judgment of -9- MFA No. 3530 of 2012 this Court in the case of M/S.HEGDE AND GOLAY LTD. AND ANOTHER vs. EMPLOYEES' STATE INSURANCE CORPORATION AND ANOTHER reported in ILR 1981 Kar.1153.

Sixthly, the compensation paid to the legal heirs of the deceased employees are concerned, there is no dispute by the ESI Corporation that the said amount has been paid to the legal heirs of the deceased employees. The applicant has produced records in respect of the same. Any compensation paid to the legal heirs of the deceased employees is not 'wages'. Therefore, the ESI Court has rightly accepted the contention of the applicant.

Seventhly, bata and traveling allowance paid to the driver and conductor is a mileage allowance, it is excluded under the definition of 'wages'. Since it is not wages, they cannot pay any contribution. Even the ESI Corporation has not disputed the same. The only contention that is

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raised by the ESI Corporation is that the mileage allowance is also covered under the definition of 'wages', Eighthly, over time salary and regular salary paid to the garage employees amounting to Rs.2,68,780/- is not covered under 'wages' since they are not employees of the applicant - Establishment. Therefore, there is no obligation on the applicant - Establishment to pay any contribution in respect of the garage employees.

Lastly, in respect of Security Service Personnel is concerned, their work is not related to the ancillary or incidental to the transport business of the applicant. Therefore, applicant is not liable to pay any contribution in respect of the security service personnel. Hence, he sought for dismissal of the appeal.

6. In rejoinder, learned counsel appearing for the ESI Corporation has contended that in respect of the finding of the ESI Court regarding Section 45-A Order is concerned, the applicant has not filed any appeal. The

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Hon'ble Apex Court in the case of REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION vs. F.FIBRE BANGALORE (P) LTD. reported in (1997) 1 SCC 625 has held that if the establishment has not paid any contribution voluntarily as per Section 39 of the ESI Act and they have not produced the relevant records, the ESI Corporation has a right to pass an order under Section 45-A of the ESI Act in the nature of best assessment judgment. Therefore, she contended that the Hon'ble Apex Court in the case of C.C.SANTHAKUMAR (supra) has considered in respect of provision to Section 77 (1-A)(b) of the ESI Act and in respect of Section 45-A of the ESI Act. Hence, she sought for allowing the appeal.

7. Heard the learned counsel for the parties. Perused the appeal papers, impugned order and the original records.

8. The applicant is a Motor Transport Undertaking which operates stage carriages in and around Mangalore, Dakshina Kannada District. The applicant - Establishment

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is covered under the ESI Act. As per Sections 39 and 44 of the ESI Act, the Establishment has to submit the returns every month to the ESI Corporation. The Social Security Officer has inspected the establishment of the applicant and verified the records and submitted a report to the ESI Corporation that the applicant - Establishment has omitted to submit returns in respect of wages paid to the casual employees in a sum of Rs.1,99,494/-, in respect of Rs.4,704/- paid to employees, salary paid to the garage employees and non payment of any contribution in respect of National Security Service Personnel. On the basis of the report submitted by the officer, the ESI Corporation has initiated proceedings under Section 45-A of the ESI Act and asked the applicant - Establishment to pay contribution of Rs.44,820/- and also passed an order under Section 45-B of the ESI Act for recovery of the amount.

9. Being aggrieved by the same, the applicant has filed an application under Section 75 of the ESI Act before

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the ESI Court. He has challenged the order passed under Section 45-A of the ESI Act. In respect of the contention, the ESI Court has negatived its arguments and upheld the order passed under Section 45-A of the ESI Act. That part of the order is not challenged by the applicant before this Court by filing a separate appeal.

10. The learned counsel for the applicant has contended that he has challenged the finding of the ESI Court in view of Order 41 Rules 22 and 33 of the Civil Procedure Code.

