E S I Corporation vs M/S Surfa Coats (Bangalore) Ltd on 25 January, 2010

[Cites 8, Cited by 0]

Karnataka High Court

E S I Corporation vs M/S Surfa Coats (Bangalore) Ltd on 25 January, 2010

Bench: C.R.Kumaraswamy

IN THE HIGH COURT OF KARNATAKA AT BANOALoR,E»_
OATEO THIS THE 25?" DAY OF JANUARY, 2o_;o_":
BEFORE ' l '

THE HONBLE MR. 3UST1CE C.R,;'k'U'i~iA,RjASw.A,{vs%_

C[V\-" '

MISCELLANEOUS FIRST APPEAL No,9lOQ3/2oo?.i'ES~1)'
MISCELLANEOUS FIRST A.DREA.LfA:o.9oo4[2oof7 u(''E;"S'i'')' 1' V

BETWEEN:

1. E.S.I. Corporation, "
Regional Office (E<a'r"n.atal:a) '' ' »
No.10, Binny Fie3'idS',1.,_,.' =i
Binnypet, Ba nga'iore.:.5f.6O V
Represented by é:tS'_.Reg'ion_a'lEfi:=ireCAtor},

2. The Recovery,OfvFa_*Ceif,"«., * _"
E,S.i. Cor"'§)Oi'ati'On,'
Regional Off,ECe.(KaArnata!«;a')--,_
No.10, Binny"i?iel'dS, , V
Binnypet, Banga'lo_re'--56G' O23. " Appellants
' ..... .. (Common in both the appeals)

('By SAri'.v\,/1. N_ar=AaS--iTn-ha Holla, Advocate)

ANDT" ~_

M/S. Surfa' Co'--atS"(Bangalore) Ltd,
-jj;S3,9',-.465" 'A' Cﬁoss,
4. EloCl<,..Rajajinagar,
V._E5a.n"g~ai-o_rge¥'gS6O O10.
."R...Re_pfreSented by its
"Joint Managing Director. Respondent

(Common in both the appeals)

(»»B,\Z'Sri. D. Leelakrishna, Advocate for OR)

These Miscellaneous First Appeals are filed under Section

82(2) of ESI Act 1948, against the Order dated_H;"2:[%i;a2QVOi7.
passed in ESI Application i\los.10/2005 and 21/200,3on::th,e'*if}'ie '
of Judge, ESI Court, Bangalore, aliowing the ESI_--ap'p!--i,c_at'i'o.n.'-_

These Miscellaneous First Appeals cgovrhinggon fo'r_»_,he»ar'~ing.4 'thisﬁ,

day, the Court delivered the following":-...V_

MFA 9003/2007 is ri1é'ed._"8'r.,dféi' of the
Employees' State Act' for short)
against the order" in ESI Application
No.10/2005 ofESI Court, Bangalore,

aliowirig the n

(2) iviFA,,9ooéi;*-2.,O07" is'l"iled under section 82(2) of the ESI

Ai:t_ ag'a.ins't order dated 12.4.2007 passed in ESI Application

N0.2'Vii,i..5_VO.G_$lA of the Budge, ESE Court, Bangalore,

C' 'wv_.'Cal'l'owing Athe E51 application.

A"4'V.t~h_e"'lC0u';§t below.

'V~,Cf(T3V}VlCi3--arties will be referred with reference to the status in

(4) The case of the applicant in the Court below fi:.n>uESI

Application No.10/2005 is as under:

4.1 M/s Surfa Coats (Bangalore) Limited iS__,

this application. The applicant W coggnpaiiy'

manufacture and marketing of decorative'-paints. y.T.he:'com:pa'riy"Q

has its manufacturing units in E3an§aVVl.o're_ H The
employees of the company Office at
Bangalore and in various units are
covered under the ;_pro'v.cii1Sion:s'of; 110 employees
out of 170 under the purview
of the E81 of both employer and
employees are respondent -- Corporation in

respect of _these e"mp'lo~ye'es."'-

.'4:.'2--. In they co"r~--porate office of the applicant company there

is a ll/larl:.e'tin'g"."_D.iv'i;;si'on wherein 26 employees were working

vfyduring yyea.r'f1998~99. Out of these employees, 21

4: came within the purview of the ESI Act and 5

lint."v..em.p_lo'y-eesllfeil outside the purview of the said Act having regard

salary {irawn by each of them at that time. The

applicant W company recovered contribution from 21 zehgible

employees at 1.75% of their salary and paid the

respondent W Corporation aiongwith its COl'ltl'lblJtl0li"...avﬁvA.'.:4.0755/C"!

In respect of 5 employees who wereg.not0_0a'L;

covered, no ESI contribution was die_ducte'dA.l"'rom the-ir'..s'ai'aryj

no contribution was paid by the appiviicant - co'i.»p;::m-y.

