Karnataka High Court
Mysore Kirloskar Ltd. vs Deputy Regional Director, E.S.I. ... on 14 October, 1998
Equivalent citations: (2000)IIILLJ213KANT
JUDGMENT Y. Bhaskar Rao, J.
1. The Mysore Kirloskar, Ltd., a public limited company the appellant, filed this appeal assailing the judgment of the Employees' Insurance Court, Hubli.
2. The brief facts of the case are that the appellant is a public limited company, incorporated under the Mysore Companies Act, 1938, and an existing company within the meaning of Section 3 of the Companies Act, 1956, and carries on business of manufacturing of machine tools and foundry products and sale of the same. The appellant-company has employed about 4,300 employees in its establishment and covered by the provisions of the Employees' State Insurance Act and is making contributions in accordance with law and the provisions made thereunder.
3. The appellant-management has voluntarily introduced an incentive scheme, reserving right to alter, modify, revise or withdraw the same. Accordingly, the company is paying incentive payment to the workmen of the company. In the year 1968, the respondent-Corporation informed that the incentive payment should be included in the wages. The same was resisted by the appellant-company. Since the respondent-Corporation did not accept the plea of the company that the incentive payment made voluntarily to its workmen would not be "wages" within the meaning of Section 2(22) of the Employees' State Insurance Act, the company was obliged to approach the E.I. Court, Bangalore, in E.S.I. Application No. 3/72, praying for a declaration that the incentive payments made by the company to its workmen would not be wages and that the contributions would not be payable on the said payment. The matter was contested by the Corporation. After recording the evidence and hearing the parties the Employees' Insurance Court by its order dated February 19, 1973, allowed the application and declared that contributions were not liable to be paid on incentive payment as the same is not wage. The matter was carried by the Corporation in appeal to the High Court. This Court confined the order of the Employees' Insurance Court in M.F.A. No. 240 of 1973.
4. Thereafter, again in 1975, the Corporation sent a letter to the appellant-company stating that the appellant-company has to pay contribution even on the incentive. The company informed the Corporation that in view of the judgment of this Court, in between the parties, it is not liable to pay the contribution, but the Corporation insisted for payment of the amount. The company again approached the Employees' Insurance Court in E.S.I. Application No. 14 of 1976 praying for permanent injunction restraining the Corporation from collecting contributions on incentive payments. After contest, the Employees' Insurance Court allowed the application of the company. The Corporation again filed an appeal in this Court in M.F.A. No. 419 of 1977, assailing the order of the Employees' Insurance Court. This Court allowed the appeal and set aside the order of the Employees' Insurance Court and held that the incentive payments made by the company fell within the definition of wages" under the ESI Act, relying on the Full Bench judgment of this Court.
5. The company preferred an appeal to the Supreme Court in Civil Appeal No. 2545 of 1982. The Apex Court granted special leave to appeal and also granted an order of stay of recovery of the arrears only to the extent of liability by its order dated August 6, 1982. Subsequently, the stay order was vacated. Thereafter, the Corporation by their letter, dated June 11, 1985, demanded a sum of Rs. 18,64,514.20. In the meanwhile, the appellant-company moved the Supreme Court for a direction. The Supreme Court after hearing the parties passed an order directing the appellant to raise the objections regarding the payment and further directed the Corporation to dispose of the objections after an opportunity given to the appellant. Thereafter, the Corporation issued a letter on August 29, 1985. Pursuant to the said letter, the appellant-company appeared and produced the computerised statement sheets before the authority. Thereafter, the Corporation passed an order demanding a sum of Rs. 12,85,269 and further sought for verification of the records with reference to the returns submitted by the appellant-company. In the meanwhile, the Supreme Court further directed the Corporation to complete its enquiry and pursuant to it, another letter, dated August 6, 1986, was issued by the Corporation to the appellant company to appear in person and to answer regarding the provisional assessment of Rs. 12,85,269. The appellant-company deputed its Senior Manager (Industrial Relations) who submitted the statement of objections and also contended that the company would be entitled for refund in case incentive payments have been treated as wages. After hearing him, the respondent-Corporation passed an order on August 21, 1986, purporting to be under Section 45A of the E.S.I. Act, demanding a sum of Rs. 12,05,375.34, for the period from February 1976 to September 1982.
