Delhi District Court
M/S Cactus vs Director on 28 November, 2022
IN THE COURT OF SENIOR CIVIL JUDGE-CUM-RENT CONTROLLER,
SOUTH-EAST DISTRICT, SAKET COURTS, DELHI
Presided By : Ms. Deepti Devesh
ESIC No: 13/16
M/S CACTUS
A-42/B-1, EXTENSION,
MOHAN COOPERATIVE INDUSTRIAL ESTATE,
MATHURA ROAD, NEW DELHI-110020.
(SINCE DISSOLVED)
THROUGH SMT. ARUNA JAIN, EX-PARTNER
B-498, NEW FRIENDS COLONY,
NEW DELHI. ....PETITIONER
Versus
1. DIRECTOR
ESI CORPORATION, SUB REGIONAL OFFICE,
C-149, OKHLA INDUSTRIAL AREA PHASE-I,
NEW DELHI-110020.
2. RECOVERY OFFICER
ESI CORPORATION, SUB-REGIONAL OFFICE,
C-149, OKHLA INDUSTRIAL AREA PHASE-I,
NEW DELHI-110020. ....RESPONDENTS
APPLICATION UNDER SECTION 75(1)(g) OF ESI ACT, 1948
IMPUGNING THE PURPORTED ORDER/S DATED 24.10.2013, PASSED BY
THE DEPUTY DIRECTOR AND ORDER DATED 21.07.2014, PASSED BY
THE APPELLATE AUTHORITY FOR RECOVERY OF CONTRIBUTION
TO THE TUNE OF RS. 4,87,213/-.
DATE OF INSTITUTION: 26.08.2014
DATE OF ARGUMENTS: 18.10.2022
DATE OF ANNOUNCEMENT: 28.11.2022
JUDGMENT
Petitioner's case
1. The petitioner's case, in brief, is that it was a partnership firm, and had applied for allotment of ESI code to the respondent vide its application dated 23.03.2009. It is claimed that the application for allotment was made in anticipation ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 1 OF 11 of an overseas order from a client, but the said business never materialized, and so, the partnership was dissolved vide deed dated 20.04.2009. It is further claimed that no business was actually ever commenced by the petitioner, as no orders were received, and thus, the petitioner never entered into the manufacturing process. It is further claimed that the application for allotment of ESI Code was withdrawn vide its letter dated 16.04.2009, and again vide its letter dated 11.06.2009. It is claimed that inspection was conducted by the respondent on 10.06.2009 and in that inspection, it was noted that no work was being carried out. It is further claimed that during inspection, the officials of the respondent were duly intimated about dissolution of partnership and closure of business, and its application to withdraw the letter for allotment of ESI Code. It is claimed that till 07.04.2009, all the contributions were duly paid by the petitioner, and copies of receipts have also been filed. It is claimed that despite withdrawing its application, the petitioner came to know that a Code has been allotted to it vide letter dated 31.07.2009, and subsequently, raised demand for Rs. 3,48,391/- vide C 18 Adhoc dated 14.05.2013, for the period 02.03.2009 to 28.02.2013. It is further claimed that no opportunity of hearing was provided to the petitioner, and an order dated 24.10.2013 was passed, confirming the said demand. It is claimed that an appeal under Section 45AA was filed, but the respondent erroneously upheld the order dated 24.10.2013, vide its order dated 21.07.2014. It is claimed that further letter dated 28.07.2014 was issued by the respondent to its recovery officer to effect recovery from the petitioner. It is claimed that the respondent failed to appreciate that no business was ever commenced by the petitioner, and that the petitioner firm is already closed down, and issued recovery notices upon the petitioner, without application of mind. Hence, the present petition has been filed.
Respondent's case
2. The respondent filed its written statement, in which the allegations of the petitioner were denied. It is claimed that the assessment of the respondent, based on which, demand notices were issued to the petitioner, is upon disclosures made by the petitioner itself in its application form, for allotment of ESI Code. It is further ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 2 OF 11 claimed that the petitioner failed to produce any documents in support of its claim that the petitioner firm was shut down or that there were no employees of the petitioner firm. It is claimed that sufficient opportunities were provided to the petitioner to produce all relevant records, but as the petitioner failed to produce them, assessment was made on the basis of disclosures made by the petitioner itself. It is further claimed, that till date, the petitioner has not filed documents showing closure of the petitioner firm, even with the present petition. Therefore, the orders passed by the respondent are correct and justified, and on this basis, dismissal of the present petition is sought.
Replication
3. Replication was filed by the petitioner to the written statement of the respondent, in which the claims of the respondent were denied and contents of the petition were reiterated.
