Madhya Pradesh High Court
National Textile Corpn. (Madhya ... vs Employees State Insurance Corpn. And ... on 30 September, 1996
Equivalent citations: (1998)IIILLJ975MP
Bench: A.K. Mathur, Chief Justice
ORDER S.K. Kulshrestha, J.
1. This petition has been filed seeking to quash Annexures' 'E' and 'K', the orders passed respectively by the Regional Director of the Employees' State Insurance Corporation, Indore, and the Tahsildar, Rajnandgaon, as also for quashing the demand notices (Annexures 'F' and 'H') towards dues under the Employees' State Insurance Act, 1948. The petitioners have also challenged the validity of Section 85B of the said Act (hereinafter referred to as the 'ESI Act').
2. The petitioner is a company with limited liability, incorporated under the Companies Act, 1956, having its registered office at N.T.C. House, 27, Yashwant Niwas Road, Indore. The petitioner is a Government Company' within the meaning of the expression under Sections 2(18) and 617 of the Companies Act and all the shares of the company are held by the Central Government. The petitioner No. 1 is a subsidiary of the National Textile Corporation Limited, New Delhi, which is also a Government Company.
3. According to the petitioner, the company was incorporated with a view to rehabilitate certain Sick Textile Undertakings taken over by the Central Government under either the Industries (Development and Regulations) Act or the Sick Textile. Undertakings (Taking over of Management) Act, 1972.
4. Section 3 of the Sick Textile Undertakings (Nationalisation) Act, 1974 provides for acquisition of rights of owners in respect of sick textiles undertakings and lays down that on the appointed day, every sick textile undertaking and the right, title and interest of the owner in relation to every such sick textile undertaking shall stand transferred to, and shall vest absolutely in, the Central Government. Sub-Section (2) thereof provides that upon such vesting in the Central Government by virtue of Sub-section (1), immediately the sick textile undertaking shall stand transferred to, and vested in, the National Textile Corporation. Section 2(j) defines "sick textile undertakings" to mean a textile undertaking, specified in the First Schedule; the management of which has, before the appointed day, been taken over by the Central Government under the Industrie (Development and Regulations) Act, 1951, or as the case may be, vested in the Central Government under the Sick Textile Undertakings (Taking over of Management) Act, 1972. Bengal Nagpur Cotton Mills, Rajnandgaon (M.P.) is one of the sick textile undertakings mentioned at serial No. 18 of the First Schedule to the Nationalistion Act, with the result, the same was taken over and vested in the Central Government under the provisions of the said Act and it consequently vested in the petitioner No. 1 under sub-section (2) of Section 3 of the National Act, the petitioner No. 1 being the subsidiary of the National Textile Corporation Limited.
5. According to the petitioner, the sick textile undertakings, which were nationalised, were in a state of acute crisis. The plant and machinery of these undertakings were old and revival needed substantial inputs of finances, in addition to lending support to a large work force of approximately 1.5 million, protected by various wage awards and labour legislations. The petitioner No. 1 thus faced a very hard task to revive the sick textile undertakings which were vested in the said petitioner. The petitioner has also given details in Annexures 'C and 'D' about the payments made by the petitioner to satisfy the various wage awards and requirements of labour statutes and made further averments to point out the enormity of the tasks with which the petitioner was faced.
6. The petitioner has further averred that the petitioner in relation to the said Bengal Nagpur Cotton Mills (in short B.N.C. Mills) was required to make contribution under the ESI Act and to furnish return to the ESI Corporation within the time prescribed by Regulation 26 of the ESI (General) Regulations 1950. The petitioner has further averred that on account of non-compliance, the damages were assessed by the respondent No. 1. Corporation in accordance with Section 85B of the ESI Act and without regard to the circumstances which had prevented the petitioner No. I from making compliance with the provisions of the said Act, a demand was raised in the sum of Rs. 22,48,028 by the respondent No. 1 in exercise of the power to levy damages under Section 85B of the ESI Act. The petitioner has appended a copy of the order marked as 'E'. The petitioner has further averred that five notices were issued to the petitioner No. 1 pertaining to different periods to show cause as to why the damages as stated in the notices be not levied and recovered from the petitioner No. 1 on account of the default of the petitioner No. 1 in compliance with the provisions of the ESI Act. According to the petitioners, even before the notices were issued, the petitioner No. I had paid contribution payable under the ESI Act and was not in arrears. The petitioners submitted replies to the said notices and raised various grounds to show cause as to why the petitioner No. 1 could not be saddled with any damages and also made submissions during personal hearing but the contentions were rejected by the respondent No. 1 vide Annexure 'E' and as sequal of that order, demand was raised vide Annexure 'P. Further notice vide Annexure 'H' was issued, to which the petitioner filed reply but the objection of the petitioner was rejected by Annexure 'K.'. The petitioner No. 1 has, thus, challenged the levy of damages by the respondent No.l as also the validity of Section 85B of the ESI Act providing for such levy and recovery of demands.