4.3 When the matter '4t'n.e_...',l§:)epiity Director of
the respondent ~ Cor_p'oratio:n"'b'y 20.5.2000 called
upon the appHC¢nti'X'f "r'3VV0:I'Wcontribution on the
sales commi_ss.i_on"'ip:a'idV*<go!the staff of the company.
3:} responseiityhe'.retAo."'thfe--.:app'l'ic.a"r'i«tcompany by its letter dated
16.6.2000 deniedluitsv ESE contribution on the sales
co..m«missv_i..o§ri tg....t1l'l§'__Arriarketing personnel. The first

relspyonident the.reaf'te__r by order dated 21.12.2000 directed the

secoréd:2"r.e'spon.dy-entvllv- Recovery Officer attached to the

V'7T__respohden'tzCorporation to recover from the applicant ~

.1-.comp,ahyi--.ESl"'contribution on the sales commission paid to the

.,__A.:¢__4ma.r.keting"Apersonnel. The second respondent -- Recovery

thereupon issued notice dated 20.12.2000 to the

appiicant W company calling upon it to pay Rs.2O,667/1-?"»t.On

5.1.2001 the appiicant -- Company paid Rs.1o,49~s,<;_;;fg-".;*tifi'e.t

respondent -- Corporation for the year 1998-99.,__y'»"":.,Appi:i'carat:9

company has aiso stated that no ESE

on the sates comrnission paid tothe four saies _ne?.rso'nnei':'1whotﬂ

were not covered under the ESI Ac't"*an'd hence. baiance amount

of Rs.10,172/-- was not

4.4 When the n_'iat_t'er W company
received copy by the second
respondent tii«e.i..CIo§:'poration under section
45-6 of t}1ei'v._[:S'3:: the Manager, Union Bank of
India, Raja}'inaV'_c';aa_4r upon the said bank to pay

Rv4::...1AO,1:7V,."w§Ai:.- from thV.e"baVn_i§_'account of the applicant -- company.

ati'Ef:é'--nc'extahVe.~applicant fiied ESI Appiicatiion No.10/2005

tvvvj:,,,..p'efore tr:--.e_ praying to set aside the above order dated

issued by the second respondent -- Recovery Officer.

the case of the appiicant in the Court below in ESE

1"«-..'V'AVApp'iication NO.21/2005 is as under:

5.1 M/s Surfa Coats (Bangalore) Limited is the applic:.a'nt in

this application. in the appiicant » company there is

Division wherein 14 employees were working duirigjug-...th:e:"perilod

from April~1996 to March 1997. In :oiK_th'e*

who were not at all eligible to beticovereicfno ES»:-".1cQ'nt'ribiqtion"AV

was deducted from their salary and""i:.o_V'co_ntril§utiﬂon0'was payable
by the applicant - company

5.2 When the matter Director of
the respondent » by 3.8.2000 called

upon the applica.nt~fco'mpan'%.:'\"tto_' play' cognvtribution. on the sales

commissiori:7;3ai'd'toVthe-~_;§*éarl€etVi'ng staff during the period from
Apri|--199E> to i'3¥'a._rcl'.,~100990;.:_Ii1.'::_t'esp0nse thereto, the applicant -
co.vmgpany.»h_yVvits letter""dat__e_d,29.8.2000 intimated the respondent

--VCorp:o'ratio.,n'th'at"'th_e sales commission paid to the marketing

Staff and the same was being paid to them

was an incei}tE"vge.'based on their performance. it was further

.1 -pvoihjted 'tout that a majority of the marketing personnel of the

"_V-.iap-pEica'nt ~ company were drawing emoluments far in excess of

per month and hence not covered under the ESI Act.

61/

The first respondent by its Eetter dated 11.10.2000 clarified that

sakes commission attracts ESI contribution and therefo'reV.ESI

contribution was payable by the appiicant -- companyrin_jr.esp£e_ct~.

of the sales commission paid to its empEoyees_...._L:~Ap'pA.E.i:ca_ntf'4

company caicutated the ESI contijiibutiion;

commission paid to 10 of its rnVar_l4<eting*y_personnérlrwho izvé'r'e"'g

covered rsnder the E81 Act and paid sr;n"...oQ_V'f§"<V's.E3':;::}15/-- for
the period from Apri|*§996 first respondent
- Corporation. The first ._it:s letter dated

21.12.2000 calledf the€;appE.i'<:ant'"»r~....5company to pay

Rs.S2,34t1:.:§t3 ttr-emperiod from April-1996 to
March-1998. A'TVhereu'p.Q.h.fi1e"a.p"p!i'cant -- company paid a sum of

Rs.12,-417/--... _

t:tie._vrnatter stood thus, the first respondent has

passe"d_a-Toyordei_~v.,oriAV.f':;'1w'i.1.2005 under section 45-C to 454 of the

Act di"rect.ing=the second respondent A Recovery Officer of the

Vétcorporation to recover from the appiicant -

V"'-.:_'Vco_nn__pa.ny' Rs.52,386/-- together with interest. This order was not

the first respondent to the applicant W company directly,

but the second respondent has enclosed this letter aEongw_i_t_h his

order dated 18.1.2005 directing the applicant ~ company'--t.o--«_:p"a,y

the said sum within 15 days.

54 Being aggrieved by the V-o'rde.rs

respondents, the applicant ~ compaiinyirehals

Application No.21/2005 before Court i"o_r asidelt

the order dated 11.1.2005 is-sued first respondent to the
second respondent and the orde_r' issued by the

second respondent t_o.t:he_ -e--.4:c'o'f9..paVny~;.