Admission of documents
4. During trial, an application under Order 11 Rule 12 CPC was filed by the petitioner for production of documents by the respondent. However, the documents as stated in the said application were admitted by the respondent vide separate statement of SSO of the respondent dated 23.04.2019. Hence, all the documents as stated below have been admitted by the respondent during trial:
a) Partnership Deed dated 14.09.2009.
b) Application dated 22.03.2009 along with the relevant
documents.
c) Letter dated 16.04.2009 issued by the applicant to
respondent no.1 requesting for cancellation of application for allotment of ESI Code no.
d) Letter dated 11.06.2009 issued by applicant to respondent no.1 in furtherance of letter dated 16.04.2009.
e) Copy of the Dissolution Deed dated 20.04.2009 dissolving the applicant partnership firm.
ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 3 OF 11
f) Inspection Report dated 10.06.2009 by the team of the Inspecting officials of respondent no.1 acknowledging the fact of closure of the unit of the applicant w.e.f. 16.04.2009.
g) Reminder letter dated 25.08.2009 issued by applicant to respondent no.1 in furtherance of letter dated 16.04.2009 and 11.06.2009.
h) Letter dated 07.11.2009 issued by applicant to respondent no.1 along with compliance challan dated 05.10.2009 showing deposit of contribution prior to the closure of the unit and certified copies of other relevant documents as obtained from the records of the respondent.
i) Internal notings of Respondent no.1.
j) Reply dated 08.06.2013 from applicant to respondent
no.1 as reply to show cause notice dated 14.05.2013 received by applicant from respondent no.1.
Issues
5. On the basis of pleadings of the parties, the following issues were framed vide order dated 16.09.2017:
Issue no.1. Whether the order dated 21.07.2014 issued by the respondent for recovery of Rs. 4,87,213/- is liable to be set aside? OPP.
Issue no.2. Whether the petitioner is entitled to a decree restraining the respondent from taking further coercive action against the petitioner? OPP.
Issue no.3. Whether the petitioner is entitled to a decree of declaration declaring the unit of the petitioner as not covered after the closure of unit w.e.f. 08.04.2009? OPP. Issue no.4. Relief.
ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 4 OF 11 Petitioner's evidence
6. The petitioner examined its erstwhile partner Aruna Jain as PW1. In her examination-in-chief, by way of affidavit Ex. PW1/A, she reiterated the contents of the petition and relied upon the following documents:
a) Partnership deed dated 14.01.2009 Mark A
b) Application dated 22.03.2009 Mark B
c) Letter dated 16.04.2009 Mark C
d) Letter dated 11.06.2009 Mark D
e) Dissolution deed dated 20.04.2009 Mark E
f) Inspection report dated 10.06.2009 Mark F
g) Letter dated 25.05.2009 Mark G
h) Letter dated 07.11.2009 Mark H
i) Internal noting of respondent Mark I
j) Cheque dated 27.12.2013 Mark J
Thereafter, PW1 was cross-examined and discharged on 13.05.2019 and PE was also closed.
Respondent's evidence
7. The respondent examined its employee Praveen Kumar as DW1. He produced the dispatch register for sending articles by post and showed five entries through which five letters were sent by respondent to the petitioner, Ex. RW1/X1 to Ex. RW1/X5 (OSR). The respondent also examined another employee Rekhil Lodi as DW2. He produced the original noting file of the petitioner with original notings Ex. RW2/A (Colly). Thereafter, both the witnesses were cross-examined and discharged on 06.12.2021 and RE was closed.
Final Arguments ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 5 OF 11
8. Oral arguments were advanced at length on behalf of both the parties. Written arguments were also furnished by the petitioner.