7. The respondent No.i has filed the return controverting the claim of the petitioner and has also raised a plea of availability of the alternative remedy and further that the petitioners had approached this Court after incurring inordinate delay of almost a decade, which the petitioners have failed to explain. The respondent has also made averments to justify the levy of damages and the demand raised as reasonable and in accordance with law.
8. In challenging the validity of Section 85B of the ESI Act, the only ground urged by the petitioner during the course of hearing of the case was that the provision is illegal as it grants power to the same authority to assess and determine the damages which recovers the same. According to the petitioner, Section 75 of the ESI Act provides for the matters to be decided by the Employees' Insurance Court in relation to the dispute which includes all matters which are in dispute between a principal employer and the Corporation and, therefore, the matters with regard to the applicability of the provisions under Section 85B as also the quantum of damages having been disputed the respondent No. 1 had no power to determine the damages and proceed to recover the same. Learned counsel for the respondents has referred to the decision of the Supreme Court in Organo Chemical Industries v. Union of India (1979-1I-LLJ-416) in which an identical provision contained in Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act was considered and its validity was upheld and it was contended that the present provision being in no way different, its validity should also be upheld. Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act provides for recovery of damages upon "failure" of the employer to make payment of contribution due and payable under the said Act and reads as under :
"14-B. Power to recover damages : where an employer makes defaults in the payment of any contribution to the Fund (the Family Fund or the Insurance Fund) or in the transfer of accumulations required to be transferred by him under Sub-section (2) of Section 15 (for Sub-section (5) of Section 17) or in the payment Of any charges payable under any other provision of this Act or of (any scheme or Insurance Scheme) or under any of the conditions specified under Section 17, (the Central Provident Fund Commissioner, or such other officer as may be authorised by the Central Government by notification in the Official Gazette in this behalf) may recover from the employer such damages, not exceeding the amount of arrear, as it may think fit to impose :
Provided that before levying and recovering such damages, the employer shall be given a reasonable opportunity of being heard."
9. Section 85B of the E.S.I. Act also provides for the same course and reads as under :
"85-B. Power to recover damages. -
(1) where an employer fails to pay the amount due in respect of any contribution or any other amount payable under this Act, the Corporation may recover from the employer such damages not exceeding the amount of arrears as it may think fit to impose :
Provided that before recovering such damages, the employer shall be given a reasonable opportunity of being heard.
(2) Any damages recoverable under Sub-section (1) may be recovered as an arrear of land revenue."
10. A comparative reading of the two provisions shows that the course provided under each of the provisions refers to similar "failures" and similar manner of recovery of damages upto 100% of the amount, in respect whereof there has been the default. In construing the said provisions, their Lordships of the Supreme Court observed in paragraph 38 of the decision in Organo Chemical Industries v. Union of India (supra) as under :
"38. The contention that Section 14B confers unguided and uncontrolled discretion upon the Regional Provident Fund Commissioner to impose such damages 'as he may think fit' is, therefore, volatile of Article 14 of the Constitution, cannot be accepted. Nor can it be accepted that there are no guidelines providing for fixing the quantum of damages. The power of the Regional Provident Fund Commissioner to impose damages under Section 14B is a quasi-Judicial function. It must be exercised after notice to the defaulter and after giving him a reasonable opportunity, of being heard. The discretion to award damages could be exercised within the limits fixed by the Statute. Having regard to the punitive nature of the power exercisable under Section 14B and the consequences that ensue therefrom, an order under Section 14B must be a 'speaking order' containing the reasons in support of it. The guidelines are provided in the Act and its various provisions, particularly in the word 'damages' the liability for which in Section 14B arises on the 'making of default'. While fixing the amount of damages, the Regional Provident Fund Commissioner usually takes into consideration, as he has done here, various factors viz. the number of defaults, the period of delay, the frequency of defaults and the amounts involved. The word 'damages' in Section 14B lays down sufficient guidelines for him to levy damages."