(6) legs: 'ApVp"licf§..tioeqv44"i\io."10/2005, the respondent «- ESI
Corporation has5.._fi%le.d VVthe'A.o"bj:e'Ctions before the ESE Court as
under llllll -

6.1-» The a.op.l%iAc~a_nt -- company is chalienging recovery notice

dated 2&2.'-11;2x005f:foAi:='V'Fts.10,172/M for the period from Aprilw1998

V'7',_l:o <March'l'1z9'<§9..'4'. The statutory Insurance Inspector who

.1..¢o'nducted._reg'ular inspection on 19.1.2000 for the period from

25°"-;lan.uarg§w'li9597 to E\Jovemberm1999 has reported that applicant has

an amount of Rs.3,05,7=45/-- as commission to marketing

staff. Further Insurance Inspector has obtained E><.R1(a) letter

dated 19.1.2000 and copy of appointment ietter addres's:e'd. to

one employee by name Mr. Vijay Pampana as per iE>_<;;"i"'<1'{0\';,:.)'___:'

perusal of the ietter and Insurance IFlSp€CtOl"_S-...,rAépQvr"t§, ._itlis

observed that commission is paid with ternwsyarid'cohoi--i:i0ns.__aftetr'

60 days. The payment of c0i'riVn'.issé0n"'.wii-! f0rr_n7~thVleA.pail;'t

wages under section 2(22) of the ltielnce appiicant ~
company was requested to' Rs.I9",874/~ on
above wages by addressing a_lV_e'tt.er.v'dated"'~8".Ei.';;'v0V'00 and aiso by

subsequent reminde:9'Acijyai.t'ed. 'I-V."Appiicant vide letters

dated commission was not
wages. Adilptiyeant vv'a_.s.VAeiii-3;04r"tII:éd""Vide letter dated 11.10.2000
that sales :.::ommlias'sE.0n"falis-ulnftder the definition of first part of
yun;deri..y"csec't.iori .'3v3f(v2'2")AVand hence contribution is payable

andiactuj-alto' lA'IQf'.l'C("3 was issued _for the above dues on

there was no payment, C-19 ciaim for

"'~f'i2»s;2'0»,ssy7/W"-was issued on 21.12.2000 vide ietter dated

At that juncture, applicant M company reported that

"c0:'m.mission paid as reported by the Insurance Inspector is

07-._inc«!ust've of commission paid to exempted employees and paid

contribution of Rs.1o,495/» on 9.1.2001' Applicant hwa..s'-.ynot

furnished the full records to prove that commissi~0n4'_p'_ai-4ri;~i's._

inclusive of commission paid to exempted»""~.eri1:pl~oyeesQ_é7-»

Therefore applicant is liable to »'pAaiarice'i"

Rs.10,162/W + Rs.10/-- - Rs.1O,172/5.

6.2 Applicant did not prove of"itns._pection or at
the time of inspection or ciaim sent by
respondent ~ Corporation tti'at"'vvere exempted
by virtue of contention is
not accepta_b.ie.uoto pay contribution as
ciaimed. :"Sintte payable, revenue recovery

action initiatediiundevr §'e_c.tion is proper and justified.

Appiication No.21/2085, the respondent -

Cor"por:at.io'rt "file.dv:"i.3bjections in the E331 Court as under:

Tyne' applicant is disputing demand of amount of

.: --v..con.t»:ibution in respect of sales commission paid to its employees

'A'~4"_i~._fo~ri.'tl"ieperiod from April-1996 to March--1998 on the plea that he

"paid an amount of Rs.20,532/-- (Rs.€>,161/-- + Rs.1,954/» «+~

€/'

Rs.12,417/--), which is actually due on the saies commisswiontpaid

to covered employees. The applicant is contending«'.fth.a:t'5

including sales commission many employees are,V_§o.iVVng.l.:'o:;t oi,

coverage and hence no contribution is p_aya.bl'e "on-._ttie._sa.ies'

commission paid to 'not coveted.4_einp'loy'ees' ewhosve.

exceeded Rs.3,000/-- or Rs.E3,500/--'0]=.rt_3x%ut_heiiasineitnier given
proper justification nor f3f'OCii_;'l"[email protected] the substantiate the

correctness of the payment ..

7.2 Sales --i..fgie."_trieperiod from April--1996
to Decen1ber.~--1--99Au€S=iVs sales commission paid
for the to March--1998 is
Rs,6,-47,086/~_' , jalill " sales commission paid is

Rs-i8.r34r0ili3/«Ii

who verified the records on 27.4.2000

pointed out the employer has failed to pay contribution

"~-iin'~r_espect otsales commission. Hence the applicant has been

to pay the contributions. Though the employer has

"jm'adeV___some part payments totaling Rs.20,532/~, he has not

1"«-..':fu~rnished the details as to how certain employees go out of

2/"

coverage and he has not produced any records before' the

insurance Inspector in order to substantiate the correct:n'ef'iss.."of

the payment made by him. Therefore the E551 Co-rporatiyonl

adjusted the amount of Rs..20,S32/~ and'-clain%ied_.;."thVei_bVa'l--la'nce

amount alongwith interest.

7.4 The respondent further has
been issued to the ltioirgaoration,
action has been initiated b'y_._t"he 019 is
addressed to the :a':colJ'r"ionly is Sent to the

appiicant. The d:el;.ai'1i.sa';-of the ..r;r'a~i.rnijarr"'arﬁ,ount of Rs.5.2,386/-- has
been furnished 'l '

7.5 ,"-me applicant" has not given proper justification nor
p-rfoVdurced"rr~the5.--.'records toévsuwbistantiate the correctness of the part

payrh-enta.rhna.d'e,byfhim, Hence revenue recovery action has

ll'litl'i3'if€dr.~v".aiﬁi:'Cfl is legal and in accordance with law.

"'..j*..{8)"Ti'.hevVsum and substance of the findings of Court below

A' as; urxderi:

8.1 in ESE Appiication N010/2005, the E531 Co.t}r.t"'ehas
raised the foiiowing Issues. I

(i) Whether the appiicant proves .
itabie to pay ESI contVr't'tA)ot:"or.i Hon:
commission paid to tTta'r.¥€et'i,t1Q
Dersonnei as the saiiTT£>.,..i~WiJi"'-not .3'_'"\V'i7:y'K\j,?i?*t.oVVV
wages under the ESEuuA:_t'ahd th'e.refo're the
recovery noti,c'"e.,_date'd"'2'?.--.i4.Z005 is iiiaibie" to
be set aside. _

(it) To whatareiiefi.th'e...;j:ppiitcyantii to ?

