Karnataka High Court
The Assistant Director And Anr vs M/S Santhosh Enterprises Pvt. Ltd. And ... on 17 August, 2022
Author: M.G.S.Kamal
Bench: M.G.S.Kamal
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IN THE HIGH COURT OF KARNATAKA
KALABURAGI BENCH
DATED THIS THE 17TH DAY OF AUGUST 2022
BEFORE
THE HON'BLE MR.JUSTICE M.G.S.KAMAL
MFA No.30205/2013 (ESI)
BETWEEN:
1. THE ASSISTANT DIRECTOR
SUB REGIIONAL OFFICE,
EMPLOLYEES STATE INSURANCE CORPORATION,
SARVODAYA CIRCLE, KESHWAPUR HUBLI-580023.
2. THE RECOVERY OFFICER
EMPLOYEES STATE INSURANCE CORPORATION
SARVODYA CIRCLE, KESHWAPUR HUBLI-580023.
NOW BOTH APPELLANTS REPRESENTED BY THE
ASSISTANT DIRECTOR,
EMPLOYEES STATE INSURANCE CORPORATION
DIVISIONAL OFFICE,
GULBARGA-585105.
...APPELLANTS
(BY SMT..SANGEETA BHADRASHETTY, ADVOCATE)
AND:
1. M/S SANTHOSH ENTERPRISES PVT. LTD.
BILGUNDI GARDEN, SEDAM ROAD, GULBARGA
BY ITS MANAGING DIRECTOR,
SRI. BHIMASHANKAR S/O CHANDRASHEKAR BILGUNDI,
AGE: 55 YRS, OCC. BUSINESS
GULBARGA-585105.
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2. M/S HOTEL SANTOSH
SRI VISHWAS KOTHARI S/O POORNACHANDRA,
AGE: 40 YRS, OCC. BUSINESS,
R/O NANDADEEP, 65,
VISHWESHWARAIH COLONY
SEDAM ROAD, GULBRAGA-585105.
......RESPONDENTS
(BY SRI. VIKRAM VIJAYKUMAR, ADV. FOR R1
NOTICE TO R2 HELD SUFFICIENT)
THIS MFA IS FILED UNDER SECTION 82(2) OF THE
EMPLOYEES STATE INSURANCE ACT, PRAYING TO ALLOW THE
APPEAL BY SETTING ASIDE THE ORDER PASSED IN
APPLICATION NO.25/2008 DATED 11.05.2010 BY THE
EMPLOYEES STATE INSURANCE COURT HUBLI, AT HUBLI AND
DISMISS THE APPLICATION FILED BY THE RESPONDENT
HEREIN
THIS APPEAL COMING ON FOR FINAL HEARING, THIS
DAY, THE COURT DELIVERED THE FOLLOWING:
JUDGMENT
The present appeal is by the appellant/respondent No.1 and 2 under Section 82 of Employees State Insurance Act, 1948 (herein after referred to as 'the Act') aggrieved by the order dated 11.05.2010 passed in ESI Application No.25/2008 by the Employees State Insurance Court, Hubli (herein 3 application filed by the respondent No.1/applicant under Section 75 of the Act, has been allowed holding that recovery notice bearing No.KAR.ESIC CP : 58- 0915-09 dated 10.06.2008 at Annexure-J is illegal against the respondent No.1/applicant and the appellants /respondents were directed not to proceed against the applicant/respondent to recover the amount.