6. The Supreme Court in C.M.P No. 4822 of 1986 passed an order to the effect that in view of the remedy available under Section 75 of the E.S.I. Act, the company was allowed to withdraw its stay application with liberty to pursue the remedy under Section 75 of the E. S I. Act. Therefore, aggrieved by the order of the E.S.I. Corporation, dated September 21, 1986, the appellant-company has preferred an application before the Employees' Insurance Court challenging the said order. The Employees' Insurance Court, after hearing the parties elaborately and considering the materials placed on record, passed an order partly allowing the petition by modifying the impugned order, dated August 21, 1986, holding that the appellant-company is liable to pay an amount of Rs. 12,05,375.34 along with interest at 6 per cent per annum and in other respects the impugned order is upheld. Against that order, this present appeal is filed.
7. Learned counsel for the appellant contended that the stand taken by the Corporation that the incentive is a part of the wages was negatived by this Court in M.F.A.No. 40 of 1973 and the said view was reversed only later in M.F.A. No. 419 of 1977 and ultimately the said judgment was confirmed by the Supreme Court in SLP No. 2545 of 1992. This is only during 1982. The principle laid down in the earlier judgment in M.F.A. No. 240 of 1973 that the incentive is not part of wages was in force up to the view was reversed by the High Court which is confirmed by the Apex Court. Therefore, the appellant-company is not liable to pay contribution on the incentives, at least up to the judgment of this Court, dated July 27, 1982. Therefore, the principle of res judicata applies and the respondent-Corporation cannot claim the amount.
8. On the other hand., learned counsel, Sri Papanna, appearing for the respondent-Corporation contended that the earlier judgment in M.F.A. No. 240 of 1973 is no more a good law in view of the Full Bench decision of this Court in M.F.A. No. 169 of 1973 and the Full Bench of this Court, vide its order, dated August 29, 1978, held that the incentive forms part of wages. M.F.A. No. 419 of 1977 was allowed following the Full Bench judgment. Therefore, the earlier judgment which is no more a good law, shall not operate as res judicata .
9. The facts stated supra show that, in M.F.A. No. 240 of 1973 this Court held that the incentive payment is not part of wages and thereafterwards, the Corporation has to, return the amount to the appellant. Afterwards, when the Corporation has made a demand, it was challenged before the Employees' Insurance Court. The Employees' Insurance Court held that, in view of the earlier judgment between the parties, the incentive is not part of wages. Therefore, the Corporation again demanded the amount on the payment of contribution on the incentive. That judgment was challenged before this Court in M.F A. No. 240 of 1973. This Court relying on the Full Bench judgment in M.F.A. No 419 of 1977 held that, incentive forms part of wages by its judgment, dated January 27, 1982. The matter was earned to the Supreme Court in Civil Appeal No. 2545 of 1982 The Supreme Court dismissed the appeal on March 2, 1990. Therefore, the question whether incentive is a wage or not is no more res integra. As has been finally settled by the Supreme Court that the incentive is part of wages as it dismissed the appeal confirming the judgment of the High Court in M.F. A. No. 419 of 1977. Thus, it is finally settled that the incentive payment made by the company to its employees falls under the definition of wages.
10. The only question is:
"Whether the earlier judgment in MFA No. 240 of 1973 operates as res judicata?"
11. There is no dispute that, in an earlier case between the same parties with reference to the demand notice, made for the period ending upto December 31, 1972, a Division Bench of this Court in its decision in M.F. A. No. 240 of 1973 Employees State Insurance Corporation v. Mysore Kirloskar Ltd. 1974 (2) L.L.N. 474, held that the incentive payment made by the company unilaterally to its employees under the incentive scheme were not wages and did not come within the first part or second part of the definition of "wages" in Section 2(22) of the Act.