8.2 In issr~Ap1p:2i.e;itieh_No'.zifpzopds, the E51 Court has
raised the rot]ow_ihg'V'tis'sees2.
(i) 'Whether-th'eVA'a..pp--!é.icaiit proves that he is not
yi'tat)i'e..,At0~"'pa.y contribution on the sales
_ ;_...cornmissio'n--------paid to the marketing staff ?
»(i;i')~ WtieAthe_r the applicant further proves that
t"'r~.,.;._§.' C}1'9 notice and recovery notice dated
v_.~i1.3.=.A2OO5 and 18.1.2005 are not
sustaihabie and therefore iiabie to be set

aside. ?

What order ?

t/'

8.3 The Court below has observed that.-'--.__the

Correspondence in E><.A3 and A~2 probablise applicantthaéyicynlg.

disputed the liability to pay contribution in regard

commission. When there is a dispute u'nder«.Se"ction:?i5_--»¥§,'it is;

mandatory for the Corporation to detetrnﬁinie the,a*mouht"'--.of"~_

contribution payable by the concerhehdil» But in ofllthe it

case, no such determination has" 5:30, the
contention of the applicant ral justice
are not complied is:..acce:ptecil;i" below held
that the Corpora§t'i'ojfl_"~--hfais"3V'.ijot":.c--o:rti--p_ll'ed:"»SeVction 45~A of the ESE

ACE.

8.4 The VVC«.(4)_l'Ji'.t further observed that sales
co--vm'missv_i~o5n ivsdpaid to"--the___workmen for the work undertaken by

them' un'ci.ter,th'e"sche_rhe i.e. the target achieved by individual

workman1»'It.Visu--h:otA'cI=pVaid uniformly to all the workmen. It is not

V7._«pai'<jV at an ziritlervlal of 60 days. it is paid according to the

'So, the contention that the sales commission in the

the case is a wage is rejected. Therefore the Court

Abeiowuheld that the saies incentive given to the workmen is not

the wage and the appiicant in each of the cases are entit'io'e'd.for

refund of the amount deposited by them towards

after the period fixed for appeai.

(9) Feeling aggrieved by the order':.of1t_he'iVCourt

ESE Corporation has preferred these_vt*wo ap'pe:ais._

(10) I have heardthe':iearneVdmcAo'u.i_is'ei~.for axppeilants

as weil as the iearned cousnei fo~r_the"'résp--o.nd--é_nts~.

(11) Learned 'i"o.r_t1t*.e a;--;rpe:.1arits'VVsubmits as under:

:1.1 LearVn'ed{5v_Cou;'nVse_l:"for th.e%appeJ|ant ~ Corporation

invited the attention Ex_.R1(a) dated 19.1.2000
which is as.Letter"'written applicant -- company to the
C'orp"orati'on' v,i=here.iAn it is"'i'n'dVicated that the sales commission is

paid' personnei at the r.ate specified in the

Vi"ri..a';3pointn"i,e'nt or.der_. Learned counsel aiso invited the attention

Court _to'1-Ex.R1(d) which is the appointment order issued

Parnpana, Sales Representative. In Ex.R1(d) it is

. v-V:i''p.-d'iV'c'ateTd that he is entitied for saies _comi"nission at 0.25% on

net collection as per the terms and conditions prescribed iiy"'»t.he

company, after confirmation of service.

11.2 Learned cottnsei further invited the atte_n_jt.i.on:.C.:of4_this"

Court to the definition of 'wages' as §}E:*i':;:.'S€CVtL::i.<Q'r]':,

Act. 'Wages' means aii remunerati_on paid or pay.a".i;;§e'; in Cjash

to an emplovee, if the terms of th"e««V.:.:Contract*.o'f:e'i'i'ii$ipyment,
express or impiied, were fuitm-ed. that
the payment of saiesycommissi'o.n'is':par"'t.:VVo'i.:'."t:ifi'e appointment
order. So the term épiettainiinyg commission
is mentioned in Therefore saies
commission appi.-Canpcompany is
tiable to pay the to the ESE Corporation.

11..3.i.i#earnedV"coi.in_sei. aiso invited the attention of this

Court» to -E_V>V<.A:--1.2v.Vst'atement, wherein it is indicated that sates

commission monthly basis. Therefore the contention

Wpf the apupii.cant"t'hat the sates commission is paid beyond 60

.1 .dfa\,%'g.camot'i;e accepted since Ex.A--12 statement cteariy

C"~"gind.i.t.--ate:sCthat the sales commission is paid on monthiy basis.

(/"

11.4 Learned counsel for the appeélants further submits

that the figures or the calculations in the records maint4a..in~e_d~.i'n

the applicant office are not in dispute. The question.lV_ls"Whe--the-:__" _

the sales commission paid to an employee constitutv-esﬂwlaigesg or "=

not. Therefore Section~45 of the E31 Act mia>,i.:'no't..be' Vap'p'ii:ca'b'ie_r'

to the facts and circumstances of vtheacasel.'-.. In Wofl his

contention, he relies on the decision__<of-_t_hi--s_g Couitinl the} case of
M/s SIDDESHWAR AND c'orMfPAAN'§r, ;irLJ'aLj1.'jugs. EMPLOYEES'
STME INSURANCE CQRPOR/ii-1.oi\i,'--sAsN€§Av_Loii.E"'ANo OTHERS

reported in it isheld as under:

5* (c) " iig:t?~l.PL€f4§>§EE:s"{_' srA5rE"' INSURANCE ACT,

1948, W Contributions ~
Determinafrl.40"». of arrears of -
Rec;ui'r'ement o»§_gVi'v"ir3gV'employer opportunity of being
iJbef'o.re ilnitlatiyng certificate action under

of Act -- Such requirement
ifcoVntem'p'lAa"ted'iiinder Act, where figures pertaining to
pa~)'mer?q't'of<i"wages and other relevant particulars for
V'-».detern:viVn':ation of amount of arrears of contributions
areculled out from books of accounts maintained by
employer himself -- Certificate issued cannot be held
~~-bad m_ereEy because employer was not heard before

it was issued.