2. It is the case of the respondent No.1/applicant namely M/s Santhosh Enterprises Pvt. Ltd., that it is the owner of building and had entered into an agreement with respondent No.3/M/s.Hotel Santosh for running the hotel business on lease for a period of five years in terms of lease deed dated 27.10.2003. Pursuant to which, respondent No.3 established its Hotel business in the said building and the said hotel business was duly covered under the 4 Act, but he had given Form-01 to the office of appellant No.1/ respondent No.1 and appellant No.1/ respondent No.1 had issued Form No.C-11 to respondent No.3. That respondent No.3 during the pendency of lease period was deducting the ESI contribution from its workers who were on roll and remitted the same to appellant No.1/respondent No.1 regularly. That due to certain reasons, respondent No.3 was unable to carry on with its hotel business as such it closed the same and removed all articles and executed deed of surrender of lease dated 30.09.2005. Thereafter, respondent No.1/applicant entered into another lease agreement with one Mr.Abdul Wajid S/o; Abdul Hameed on 23.09.2006 for the purpose of running the hotel business for a period of 6 years. The respondent No.3 had been issued Form-18 dated 17.08.2005 calculating the contribution on adhoc basis for payment of 5 Rs.70,785/- for the period between August 2004 and March 2005. The said Form C-18 was not served on applicant/ respondent. The respondent No.3 could not appear for personal hearing resulting in order being passed by appellant No.1/respondent No.1 under Section 45 of the Act on 10.11.2005 claiming contribution amount for the period from August 2004 to March 2005 in a sum of Rs.70,785/-. The appellant No.2/respondent No.2 who is Recovery Officer on the basis of the said order had issued Form CP-2 to respondent No.1/ applicant calling upon payment of contribution with interest in a sum of Rs.80,726/- for the aforesaid period. The appellant/respondent No.1 had issued amended letter dated 05.06.2008 to respondent No.1/applicant intimating that out Rs.80,276/- the party has paid part payment of Rs.35,000/- and the claim amount is to be treated as Rs.45,726/-. The recovery officer issued show cause 6 notice as to why a warrant of arrest should not be issued to the respondent No.1 /applicant for payment of alleged dues of contribution with interest aggregating in a sum of Rs.1,04,554/-. The respondent No.1/ applicant appeared before the recovery officer and explained the facts that the business was being run by respondent No.3 and not by respondent No.1/ applicant as such he was not liable to pay contribution and requested not to proceed against him for recovery. However, the said request was not considered by the appellant No.1/respondent No.1 constraining the respondent No.1 /applicant to approach the Tribunal, by way of an application under Section 75 of the Act.
3. The appellant No.1/respondent No.1 appeared and filed written statement objections contending that respondent No.1/ applicant is carrying 7 on the business of running hotel, boarding, lodging, restaurant as well as bar and the said business is covered under the Act w.e.f. 01.07.2003. That after the coverage of respondent No.1/ applicant has neither submitted returns nor paid contribution. Therefore, respondent/applicant was issued with C-18 notice dated 17.08.2005 claiming contribution in a sum of Rs.70,785/- on adhoc basis for a period from August 2004 to March 2005. The personal hearing was fixed on 19.09.2005, but the respondent No.1/applicant did not appear for personal hearing and did not even file statement of objections. Thereafter, an order dated 10.11.2005 was passed under Section 45 of the Act determining the contribution of amount of Rs.70,785/- and forwarded the copy of the said order to respondent No.1 /applicant.
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4. Since applicant/ respondent No.1 did not comply with the said demand order, a recovery notice was issued claiming contribution with interest amounting in a sum of Rs.1,04,554/-. It was contended that respondent No.1/applicant had leased the building and business to respondent No.3 and was thus jointly and severally liable to pay the contribution as contemplated under Section 93-A of the Act. Hence sought for dismissal of the application.
5. Appellant No.2/respondent No.2 Recovery Officer filed memo adopting the said statement of objections filed by the appellant No.1/respondent No.1.
6. Based on the pleadings, the ESI Court framed the following issues:
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1. Whether the applicant proves that the show cause notice issued by the respondent dated 10.06.2008 at Annexure-J is illegal and the same is liable to be set aside?
2. Whether the applicant is entitled for the relief as claimed?
3. What order?
7. Respondent No.1/applicant examined one Bhimashankar C.Bilgundias as AW1 on behalf of the respondent No.1 / applicant and exhibited seven documents and marked as Exs.P1 to P7 and additional two documents Exs.M8 and M9. No evidence has been led on behalf of the appellants/ respondents.
8. The appreciation of evidence the ESI Court held that the Form No.01 was given by the respondent No.3 to the office of the appellant/respondent No.1 stating that he had employed 33 employees for wages and as such it was respondent No.3, who had 10 employed its own worker to run the hotel business by engaging his own worker upto 30.09.2005. Referring to para 15 of the Lease Deed at Ex.A1 ESI Court held that the said para 15 of the Lease Deed clearly mentioned that Lessee shall be responsible for the payment of provident fund and ESI contribution. It further held that the relationship between respondent No.1/the applicant and the respondent No.3 was of the lessor and lessee as respondent No.3 had taken building the lease to run the hotel from the respondent No.1/applicant. That the respondent No.1/applicant was liable to pay ESI contribution only if his worker were given to the respondent No.3 to run the business. Further ESI Court held that there was no transfer of business by the respondent No.1/ applicant and the provisions of 93-A would not applicable. As such it allowed the application holding to the recovery notice dated 10.06.2008 was illegal 11 and directed the appellants/respondent Nos.1 and 2 not to proceed against respondent No.1/applicant seeking recovery amount of Rs. 1,04,554/- by its order dated 11.05.2010. It is this order the present impugned in this appeal.
9. Heard Smt. Sangeeta Bhadrashetty, learned counsel for the appellant and Sri. Vikram Vijayakumar, learned counsel for respondent No.1.