12. Thereafter, the Corporation issued notice in the year 1976 demanding for the payment of contribution on the incentive also and the matter was carried to the Employees' Insurance Court which held in favour of the appellant relying on the earlier judgment. On appeal, the High Court allowed the appeal relying on the Full Bench, decision of this Court in NGEE Ltd. v. Deputy Regional Director, Employees' State Insurance Corporation 1980 LIC 431, wherein this Court held as follows:
"For the reasons stated above, our answer to the question is that the amount paid by way of incentive under the scheme referred to in the settlement entered into between the management and its workmen falls within the definition of "wages" as defined under the Section 2(22) of the Employees' State Insurance Act."
13. Relying on the above Full Bench judgment, the appeal filed by the Corporation was allowed. Thus, this Court held that the law laid down in the earlier judgment between the parties is no more a good law in view of the I Full Bench decision. So, the judgment between the parties which is no more a good law in view of the later Full Bench judgment cannot be held as a valid judgment between the parties. So, the same will not operate as res judicata. This point was also considered by the Division Bench of this Court in the later appeal between the parties and this Court held that:
"It is no doubt true that where subsequently the law as applied to the earlier decision is altered, the earlier decision would not stop the parties on the doctrine of res judicata", and held that the appellant-company is liable to pay contribution on the incentive also. The same was confirmed in appeal by the Supreme Court. Therefore, the issue is finally decided holding that the earlier decision in M.F.A. No. 240 of 1973 between the parties will not apply as res judicata as the principle laid down in the said judgment is no more good law in view of the later judgment. Therefore, we are unable to accept the contention of the appellant that the earlier judgment operates as res judicata and that the appellant is not liable to pay contribution up to the date of the decision of this Court in M.F.A. No. 419 of 1977. dated January 27, 1982.
14. It is secondly contended that, by adding incentive to the wages, a number of employees of the Corporation will go out of the purview of the Act. Therefore, for those employees the appellant need not pay any contribution and the appellant has to get the amount paid by it.
15. Learned counsel for the respondent-Corporation contended that the contribution is payable as per the provisions of the E.S.I. Act. Once the contribution is paid for a particular period, if no objection is taken within the time prescribed under the Act and Rules and Regulations, the contribution will be spent for the beneficiaries and the amount will be exhausted. If no objection is taken by the appellant within the time prescribed they cannot agitate later. It is further contended that the appellant-company has not taken this plea at the earliest as such in the year 1976 when they have challenged the same before the Employees' Insurance Court or in this Court in M.F.A. No. 419 of 1977. Therefore, they are estopped by the principles of constructive res judicata
16. There is no dispute that the appellant-Company has not raised the issue at the relevant time that if incentive is added to the wages, some of the employees will go out of the purview of the act, either in the application filed before the Employees' Insurance Court in the year 1976 or they have taken such a plea in the appeal filed against the said judgment. They filed an appeal before the Supreme Court aggrieved by the judgment of this Court and after special leave granted when the demand was made by the Corporation for payment of Rs. 18 lakhs odd, the Corporation moved the Supreme Court. After hearing the parties, the Supreme Court passed an order directing the appellant to raise objections regarding the payment of the amount and further directed the Corporation to dispose of the objections after giving opportunity to the appellant. Thereafter, E.S.I. Application of 1986, was filed raising a plea that in case incentive is added to wages some of the employees go out of the purview of the Act as their salary is more than Rs. 1,000. Therefore, the Corporation is not liable to pay contribution for those employees. Till then, there was no whisper by the Corporation that by adding incentive to the wages, some of the employees will go out of purview of the Act. On the other hand, the Corporation has filed list of employees for whom contribution is payable keeping alive the employees whose salary is more than Rs. 1,000, in case the incentive is added in the list and paid the contribution. The disputed demand is for the period of 1976 to 1982. The Corporation having not taken the plea in the earlier proceedings, in pursuance of the demand, is estopped by the principle of constructive res judicata.
17. To appreciate the point, it is apposite to refer the relevant provisions of the Code of Civil Procedure.
18. Section 11, Explanation IV of the Code of Civil Procedure envisages:
"Any matter which might and ought to have been made ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit."