5/"

HELD : In the present case, there is no dispute that

the Insurance Inspector inspected the records...__

reiating to the matter in the premises of

appellant's factory and the appeiiant aiiowed it_;'i:'o

inspected. The Inspector, thereafter, found I

actuai figure with reference to eachCOntri_'butio'ns'4 as._'x

has to be made without any o.b}e:;:tion

employer, The Inspector d.ird__ performed of to

énsilecting records and on th'e_R't>asis of._Vre»co.rdsr:he
assessed from the amount pa--i--d...'to_w*ards thev--.wa<'_::;es
amounting 'to Rs.6,9"€i,V:€a2A5€93j_b'7vpaiosfenmduring the

reievant period.' In such"circumsta'nces',jV«there was

no quie'stiion;':ii,ofAo;:fS'ect'i*o'n- 4S"f'A""oo4being applied or
beconi'mg'-- 'app'licf;,.b}:ie..,v4'to_l"the' facts of the case.
Recourseamay be adde,.d:"'to4'§ection 45"/A proceedings

oniyin cases ._where either no returns or particuiars

.__or .fre'gisters_ or reoco---rd«s' are submitted or furnished or

»ma»!nta.,in'ed'«.,_oby__ the Company or in cases where

o"'I.ns'pect'oraQ_rfofficial of the Corporation referred to

under S.e~c't;i4{:.--no 45 are prevented by the principal or

immediate employer or any other person from

:f..ex'e~r_cising his powers and discharge his duties. In

the present case, neither of these circumstances do

__appear nor has been reported. So there was no such

circumstance and conditions in existence in which

question of obligation under Section 45--A would

have arisen."

11.5 Learned counsel for the appellant further vsul'ljrn.i.ts

that no issue was framed by the Court oelow thatjthefr'e..'__:was

denial of opportunity to the applicant to case."

Proceedings under section--75 of the ESI Aéctjj.areithe4'or'vi.o'in.al1'

proceedings and therefore the applicant ha_d"full to

establish their case.

(12) Learned counsel .fo'l=..ythefreispond:e'n.t/applicarlt in both

th e a p p ea l s so l3i'TE s;'ij§:.ri'cl ei i

12.1 Court is invited to Section
2(22)(c) of'theu'E"S%IM to Section 2(22)(c), wages
doesy"notffinc_l_ude paid to the person employed to

dei'r--ay.=specia.ly:_'e${pen-ses entailed on him by the nature of his

hm"i»--._employme'nt".A sales coihinissioripaid by the applicant ~

_:%_i&r~.c.onépany to~.the employees come under defray special expenses.

'1._'_'Tlj1eirér§Vrie"it is not wages.

e//

12.2 Learned counsel for the respondent/applicant further

submits that the incentive or the sales commission is.._no4t"o_n

monthly basis. It is purely paid on the performa1fi.ce"i».oVf--.:t:l1.e__'_

individual employee. Amounts pertaining to sa--le'sv--c:on1'rnissVion4

are paid only after 60 days. The contents'of' E«:«:...i'--\li--.':1";"'2'arei..__n'o:t_*A

disputed by the applicant. This E>€.A_-x12 fugrniishecl.._inWo_i3'dedr

to indicate that the five employees not un'de_r theipurview

of ESE Act because of the wag_eif|im;:_t. ; "

(13) In both applicat«ion.s';~?theVPersonal Manager of

the applicant ~ ie>(a.;rri.ii'ied as AWW1 and he

has filed chievf~e'xamvinatiognl an affidavit. Its contents

are as under:

itV."--.1'3';lv3.€'A5li'»la1"l'statesvviiiiinivhis evidence that the applicant --

comipahyg."fe'g_istered office at Bangalore. The applicant

v:'._iz""'4'vCompany in the manufacturing and marketing of

....i'§d-e««co.<.ative lifﬁtnts. The company has its manufacturing units in

it"--.l3a._rig'aAlore:.and Chennai. He further states that 110 employees

7o'ut..Qf__i7O employees of the company come under the purview

ofthe E81 Act. He further states that in the Corporate Office

9/'

of the applicant »~ company there is a Marketing iDiv'l--E.__sion

wherein 26 employees were working during the yearwi9:982§99'~...