9. I have heard arguments and perused the record.
Findings
10. All the issues are being decided together as they are inter-connected to each other. The onus of proving all the issues was upon the petitioner. The respondent has already admitted several documents relied upon by the petitioner in the present petition. It is admitted that petitioner had applied for ESI Code allotment with the respondent. Letter dated 16.04.2009 by which the petitioner sought withdrawal of its application for allotment is also admitted by the respondent. Subsequent letter dated 11.06.2009 for withdrawal of application is also admitted. Inspection report dated 10.06.2009 is also admitted. Reminder letter dated 25.08.2009 is also admitted. Internal notings of respondent regarding the application of petitioner is also admitted. On basis of the above admitted documents, it is clear that the respondent was aware of the request made by the petitioner to withdraw its application for allotment of ESI Code. Despite being aware of such request, why no further action was taken by the respondent to initiate closure proceedings as per rules, is not explained anywhere. Mere insistence of the respondent to produce documents evidencing closure by the petitioner, cannot make the court close its eyes to the fact that no proper inspection for closure proceedings was directed by the respondent, despite receipt of request from the petitioner. In fact, the respondent, in complete oblivion of letters dated 16.04.2009, 11.06.2009 and 25.08.2009, of the petitioner, completed its formalities for issuance of ESI Code to the petitioner and allotted the same vide its letter dated 31.07.2009. Perusal of the ESI Act shows that no specific procedure has been prescribed for intimation regarding permanent closure of a business to the respondent. Unlike a proper procedure and format for application for issuance of an ESI Code, nothing is prescribed for its withdrawal or cancellation. Thus, the intimation of permanent closure is to be inferred from the Act and Rules thereunder. Rule 26 of ESI Regulations 1950 is as under:
ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 6 OF 11 "26. Return of contributions to be sent to appropriate Office. - (1) Every employer shall send a return of contributions in quadruplicate in [Form 5] along with receipted copies of challans for the amounts deposited in the Bank, to the appropriate Office by registered post or messenger, in respect of all employees for whom contributions were payable in a contribution period, so as to reach that office -
[(a) within 42 days of the termination of the contribution period to which it relates;
(b) within 21 days of the date of permanent closure of the factory or establishment, as the case may be; ]
(c) within 7 days of the date of receipt of requisition in that behalf from the appropriate office.
[(1A) Every employer shall be required to submit details in Form 5(Return of Contribution) with regard to employees engaged through Principal and Immediate Employers and their coverage, submission of Declaration Forms, distribution of Temporary Identification Certificates/Permanent Identity Cards and wages considered for payment of contribution and wages excluded for such purpose.] (2) For the purposes of Section 77 of the Act, the due date by which the evidence of contributions having been paid must reach the Corporation shall be the last of the days respectively specified in clauses (a), (b) and (c) of sub- regulations (1).] ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 7 OF 11
11. Thus, in view of the above rule, intimation about permanent closure can be made to the appropriate office of the respondent by filing its return within 21 days of permanent closure. It is the case of the petitioner that even without commencing any business, to be compliant with the ESI Act, it deposited contributions for its employees till 07.04.2009. Although the said contribution was not deposited within the prescribed time limit, but it is relevant to note that by the mode of intimation as prescribed under Rule 26 also, the respondent was informed of closure by the petitioner vide its letter dated 07.11.2009 along with deposit challan dated 05.10.2009. Therefore, the respondent cannot now dispute this fact of not having knowledge about request of petitioner to cancel its application for allotment of ESI Code.
12. It is also pertinent to note that without heeding the request of cancellation of the petitioner, the respondent proceeded mechanically to appoint its official for inspection of the petitioner unit. The inspection was carried out on 10.06.2009. In the inspection report dated 10.06.2009, it has been stated by the concerned inspector, that only one security guard and one housekeeping staff was found. Nothing has been stated about any business activity on-going at the petitioner unit at the time of inspection. It has nowhere been claimed by the respondent that during inspection, machines were found to be working and manufacturing process was on-going on-site. In absence of such claim of the respondent, why respondent is insisting upon documents showing closure of business, when there is nothing produced by the respondent itself to show that there was commencement of business in the first place. Furthermore, the presence only of a security guard and housekeeping staff itself is sufficient to show that there were no skilled, semi-skilled labourers present at the time of inspection, who could carry on the stated business of the petitioner, i.e. manufacturing of fashion accessories. Therefore, own inspection report of the respondent corroborates the claim of the petitioner that no business activity was being done by the petitioner.
ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 8 OF 11
13. Furthermore, presence of only some staff without any business activity ongoing, does not make that unit coverable under ESI Act as primary requirement for coverage under the Act is that the establishment should be a factory. Furthermore, no names or addresses of employees found at the time of inspection is recorded in the report. Without such details, it cannot be said that those employees were covered under ESI Act or were working for the petitioner. As already noted above, own inspection report dated 10.06.2009 does not establish any ongoing business activity, and therefore, even if it is assumed that the staff found to be present at the time of inspection, were employed by the petitioner, it does not mean that petitioner was covered under ESI Act, without running of a factory or any other establishment that is covered under the Act. Reference in this regard may be made to Section 1 and 2 of the Act, which provides the details essential for its establishment to be covered under ESI Act. The respondent has nowhere pleaded that at the time of inspection dated 10.06.2009, the petitioner's unit was found to be fulfilling all the necessary ingredients of Section 1 & 2 of the Act for its coverage under ESI Act.