19. It is also relevant to refer Order II, Rule 2, which reads as follows:
"Relinquishment of part of claim.--Where a plaintiff omits to sue in respect of or intentionally relinquishes, any portion of his claim, he shall not afterwards sue in respect of the portion so omitted or relinquished."
20. As stated supra the appellant-company ought to have taken this plea in the earlier proceedings when they received notice for the payment of contribution on the incentives.
21. It is contended by learned counsel for the appellant-company that, at that time, the judgment of this Court in M.F.A. No. 240 of 1973, which was in their favour, was in force. Therefore, they have not taken the plea. There is no dispute that the judgment was in force as at relevant time but the same cannot be a bar to take a plea alternatively to put forward their legal defence It is settled principles of law that alternative pleas are permissible, in the pleadings. Therefore, they have omitted to take a plea, so afterwards, cannot take such a plea as the same is a bar as per Order II, Rule 2 of the Code of Civil Procedure. Further, the pleas ought to have been taken/not taken also operates as constructive res judicata as per Section 11, Explanation IV of the Code of Civil Procedure. Our view was fortified by the principle laid down in State of Uttar Pradesh v. Nawab Hussain and Devilal Modi v. Sales Tax Officer and it squarely applies to the facts of the present case. Therefore, the appellant's plea that the appellant-company is not permitted to putforth a plea that if the incentive is treated as wages, some of the employees go out of the purview of the Act, as their salary exceed more than Rs. 1,000 is untenable. As the said plea was not taken in the earlier proceedings they are estopped by the doctrine of constructive res judicata.
22. Learned counsel for the appellant contended that the principle of constructive res judicata is not applicable to the tax matters and relied on the decisions of the Supreme Court in (i) Instalment Supply (Private), Ltd. v. Union of India ; (ii) Amalgamated Coalfields, Ltd. v. Janapada Sabha Chhindwara ; and (iii) Joint Family of Udayan Chinubhaiv. CIT, , wherein it is held that the principle of constructive res judicata is not applicable to income-tax cases.
23. The principles of constructive res judicata will apply for the same assessment period. When the proceedings are for different assessment years, the principle will not apply. The Supreme Court in Instalment Supply (Private), Ltd. v. Union of India (supra) held that, for different assessment years, the. principle of constructive res judicata will not apply, whereas in the case of Devilal Modi case (supra), the Supreme Court held that the principle of constructive res judicata applies if it relates to the same assessment period. Thus, by analysing the judgment of the Apex Court, it can be deduced that the principle of constructive res judicata will apply when the proceedings concerned to the same assessment period. Thus, there is a notable distinction in applying the principle of constructive res judicata for the same assessment period and different assessment period. In the present case, the plea now taken is not for different period but it relates to the same period, which was the subject-matter of the earlier appeal, which was confirmed by the Supreme Court. Therefore, the principle of constructive res judicata squarely applies to the facts of the present case.
24. The question can be examined by other angle also.
25. Section 38 of the Employees' State Insurance Act, 1948, obligates that all the employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act.
Section 39 envisages contributions to be paid by the employer and the employees as per the rates fixed by the Central Government. The wage period in relation to an employee shall be the unit in respect of which all contributions shall be payable under this Act.
Sub-clause (5)(a) of Section 39 provides that:
"If any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has become due, he shall be liable to pay simple interest at the rate of twelve per cent per annum or at such higher rate as may be specified in the regulations till the date of its actual payment."
Section 40 contemplates principal employer to pay contributions in the first instance.
Section 41 contemplates recovery of contribution from immediate employer.
Section 44 obligates employers to furnish returns and maintain registers in certain cases.
Section 45B deals with recovery of contributions.
Regulation 29 provides for payment of contribution into a bank duly authorised by the Corporation.
Regulation 31 prescribes for time for payment of contribution and the employer liable to pay contributions in respect of any employee shall pay those contributions within 21 of the last day of the calendar month in which the contributions fall due.
Provided that where a factory/establishment is permanently closed, the employer shall pay contribution on the last day of its closure.