Out of these employees, 2: employees came withinthe.pdryilewlg' 9'

of the ESI Act and 5 employees fell ouitsidei«theppiiryligew

said Act having regard to the salary draiwni'-by' each-.l.of..then:€'*a0t"~

that time. in respect of' 5 employeegs w"ho.wer_"e all
eligible to be covered, no ES; con.l;i'r'i'im'ti'on"-was de'cl'Lrc'ted from
their salary and no contribution;_was.l3et1ai_re:d0'_'t.o' be paid by the

applicant ~ company

13.2 AW--:;i.._ ldrﬁthellr ' the respondent --
Corporation by '-its .let'té:if».,g:da,t4edc:_:V'1*--8'.8.2000 as per Ex.A4 called
upon the applicantito pvay'uE:S'1"contribution at 6.5% on the sales

commission. of"Rs.3,n0"5-;7{l_5/.- for the period from April~1998 to

Ma'r_ch-Vjj9»99 'sliVii*.<i___of Rs.19,873/'~ failing which the same will

'."»._be recoyheirieduvil'ri"i;l.e'ii:=hV'section 4S--I of the Act. The applicant

Vfcorrigpany.asen"t_a.'"repiy thereto by its letter dated 29.8.2000

.1-avlvohgiixvitliiacopy of the Salary Muster of the company for the

"March 1999 showing the salary particulars of its

'V'-.._Ma'«ri§eting Personnel for whom sales commission was payable.

He also states that no ESI contribution was payable on the--"s_ales

commission paid to the four sales personnel viz. S. ;,3y~atgimna,k

M.R. Satish, R. Jayarao and C.l\l. Madhuranath

covered under the E81 Act.

13.3 In ESI Application No.21/2OOS',__thenPers.o_na'l.lVi=an'ag--e:r"~_

further states that in the Marketingﬂllisivisiovszxof aipplllicawnt - 9

company 14 employees were.wor.i<i'ng':-lvc_:di;iVr'in._g the"pe'r"iod from
I-\prilw:996 to lVlarch--1997. (s:f.i'v:«:.'V_'=.f.'-?V'»'employees who
were not at all eligjibl-eg; to xcontribution was
deducted from tiieir9:>_'syaA9lai95y_ .'_c'ontvrIb.u'tion was payable by

the applicant'conipajr}_y in7_r'esp'e.c't of those persons.

13.4 In NO.10/2005 during cross-
e;{_a.n1inat,io;ny AW»1 u¥~"Per_sonal Manager states that applicant --

co'mjpany., pai<l:R.s_.10,000/» and odd after the receipt of the

notice.~_l§'§--..VithVe'aC'orp;o'ration. This according to them is the

deacon-tribaition. towards the coverable employees regarding sales

4: .fc:'cm{i1fiiss'io4_r3, vV"'During 1998w99 salary was paid through bank.

V"of'lfifrneli'.-saAi'--dllprocedure is adopted to all the staff. Before crediting

3.929'»._VAth'e:VVVa'n§oLint, they prepare a wage bill. For the year 199899,

wage bill is available. The said documents are not produceci

before the Court. It is true the wage bill will depict.é.a'btoE2ttj"t.heV

employee coming out of the coverage or not.

13.5 In ES1 Application 2

examination, AW--1 ~ Personal Manager staVtes..th.at_i no
acknowledgment of the respective wot E">{§£\'1t'3~':, letters
being served upon the respective items are
typed, certain items is not signed

by any of the perfson_~oi'*tlh?eir The account books are

not prod Ex./A2, they have not
produced any"doc-urhentsiifolr'v.e:r'i§'ication by ES: Corporation and
to probabiise 'thé'u"i"%LilA"i"ibv.':"F of workmen, who have gone out of
Cidk/V.€ﬁl'ag§'"g..:-ii. aimp'nii';i E><.A.6 7 is paid towards the

salesinVc.lAen'tciy:e»i..: "itgi.s_j.for the years 1996~97. Ex.A6 and 7 are

contribéutioinooaidlw in pursuance of a letter addressed by ESI

"--«iC»u«tpo.rationand that they are not regular contributions paid by

The contribution claimed by the Corporation is

"iTiucVh_higher than what is paid in Ex.A6 and /~'\.7. Ex./AS and

will give the particulars as to the basis on which they have

(/4.

arrived at the figures mentioned in Ex./i\6 and A8. is

the xerox copy of the document to show the

to SBI, but it is not clear. They have lost original...,'V_'4'FoVrV some l

the workmen, they have paid contribution:A4yi'ri;r:'i"udiirigv--.ifo.i:~.,§'aAle_si'

commission. It is not true to say: that th.e"'ciaim:.rria.d:e:by:the

Corporation is proper and that thei'c'..aV'p;;;l_ican't*_.h_as':toligpay the

same.

(14) The respohndenltl" C.'oir.poVraVtio,n°'has examined
Insurance Inspector VRX/V-1 in both the E81
appl'ications.__..lri.e_'st.a'te's1;;i_n_tiis'e§{ami-nation in--chief which is filed

by way of l '

Rvl/-1.State4s"tha'tV.ri*e h-adgvisited the applicant -- company
arid' es.tter',.r.ianceregister from 1/97 to 11/99 and ledger

has prepared a report of his visit and

it to.._the ,R.eQional Office. He aiso found sales commission

*4-l«l..b,ein'g-».paid to._the employees and after enquiry, he has collected

yletter_ the employer. He has requested the employer to

some more documents. They have given a letter

ityisayiilng that they are not readily available. They have coilected

g,/"

the sample copy of the appointment order to know onVg""w,hat

basis the sales commission is paid. It is marked

C-18 notice was marked as E><t.R--16 in which H(Z_'(>)"llt:l.'ll'_).LA_J:'t.iVC\54l'l' K V'

claimed on actual basis. According to h'im,'"sal_e's_ comm':-ssVio'n' is7

part of wages. At the time of inspec-.f:on~,._ no recorci's'g'sh'own"to'

him to show how many number oi"wuo"r'»kmen'Wll'l'go out of the

coverage.