14. It has been claimed by the respondent that except for unregistered dissolution deed dated 20.04.2009, no other document has been filed by the petitioner to show closure of business. It is claimed that the petitioner did not file any document to show surrender of its PAN card, or any books of accounts, income tax returns relating to the petitioner were produced. It is further claimed that no bank account statement was produced to show no transaction for no business activity by the petitioner. It is further claimed that original attendance and wage registers were also not produced fro verification by the petitioner. In this regard, it is pertinent to note that the respondent never issued any communication to the petitioner, rejecting its demand for cancellation of its request for ESI Code allotment. In fact, no communication was sent by the respondent on request for cancellation of application to ESI Code allotment. In absence of such communication of rejection and moreover, on account of the respondent choosing to sit over the repeated requests made by the petitioner to cancel its application, can it be said that there was any onus upon the petitioner to continuing maintaining records as per the Act? In my opinion, such an ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 9 OF 11 onus of continuing to maintain all records as per the Act would arise, only when the petitioner had any knowledge of rejection of its request for cancellation of its application for ESI Code allotment. Therefore, it was not reasonable for the respondent to expect production of records like wage/attendance registers or books of account for such a long period, when request for cancellation was made more than four years prior to C18 Adhoc claim dated 14.05.2013. Furthermore, the responsibility of the petitioner to maintain such record would arise after allotment of ESI Code, evidencing its coverage under the Act. In the instant case, the petitioner has disputed that the respondent sent its letter dated 31.07.2009 to the petitioner, and therefore, the petitioner was never in knowledge of having being covered under the Act. In fact, the inspection carried out by the respondent on 10.06.2009, was admittedly prior to issuance of ESI Code allotment. In order to show that letter dated 31.07.2009 was duly sent to the petitioner, the respondent had examined its dispatch clerk who produced its register of dispatch Ex. RW1/X1 to Ex. RW1/X5. However, no postal receipt to show actual dispatch has been filed by the respondent. The register is an internal document of the respondent, in which entries are made by officials of the respondent. Without producing postal receipts to show dispatch of letter dated 31.07.2009, it cannot be said that such communication was ever sent to the petitioner. In absence of the same, the liability of the petitioner to maintain records as per the Act, does not arise, more so, when the petitioner had already sent request to cancel its application for allotment of ESI Code, even prior to inspection dated 10.06.2009 and letter lated 31.07.2009. Thus, the argument that the petitioner did not produce any original records for verification is untenable.
15. Furthermore, merely because no document showing surrender of PAN by the petitioner or non-filing of its bank account statement, cannot be the basis to assume non- closure of business or carrying out of business activities from any other place. The purpose of physical inspection by the respondent is to verify the claims of the employers, and when nothing to the contrary, was established as per inspection report dated 10.06.2009, then harping upon non production of any other closure documents, appears merely to be an attempt at ex post-facto justification for action undertaken mechanically by the respondent.
16. The argument that the only document showing closure is dissolution deed dated 20.04.2009 is untenable. The respondent has not pointed out any provision of law that makes it mandatory for a dissolution deed to be registered. Nothing has been produced by ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 10 OF 11 the respondent to show that without registration, such partnership dissolution deed cannot be relied upon in a court of law. Simply because there is an unregistered partnership dissolution deed, it cannot be said that the claim of petitioner closing down its business, is not credible, more so, when no contradictory facts have been brought on record by the respondent itself.
17. Furthermore, the internal notings of the respondent dated 03.07.2013 is admitted and it clearly states the lapses in putting up of communications received from the petitioner, and misconstruing of inspection report dated 10.06.2009, and thus, recommending dropping of C18 Adhoc notice dated 14.05.2013. However, it is not clear in order dated 25.10.2013 or order dated 21.07.2014, if this internal noting dated 03.07.2013 was duly considered or not. Nothing satisfactory has been stated by the respondent regarding the said internal notings in its written statement or evidence or final arguments. The internal noting dated 03.07.2013 clearly supports the case of the petitioner that despite communication of closure of business, subsequently, inspection was done and demand notice was raised, without appointing officer for closure inspection.
18. In view of the above discussion, it is clear that there have been lapses on part of respondent, and C18 Adhoc notice dated 14.05.2013, order under Section 45A ESI Act dated 25.10.2013 and order under Section 45AA ESI Act dated 21.07.2014 have been passed without proper appreciation of facts and application of law. Hence, all the issues are decided against the respondent and in favour of the petitioner.
Relief
19. In view of the above discussion, order dated 21.07.2014 for recovery of Rs. 4,87,213/- from the petitioner is hereby set aside and quashed. The petitioner is further entitled to declaration that petitioner unit is not covered under the ESI Act w.e.f. 08.04.2009.
20. File be consigned to record room after due compliance, if any.
(Deepti Devesh) Senior Civil Judge-cum-Rent Controller South East, Saket Courts, New Delhi 28.11.2022 ESIC NO. 13/16 M/S CACTIS VS. DIRECTOR, ESI CORPORATION SUBREGIONAL OFFICE & ANR. PAGE 11 OF 11