Regulation 31-A obligates an employer who fails to pay contribution within the period specified in regulation 31, shall be liable to pay interest at the rate of 12 per cent per annum (at the relevant time 6 per cent, per annum) in respect of each day of default or delay in payment of contribution.
Regulation 31-B provides recovery of interest as an arrear of land revenue or under Section 45C to Section 45I of the Act.
Regulation 31-C provides for damages or contributions or any other amount due, but not paid in time specified under regulation 31.
Regulation 32 provides that every employer shall maintain a register in Form 7 in respect of every employee of his factory or establishment.
Regulation 31(1A) provides that every immediate employer shall maintain a register in Form 7 in respect of every employee engaged by him and submit the same to the principal employer before the settlement of any amount payable under Sub-section (1) of Section 41 of the Act.
Regulation 40 deals with refund of contribution erroneously paid. It reads:
"40. Refund of contribution erroneously paid. - (1) Any contribution paid by a person under the erroneous belief that the contributions were payable by that person under that Act may be refunded without interest by the Corporation to that person, if application to that effect is made in writing before the commencement of the benefit period corresponding to the contribution period in which contribution was paid.
(2) Where any contribution has been paid by a person at a rate higher than that at which it was payable the excess of the amount so paid over the amount payable may be refunded without interest by the Corporation to that person, if application to that effect is made before the commencement of the benefit period corresponding to the contribution period in which such contribution was paid.
(3) In calculating the amount of any refund to be made under this regulation there may be deducted the amount, if any, paid to any person by way of benefit on the basis of the contribution erroneously paid and for the refund of which the application is made.
(4) Where the whole or part of the amount of any contribution referred to in sub-regulations (1) and (2), was recovered from an immediate employer or deducted from the wages of an employee by the principal employer, he shall, on getting the refund of the amount from the Corporation, be liable to pay back the amount so recovered or deducted to the person from whom the amount was so recovered or deducted.
(5) Applications for refund under this regulation shall be made in such form and in such manner and shall be supported by such documents as the Director-General may from time to time, determine."
26. As per the above provisions, all the regulations provide that where the employer claims refund, it has to file application in writing before the authority before the commencement of benefit period corresponding to contribution period in which contribution was made. The application for refund under the regulation shall be made in the prescribed form supported by documents.
27. Regulation 4 deals with contribution and benefit periods, which reads:
"4. Contribution and benefit periods.--Contribution periods and the corresponding benefit periods shall be as under.
Contribution period Corresponding benefit period April 1, to September 30.
January 1 of the year following to June 30.
October 1, to March 31, of the year following July 1, to December31.
Provided that in the case of a person who becomes an employee within the meaning of the Act for the first time, the first contribution period shall commence from the date of such employment in the contribution period current on that day and the corresponding benefit period for him shall commence on the expiry of the period of nine months from the date of such employment."
28. As per the above regulation, the contribution period is from April 1 to September 30, in a year and corresponding benefit period is January 1, of the year following to June 30.
29. As per Section 26 of the E. S.I Act, all contributions paid under this Act and all other moneys received on behalf of the Corporation shall be paid into a fund called the Employees State Insurance Fund which shall be held and administered by the Corporation for the purpose of this Act.