(15) During crossj.e><a.n'i'i'riation; that he has
inspected the is the inspection
report and RJg.2__isV't'~h.Ve:"o1ay:eVri also states that it may
be true to in has contended that as the
amount is paid "asf_'t.er_7VS' wage. As on the date of
th.e.factsv_..cj.{f: case," ceiling was Rs.6,500/~. As per

A.S._Vadjdiressehdv.pt0:«"th__e Corporation, the applicant might have

conten'ded.l'as's«O'me;fof the workmen have gone to the ceiling

V1f__lim:t, tlieu"a.p"plVica"nt is liable to pay the contribution. The

.1 -.app'li<;a'iitwmigvht have also Submitted a statement as per E><.A.6.

'*."V.._A.6.'.-showsi the coverable and non coverable employees list as

pe-rthle submission of the applicant in it.

6/.

(16) The contention of the learned counsel

appellant ~ Corporation is that the sales

under the purview of the wages. In thisconnectio'n;'-a'jre'i"ere.nce

has to be made to section 2(22) of the tESE.:VAct._._l 3

reads as under:

"Wages means all reniu.nera'tli'o'n' payvablé, in
cash to an ernplovee, ot'rvV:tfne"'contract of
emiﬁloyment, exmessor"»i-r%i&Dl'i'e.d"ic,_gw.e'_re:'"fuliiiiled and
inciudes any respect of
any periodiof au_th'o:r--is.e4dV:d'l.eAa'y'~eyi--lockout, strike which
is r1ot"l"itil'e.ug};:hl ":3; iayfoff other additionaé
remun'eration,V intervals not exceeding
two rnontuhs,iibutvdioeis r4i'.o--t,pginVclude-
contri'but--i-o«ri' paid by the empioyer to any
peii.sio:n*--.fund, or under this Act;
allowance or the value of any
A V traveliliiniig allowance.
(c) ~~an*y sum paid to the person ernpioyed to defray
" speciai expenses eotaited on him by the nature

of his employment.

Any gratuity payable on di.si:harge.

€,/

(17) Ex.R1(a) clearly indicates that the sales commission is

paid at the rate specified in the appointment order.

an appointment order issued to Mr; \/ijay

applicant - company. In this appointmMen_t order,"'-iit'_':is""cle.ariiy

indicated that he will be entitled to sales cp'mr'niss_io'n:"'at'"Q?'2yS'%:

of net collection as per the terms'a'n.d conditions'pres'cr.i.bVe-d by 2 L'

the Company, after confirmation of _thVe».yseiryice:' '--«$vection 2(22)
of the E51 Act defines the anciidit means--.,all remuneration
paid or payable in cash to:.ian- terms of the

contract of emp|oy.men5t_"l,'V__.;_e><pre'ss {)E'..'«~§.":7¥;"tl!r')'ll€d'y"V'»'\lE'3l'€ fulfilled. In

the instant :case,"r*p.aym'c§n't oiﬂsales. Vcoinrnission is as per the
terms of the7contract_'off.em.pl'oyment and therefore it comes

u rider the purview' "0f:Vthe..'-wages}:

.A{'1'8..)_ On'e..o-f_tla.e contentions urged by the learned counsel

for thle~res.p'on'de'n--t ﬂhalppllcant is that the sales commission is not

Xnpairl on "°ino"nt.h'l'yi basis and that was paid only on the

4. .ypVe'rf'oi.rmance of the individual and hence it does not come under

of wages. But Ex.A«12 statement prepared by the

'"<.__Vap'plic'a'nt M company clearly indicates that sales commission was

2;,/'

paid on monthly basis. Therefore it is difficult to accept the
contention of the learned counsei for the respondent - applicant
that the sales commission does not Come under the pt:vrv:i"e_ifv-._of

wages.

(39) it is also undisputed fact that...manage'm'ent:V.is'*pVayir:g

the sales commission to its employees. its "in.dicate~d'i.n:

terms of the contract of employme'nt"'of theiapplicainitiiéfcompiany.

Such being the case, the__employ_ei*._holdino.'"that the sales

commission is not a wage ca'rino.t be Further the sales
Commission paid by the ap,p'l'ica-nit 9 a part of the

contract of eafnp--loy'oéev:.i't-..._"iTherefore' it comes under the purview

of Section 2(22)iorthees'i.''A»rc.£;''_;iv '

trial Court---mainly reiied upon the decision of the

irlonﬂale in the case of Whirlpool of Endia Limited

repoiéedcii in 2000-1 Lu 1101 wherein the Hon'ble

..h_if:Sup'rerne Court: has observed that the employees of the company

"..:wer'e."gyive'n 'production incentive' under the scheme every

' V-':fq-iiJ'a'rter%ly and held' that payment of 'production incentive' does

ﬂ_"'ino'4t"fall within the definition of wages. But the facts and

2/'

circuinstances of that case and the facts and circumstan'ce.s of

this case are distingiiishabie and hence the said deciis.i.o_n.':'_i's";n»ot_

appiicabie to the facts and circumstances of the pre»s'e.nt':5_a~se.% T

(21) Learned counsel for the app'e.i«ian_'tsi~'also o'ir--*.,tii'*.ie

decision of the Hon'b|e Supreme'Co"u.rt in"th:e .c_aseAof'.i~W.eE-~iimariif

(India) Private Limited ;__.s. insurance
Corporation reported in V wherein the
attendance bonus pay__ab|e:.""a's tsettiliiement in the
conciliation proceeci»ing's:iiie'ie:'t_re:a'te£;iV In the instant
case, the sales_""c.o'nfn:§i:'_sVsion per the terms and
Conditions the ovf'i.ei'i1--.pio:yment. Therefore the sates
commission can--_pe since it fails under the first

part of S.C.:tj.tiVOi'i 2(22n')"of:Vt_h_e_:":SI Act wherein the wage is defined.
1,' (22) H.'i9.:'A.(:'iEJvSE3 of GEM AND COMPANY, MADRAS .\/s. Est

coizéiioR7Artovi\i";_.._,'_Mri;i3'i:As reported in --2080-II-LL} 68 the High

Court oi" Madras has observed that the Management has

.:'ad'n'i,iv:tLie:i__'that the sales commission can be received by the

i'--.V_.er.njp|oivee's even once in a month. Such a situation wouid

attract the latter portion of section 2(22) of the Act

being additional remuneration paid at the intervals not exceeding

two months. In the said decision, Madras High Cou'r.tj_h'a,s

observed that though there was no specific contract'..tietviee'n"lthe

company and its employees regarding vpayr-nent--'_,of_.