11. After the Social Security Officer submitted a report to the ESI Corporation, the ESI Corporation has issued a notice to the applicant - Establishment. Pursuant to that notice, one K.S.Rao, advocate has appeared on behalf of the applicant - Establishment and has filed a written statement and they have not submitted the relevant records. Hence, the ESI Corporation has issued notice to the applicant - Establishment and specifically directed the establishment to produce relevant records in

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respect of the allegations made in the show-cause notice dated 15.10.1987, no document has been produced inspite of giving sufficient opportunity. Under Section 39 of the ESI Act, it is the obligation of the Establishment to pay contribution in respect of the employees to the ESI Corporation. Under Section 44 the ESI Act, the employer has furnished the returns and the relevant records to the ESI Corporation. In the case on hand, the Establishment has submitted returns to the ESI Corporation. But relevant records are not furnished. When the Social Security Officer has inspected the Establishment and submitted a report that the applicant - Establishment has not paid any contribution in respect of the amount which is mentioned in the register in a sum of Rs.4,704/- which is stated to have been paid to the legal heirs of the deceased employees. It is also noted in the returns that it has paid Rs.1,99,494/- to the drivers and conductors. It is also mentioned that Rs.2,68,780/- has been paid to the garage employees as overtime and salaries and there is no records maintained to show payment of salary in respect

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of Security Service Personnel. On the basis of the report submitted by the Social Security Officer, the proceedings has been initiated under Section 45-A of the ESI Act.

12. In the case of C.C.SANTHAKUMAR (supra) the issue that arose for consideration is in respect of consideration of limitation of five years for claiming the contribution and restricting the ESI Corporation's right from recovering the arrears of contribution as arrears of land revenue. The Hon'ble Apex Court has also held that when the establishment has submitted the returns and it has co-operated with the inspection and produced all relevant records, the Corporation can pass an order under Section 45-A of the ESI Act. It can be used as a sufficient proof of the claim of the Corporation under Section 75 of the ESI Act before the ESI Court and they cannot pass under Section 45-B of the ESI Act. The relevant portion of the said judgment is extracted below:

"15. Section 45-A provides for determination of contributions in certain cases. When the records are not produced by the

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establishment before the Corporation and when there is no cooperation, the Corporation has got the power to make assessment and determine the amount under Section 45-A and recover the said amount as arrears of land revenue under Section 45B of the Act. This is in the nature of a best judgment assessment as is known in taxing statutes. When the Corporation passes an order under Section 45-A, the said order is final as far as the Corporation is concerned. Under Section 45A(1), the Corporation, by an order, can determine the amount of contributions payable in respect of the employees where the employer prevents the Corporation from exercising its functions or discharging its duties under Section 45, on the basis of the material available to it, after giving reasonable opportunity. But, where the records are produced, the assessment has to be made under Section 75(2)(a) of the Act. Section 45-A (2) provides that the order under Section 45-

A(1) shall be used as sufficient proof of the claim of the Corporation under Section 75 or for recovery of the amount determined by such order as arrears of land revenue under Section 45-B. In other words, when there is a failure in

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production of records and when there is no cooperation, the Corporation can determine the amount and recover the same as arrears of land revenue under Section 45-B. But, on the other hand, if the records are produced and if there is cooperation, the assessment has to be made and it can be used as a sufficient proof of the claim of the Corporation under Section 75 before the E.S.I. Court. So, the limitation of three years for filing an application before the Court, introduced by Act 44 of 1966, can only relate to the application under Section 75 read with 77(1-A). The order under Section 45-A need not be executed by the Corporation before the E.S.I. Court under Section 77. As such, the amendment to Section 77(1-A)(b) proviso by Act 29 of 1989 providing five year limitation has no relevance so far as orders passed by the Corporation under Section 45-A are concerned." It is very clear from the above judgment that if all the records have been produced, if there is co-operation from the employer and if he has submitted the returns, then he

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has complied the requirement under Section 45-A of the ESI Act.