11. It would, thus, be seen that the parallel provision of the Employees' Provident Funds and Miscellaneous Provisions Act was considered and upheld on the ground that it cannot be accepted that there are no guidelines providing for fixation of the quantum of damages and that the power, of determination of damages, of the authority, was required to be exercised in a quasi-judicial manner after notice to the defaulter and after giving him a reasonable opportunity of being heard and the order should be a 'speaking order' containing the reasons in support of the order. The present Section 85B in material particulars is in no way different and it is not the case that the power is exercised thereunder in breach of the principles of natural justice. We, therefore, find that Section 85B of the ESI Act is a valid piece of legislation and it does not suffer from any vice of arbitrariness or unbridled 'carte blanche'. The expression "damages not exceeding the amount of arrears" was also considered by this Court in Singh Engineering Co. Jabalpur v. Regional Director. ESIC, More 1983 M.P.LJ. 261 and it was held that a plain construction of the expression meant that the amount of arrears was the outer limit upto which the damages could be recovered and the authorities were enjoined the duty to give reasons to support the levy of damages insofar as the quantum was assessed. Their Lordships referred to the decision of the Supreme Court in Organo Chemical Industries v. Union of India (supra) and made the following observations :
"6. An identical expression occurring in Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 came up for construction before the Supreme Court in Organo Chemical Industries and Anr. v. Union of India and Others. The expression used in that provision is damages not exceeding the amount of arrears as it may think fit to impose. The Supreme Court while rejecting the challenge to the vires of the - provision on the ground that it conferred arbitrary and unfettered power, indicated its true import. It has been held that the power to impose damages is a quasi-judicial function, the discretion to award damages could be exercised within the limits fixed by the Statute, and in view of the punitive nature of the power, the order must be a 'speaking order' containing the reasons in support of it. The Supreme Court also pointed out that while fixing the amount of damages, the authority takes into con-sideration all the relevant factors and the word 'damages' lays down sufficient guide lines for the levy of damages. Referring to an earlier decision of the Supreme Court it was reiterated that the determination of damages is not 'an inflexible application of a rigid fomula' and the words 'as it may think fit to impose' show that the authority is required to apply its mind to the facts of the case. It was for these reasons that challenge to vires of the provision was repelled. This decision of the Supreme Court construing an identical provision applies to the present case with full force and it must be held that the requirements of an order made under Section 85B of the Employees' State Insurance Act are the same."
12. Thus, no doubt survives in relation to the validity of the provision. Coming to the next ground raised by the learned counsel for the petitioners, it is sufficient to observe that when power is granted to the Corporation by Section 85B of the ESI Act to recover the damages and the proviso requires grant of opportunity to the employer of being heard before recovering the said damages, it is not for the Corporation to raise any dispute before the Employees' Insurance Court under Section 75 of the ESI Act and as pointed out by the learned counsel for the respondents, the petitioners could have approached the said Court if they felt aggrieved. We, therefore, find no substance in this contention.
13. The learned counsel for the petitioners has next assailed the validity and propriety of the orders directing recovery of the damages on the ground that in assessing damages, the authority concerned has shown no regard to the fact that the complaint was in relation to a sick textile undertaking with which, the petitioner No. 1 had been saddle with innumerable difficulties without even an option to wind up the said company by (sic.) the force of the prohibition contained in Section 35 of the said Sick Textile Undertaings (Nationalisation) Act, 1974. The learned counsel has further averred that even before any notice was issued, the dues were satisfied and this was also a strong reason why no damages should have been assessed and in the absence of mens rea it was not a case in which it could be said that there was "failure" on the part of the petitioners. The learned counsel for the respondents has brought to our notice the decisions of the Rajasthan High Court in ESI Corpn. v. Universal Supply Corpn. 1988 Vol.56 Indian Factories & Labour Reports Page 205 and in ESI Corpn. v. W.H. Herton & Co. Ltd., 1988 (56) FLR 211, in which the Rajasthan High Court has held that mere delay in complying with the provisions by itself would constitute "failure" to entail damages.
We have also gone through the impugned orders and we find that while in relation to notice dated July 25, 1978 full damages have been assessed in view of the delay, in relation to notice dated July 25, 1978, evenwhen the damages were proposed in the sum of Rs. 1,89,890, the damages ultimately assessed were in the sum of Rs. 9,495. The order passed by the authority concerned takes into account each and every ground raised by the petitioners and furnishes valid reasons in support of the order. It cannot, therefore, be said that the order is not informed with reasons. In fact, we find the order of the authority well reasoned order which does not call for any interference in exercise of our power under Article 226/227 of the Constitution of India.
14. In the result, we find no merit in this petition and it is, accordingly, dismissed with no order as to costs. The amount.of security deposit shall be refunded to the petitioners.