10. The learned counsel for the appellant reiterating the grounds urged in the memorandum of appeal submitted that the ESI Court erred in not appreciating the contents of Ex.A1. A bare perusal of which would establish that respondent No.1/applicant had indeed transferred the entire hotel business to respondent No.3, bringing the case squarely within the provisions of Section 93-A of the ESI Act. That 12 the ESI Court not having advert to this aspect of the matter has committed error in setting aside the recovery notice. Hence, she submits substantial question of law arises in the matter requiring consideration in favour of the appellant.
11. On the other hand, Sri. Vikram Vijaykumar, learned counsel for the respondent No.1/applicant bringing to the notice of this court, the finding of the ESI Court at paragraph 14, wherein the ESI Court has observed that as per the contents of Ex.A1, which is a lease deed for para 15, wherein provides for responsibility of payment of provident fund and ESI contribution etc. As such order of the ESI Court exonerating respondent No.1/applicant from payment of ESI Contribution cannot be found fault with. He submits that Section 93-A of the Act is not applicable 13 for the instant case as there is no transfer of business. Hence, seeks for dismissal of appeal.
12. Heard the learned counsel for the parties and perused the records.
13. The substantial question of law that arise for consideration.
1) Whether the order of the ESI Court suffers from non appreciation of the contents of lease deed dated 27.10.2003 at Ex.A1.
14. At the outset, it is necessary to refer to provisions of Section 93A of the Act which is extracted here under:
93A. Liability in case of transfer of establishment. Where an employer, in relation to a factory or establishment, transfers that factory or establishment in whole or in part, by sale, gift, lease or licence or in any other manner 14 whatsoever, the employer and the person to whom the factory or establishment is so transferred shall jointly and severally be liable to pay the amount due in respect of any contribution or any other amount payable under this Act in respect of the periods up to the date of such transfer:
Provided that the liability of the transferee shall be limited to the value of the assets obtained by him by such transfer.]
15. Thus, from the perusal of the aforesaid provisions it has to be seen if transaction between the respondent No.1/applicant and respondent No.3 was a transfer of establishment in whole or in part by way of lease. Therefore it is necessary to refer to the contents of Lease deed at Ex.A1.
Recital No.2 in Ex.A1-Lease deed is as under:
"WHEREAS the lessor company HOLDS RELEVANT LICENCES FOR RUNNING THE SAID HOTEL INCLUDING restaurant and also lodging section under the name and style of HOTEL SANTOSH at the place mentioned above.
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Recital No.3 & 4 in Ex.A1-Lease deed are as under:
"WHEREAS the management of the Lessor company due to its other pre-occupation is unable to effectively run the business, is desirous of leasing out the said hotel business, except one office room, one accountant's room in the first floor of the said premises for a period of Five years from 1-7-2003 to 30.6.2008 for the rent reserved hereafter and as per the terms and conditions".
"WHEREAS the Lessee has shown interest in taking the above said hotel business on lease for a period of Five years on certain terms and conditions and whereas both the parties have thought to reduce their terms of agreement into writing in order to avoid future misunderstanding.
16. The aforesaid recital in Ex.A1/lease no doubt that it was a simple transaction of transfer of business by way of lease deed, squarely falling within the ambit of Section 93A of the Act. Respondent No.3 16 has continued the said business up till execution of deed of surrender of lease as per Ex.A3 dated 30.09.2005. The demand for contribution is for the period of August-2004 to March-2005. The provisions of Section 93A explicitly mention that the transfer of the establishment is by way of lease or licence or in any other manner whatsoever, the employer and the person to whom the factory or establishment is so transferred shall jointly and severally be liable to pay the amount due in respect of any contribution. In that view of the matter, the ESI Court was error in not taking into consideration. The recitals of the Ex.A1 and thereby exonerating respondent No.1/applicant by merely referring to clause 15 of the Lease agreement at Annexure-A4, though the said clause provides for the responsibility of the lessee to pay the ESI contribution same cannot run contrary to the statutory provision. The contract of lease at Ex.A1 is between 17 respondent No.1/applicant and the respondent No.3. That would not save the respondent No.1/applicant from the rigor of provisions of Section 93A of the Act.
17. For the above aforesaid reasons, analysis substantial question of law is answered in favour of the appellants.
18. Hence, the following:
ORDER
1. The appeal is allowed.
2. The judgment and award dated 11.05.2010 passed by the ESI, Hubli in ESI Application No.25/2008 is set aside.
3. Appellants are at liberty to recover the amount of Rs.1,04,554/- along with interest from the respondent No.1/ applicant as provided in the Act.
Sd/-
JUDGE Msr/SMP