13. In the case on hand, it is not in dispute that the applicant has filed the returns and it has also co-operated for inspection. The specific case of the ESI Corporation is that the applicant - Establishment has not maintained and produced the register and records in respect of the claim which it has made. By a reading of Section 45-A of the ESI Act, it is very clear that the establishment has to submit returns and has to submit the particular register or records and also maintain records in accordance with Section 44 of the ESI Act. Even the Hon'ble Apex Court in the case of F.FIBRE (supra) has held as under:

"4. It would thus be seen that the employer, on making the provisions of the Act applicable to the factory or the establishment, as the case may be, is statutorily under an obligation to register itself with the Corporation and keep depositing the employer's and employee's contribution within the period specified therein. The question is as to who

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would approach the Insurance Court for adjudication and determination of a dispute whether the establishment of the employer is attracted by the provisions of the Act and/or what is the number of employees it has employed etc.? It is seen that Section 45-A is in the nature of best assessment judgment on the basis of the information collected by the Inspector. In the impugned order the High Court holds that it is for the employer to challenge it and seek adjudication. When there was dereliction of duty on the employer to either register itself with the Corporation under the Act or when there is failure to deposit the contribution with the Corporation under the Act or failure to deposit the contribution with the account of the Corporation towards employer's and employee's contribution as envisaged hereinbefore, the Corporation is empowered to make best assessment judgment under Section 45-A and call upon the employer to deposit the amount with the Corporation."

By a reading of the provisions and the judgment and also the order passed under Section 45-A of the ESI Act, it is very clear that even though the employer has submitted

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returns, it has not furnished the relevant records related to its contention and it has not produced any register as required under Section 45-A of the ESI Act. Therefore, the ESI Corporation has rightly passed an order under Section 45-A as a best assessment judgment. Therefore, the finding of the ESI Court in respect of the order passed under Section 45-A of the ESI Act is just and reasonable.

14. In respect of the contention urged by the applicant that Rs.4,704/- is paid as compensation to the legal heirs of the deceased employee is concerned, except making such a statement, no document has been produced to prove the same. Without there being any proof to establish the same, the ESI Court has erred in holding that the applicant - Establishment has paid Rs.4,704/- to the legal heirs of the deceased employee as compensation, therefore, it is not wages.

15. Regarding daily wages paid to the casual driver and conductor, i.e., bata and travel allowance is concerned, by looking into the grounds raised in the

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application filed before the ESI Court, it is contended that pursuant to the agreement between the employer and the employee they are paying the amount as mileage allowance. But no such agreement has been placed either before the ESI Corporation or before the ESI Court to establish that they have paid that amount as bata or traveling allowance. Under those circumstances, the ESI Court has erred in holding that the said amount is paid as bata and traveling allowance which is a mileage allowance and the same is contrary to the materials available on record .

16. In respect of salary and overtime salary paid to the garage employees is concerned, it is contended that they are not their employees, they are the employees of Ballal Motor Works and it is a different entity. It is the burden on the applicant to prove that it is a different entity. The ESI Court has erred in shifting the burden on the ESI Corporation holding that the Corporation has failed to prove that it is not a different entity.

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17. In respect of the National Security Service Personnel is concerned, even though the employer/applicant has contended that their services is not ancillary or incidental to transport business, since they are contract employees, the applicant - Establishment is a principal employer. The applicant has not produced any document to show that contribution has been paid in respect of security agencies by their immediate employer. Without producing such document, the ESI Court has erred in holding that the employer/applicant is not liable to pay any contribution in respect of Security Service Personnel.

18. In view of the above, the appeal is allowed. The order dated 31.01.2012 passed by the ESI Court in ESI Application No.35/1994 in respect of Section 45-A of the ESI Act is confirmed. The other portions of the order are set aside. The matter is remitted back to the ESI Court for fresh consideration, in accordance with law. The ESI Court is directed to give opportunity to both the parties to

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adduce additional evidence and produce necessary documents to prove their case.

Sd/-

JUDGE CM List No.: 1 Sl No.: 42