30. Section 28 contemplates that the Employees' State Insurance Fund shall be expended for the following purposes, namely:
"(i) payment of benefits and provision of medical treatment and attendance to insured persons and, where the medical benefit is extended to their families the provision of such medical benefit to their families, in accordance with the provisions of this Act -and defraying the charges and costs in connection therewith;
(it) Payment of fees and allowances to members of the Corporation, the Standing Committee and Medical Benefit Council, the Regional Boards, Local Committees and Regional and Local Medical Benefit Councils;
(iii) payment of salaries, leave and joining time allowances, travelling and compensatory allowances, gratuities and compassionate allowances, pensions, contributions to provident or other benefit fund of officers and servants of the Corporation and meeting the expenditure in respect of officers and other services set up for the purpose of giving effect to the provisions of this Act;
(iv) establishment and maintenance of hospitals, dispensaries and other institutions and the provisions of medical and other ancillary services for the benefit of insured persons and where the medical benefit is extended to their families, their families;
(v) payment of contributions to any State Government, local authority or any private body or individual, towards the cost of medical treatment and attendance provided to insured persons and, where the medical benefit is extended to their families, their families including the cost of any building and equipment, in accordance with any agreement entered into by the Corporation;
(vi) defraying the cost (including all expenses) of auditing the accounts of the Corporation and of the valuation of its assets and liabilities;
(vii) defraying the cost (including all expenses) of Employees' Insurance Court set up under this Act;
(vii) payment of any sums under any contract entered into for the purposes of this Act by the Corporation or Standing Committee or by any officer duly authorised by the Corporation or the Standing Committee in that behalf;
(ix) payment of sums under any decree, order or award of any Court or Tribunal against the Corporation or any of its officers or servants for any act done in execution of his duty or under a compromise or settlement of any suit or other legal proceeding or claim instituted or made against the Corporation;
(x) defraying the cost and other charges of instituting or defending any civil or criminal proceedings arising out of any action taken under this Act;
(xi) defraying expenditure, within the limits prescribed, on measures for the improvement of the health and welfare of insured persons and for the rehabilitation and re-employment of insured persons who have been disabled or injured; and
(xi) such other purposes as may be authorised by the Corporation with the previous approval of the Central Government."
31. Thus, the contribution paid by the employer will be used in the benefit period for the benefit of employees. Thus, the Corporation has already spent the amount for the benefit of the employees under the relevant period, i.e., even before the present application is filed by the appellant-company. If the appellant-company wanted to claim the amount on the ground that it is not liable to pay the amount as some of the employees will go out of the purview if incentive is added to their wages; the appellant-company ought to have filed a petition for refund in the prescribed proforma as stated in regulation 4 of the E.S.I. Act. No such petition is filed. It is settled principle of law, that, where the rules or regulations provided that an act has to be performed in a 1 particular way, it has to be performed in the same way. This has been held in Taylor v. Taylor 1875 (1) Ch.D. 426, which is in Ramchandra Keshav Adke v. Govind Joti Chavare . The Supreme Court approved the above principle and held:
"Where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all and that other methods of performance are necessarily forbidden."
32. Therefore, the appellant-company ought to have filed a petition for refund within the prescribed time. As the appellant-company has not availed of that opportunity, the Corporation has spent the amount in the relevant benefit period for the employees. As they have availed of the amount, the amount is no more available for refund. Once the appellant-company has not followed the method prescribed under the regulation, they are not entitled to claim the same in the writ petition. On that count also, the contention of the appellant-company that if the incentive is added to the wages, some of the employees will go out of the purview of the Act and they are entitled to refund of the amount is not tenable.
33. It is, thirdly, contended that the appellant-company is not liable to pay interest, as they believed that the earlier judgment in M.F.A. No. 240 of 1973, was in their favour and that the said view was set aside in the later judgment.
34. As per Section 39, Sub-section (5)(a) of the Act, if any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has become due, he shall be liable to pay simple interest at the rate of twelve per cent per annum or a such higher interest rate as may be specified in the regulations till the date of its actual payment. Regulation 31-A provides that an employer who fails to pay contribution within the periods specified in regulation 31, shall be liable to pay interest at the rate of twelve per cent per annum (at the relevant time 6 per cent) in respect of each day of default or delay in payment of contribution.
35. The Supreme Court has held that the appellant-company is liable to pay interest vide its order in Civil Appeal No. 2545 of 1982, dated March 2, 1990, and further held that the appellant-company is liable for interest during the relevant period in terms of the Employees' State Insurance Act, 1948, but, however, it shall not be liable to be prosecuted or otherwise penalised in respect of the default. Thus, this question became final by the judgment of the Apex Court. Therefore, we see no force in the contention of learned counsel for the appellant-company.
36. For the foregoing reasons, we see no merit in the appeal. Appeal is accordingly dismissed. No order as to costs.