commission, it was being paid for long r:un;.ber otyiears«.wi.th~ou't._

any interruption. Where a con'd.lt'i~on of ~._service been"

implemented regularly, it coulggd assu'i'n.e_:'thVestatus'of implied

agreement between the parties._l_'' ''

(23) I have" evidence of the

applicant as well..,.as._Vt'«_he V"resp'io.nd_e'nt and also the contentions

raised by theﬂlearnedco:e_nsegl"l'fo_:r"the appellant as well as learned
counsel for thel.__re3,pon.d'ent"sw..1:1."The terms of the contract of
evm.ploym.e.nt'V clearlyu'i'nd.i,ca_tes that the sales commission will be

paid' to;'irt»s_,Vemp«l.oyeev$_ once in a month. Therefore it is difficult to

accept'--t:he.'co'nt'e"ij.tlt:.nof the learned counsel for the respondent

V'7T__tha--t the corninission is not the wages. Therefore the

.1'ir_eco"rded by the Court below that the 'sales

°'~4"_V-,(:o--:i5im'issE'on' given to the workmen is not a 'wage is not

3}.

sustainable in law and the same is liable to be se{e'..a"s.ide

and accordingly, the said finding is set aside.

(24) It is the contention of the learned :h'e--.,

respondent ~« company that eventhopgn so»mejj.o'§pth,e 'em.pi.Q'yees'

were not coming under the purview of th._e'ESI AcitiVVb,e_cau'§;ex'of:"';

the wage iimit, that evidence has adduced by
the appiicant. He also seei<s_"for toeistabiish this
fact. "{he applicant intend of employees
who are drawing the date amount

feil due to the i 'H

(25) The ire-arnVeuo'ifpojonsée-i_lfbr; the respondent--applicant has
taken a contention"that't_h4ere' denial of opportunity. Section-
4$_.--_A of "ESI /aict-s.h_a__s__.been made so as to enable the

Cor=po»rati-o_n to=.c1*e,tern"aine the al'l"lOE.Ei3.t' of contribution in cases

where thie---.em'pio'.yerfxrefuses to cooperate or fails to abide by the

Viﬂreie-yant p"r'o.vii"sio.n's of iaw. Section 45A of the ESI Act can be

.1 'mypthe event the immediate empioyer or the principai

is'v7fem.p'l--oy'er»'"obstructs the inspectors or any ofﬁciai of the

tii"-.__Co'rporation from exercising his functions or discharging the

duties. it is relevant to observe that under Section of

the E51 Act, there arises a statutory presumption in

EI Court that the order it had passed under sect.ioAn"vi.;i'$iA.§:A(._1)3o"f._

the Act was sufficient proof as to]:theigégicialiimigof:4'ttierESi'

contribution. Again proceedings _a;nder'--usection:7"SiV.o:f tithe;

Act being the original proceedin'g's.,z_V"the Vap.p'lVic'ant.':':§had full
opportunity to estabtish trieiricaset.itiﬁjaliigrgge.the Vvglgﬁientgon of
the learned cousnel for the tl'i'at is a denial of
opportunity has at this stage.
However in the employees who
were than Rs.6,500/- per
month at the VVreleva.nza-':point_:'oi'"time, an opportunity has to
be given, to tlhei'respondent/applicatrt. Therefore
have arr. opportunity to adduce

evirﬂancie to this point before the ES! Court.

this»...4__vIin1i'te"ciiAlpoint, he can adduce evidence and

" ~ ..éS«tabIish h}S__ ca se.

view of the above discussion, I pass the following:

ORDER

1. These Misceiianeous First Appeals are aiiowed in

2. The finding of the Court beiow with regard---... commission paid to the workmen is no't"'a'wage is_.set-7.asid'e;'.~

3. in the instant cases, paymentgof saies"'comm,i~s.s.io'n"comes" under the purview of wages i.e. S-eiction (VH2). . su.b_¥_seVCtiVon s('22) it of the Erripioyees' State In;_s.urancge---.A:ct}._ i=9_48.

4. These Misceiianeous First to the Court beiow. The appiic_a'nt_ "* Vperniitted to adduce evidence with ;eEn§io'yiees who were not coming under€tVhe:j_44_pi;rvv.i'eiN4:o't.'iV'thA:e" in view of the wage iimit during"'iiniie_feie§}i:é;Vnt p'erV.i'od ."f'o'i{iy on this iimited point, respondent -~* appi'iic;§nr'caViiaadi;ce evidence and estabiish its case. Afte'rg4conciusi"on oi:°""t.h4e.'ti'iain and arguments, the triai Court shail give' aafiri'dvi'nQ."'on."this aspect. shaii dispose of the matters within six of receipt of copy of this order.

Sd/=3 IUDGE

Unlock Advanced Research with PRISMAI

Karnataka High Court