Gujarat High Court
The Deputy Director vs M/S. Sarabhai Common Services on 4 September, 2023
NEUTRAL CITATION
C/FA/2453/2023 JUDGMENT DATED: 04/09/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 2453 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J. C. DOSHI
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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THE DEPUTY DIRECTOR
Versus
M/S. SARABHAI COMMON SERVICES
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Appearance:
MR AV NAIR(5602) for the Appellant(s) No. 1
for the Defendant(s) No. 2
MR NISARG DESAI FOR GANDHI LAW ASSOCIATES(12275) for the
Defendant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 04/09/2023
ORAL JUDGMENT
1. With the consent of learned advocates for the both the sides, the Appeal is taken up for final hearing.
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2. Heard learned advocate Mr. A.V.Nair for the appellant and learned advocate Mr. Nisarg Desai for Gandhi Law Associates for the respondent.
3. By way of this appeal, the appellant challenges judgment and order dated 20.10.2022 passed in ESI Application No.15 of 2019 by the learned Employees State Insurance Court, Vadodara, whereby ESI Application No.15 of 2019 was partly allowed and order passed by ESIC dated 28.06.2019 under section 85(b) of the ESI Act is considered to be illegal and was quashed and set aside by replacing order of depositing 50% of the amount assessed as damages.
4. Respondent no.1 is establishment and respondent no.2 is employer of of the establishment. According to ESI Corporation, respondent no.2 has defaulted in remittance of ESI contribution of the employees from the period ensuing from 07/2012 to 12/2012 and 02/2013 to 05/2013. Pursuant to such default, proceedings was taken before the ESIC Court and vide order dated 28.06.2019 having outward No.38000079450000301/Ins/ 950/1 came to be passed directing the respondent to pay Rs. 69,544/- towards damages (Annexure -B). Respondent challenged the said order under sections 75, 76 and 77 of the ESI Act before the ESIC Court by filing Application No.15 of 2019. The Court below after hearing both the sides, relying upon judgment of the Apex Court in the case of Employees State Insurance Corporation v/s. HMT Ltd. And Anr. [(2008) 3 SCC 35] held that in absence of mens rea or actus reus or deliberate delay in default of payment of ESIC contribution, ESIC Court cannot pass order for damages stated in Regulation 31(C) of the Page 2 of 7 Downloaded on : Sat Sep 16 15:55:53 IST 2023 NEUTRAL CITATION C/FA/2453/2023 JUDGMENT DATED: 04/09/2023 undefined Employees State Insurance (General) Regulations. Having observed so, learned Court below partly allowed the ESIC Application by quashing and setting aside the order passed by the ESI Corporation and replaced the same by order of depositing 50% of the assessed damages. Being aggrieved by the said order, ESI Corporation has filed present Appeal.
5. Learned advocate Mr. A.V.Nair placing reliance upon judgment of the Apex Court in the case of Horticulture Experiment Station Gonikoppal, Coorg v/s. Regional Provident Fund Organization [(2022) 4 SCC 516], more particularly, observations and findings of the Apex Court in para 14 to 17 would submit that judgment of ESIC (supra) upon which the Court has relied upon has been held not a binding precedent and therefore, impugned order itself is suffering from illegality. He would further submit that for assessment of damages less than done by ESIC, the Court below has not assigned reason that whether it was mens rea, actus reus or deliberate delay and more particularly, when the Court below was examining legality of assessment of civil liability though it may be in the form of default or penalty. He would submit that Regulation 31(C) of the Employees State Insurance (General) Regulations, 1950 has statutory force and the Court had no jurisdiction or authority or discretion to tinker with the Regulation as it is mandatory and ipso facto come into play when default in ESCI contribution arises and has to be read as it is. This provision cannot be diluted for any other consideration. Upon such submissions, he would submit to allow this appeal.
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6. While opposing the Appeal, learned advocate Mr. Nisarg Desai for the respondent would submit that there was no deliberate delay on the part of the employer to deposit ESIC contribution. There were reasons which has prevented the respondent from depositing the amount within time bound manner to adhere the provision of statue. He would further submit that respondent has produced certain documents before the Court below and the Court below has considered the same while reducing the amount of damages from 100% to 50% and therefore, he would submit that impugned order is just, legal and proper and does not require any interference. He would also submit that no question of law is involved in the appeal and therefore, submits to dismiss the Appeal.
7. At this stage, let refer observations and findings made by the Apex Court in the case of Horticulture Experiment Station (supra). Para 14 and 17 are relevant to decide the issue, they are as under :-
"14. The three-Judge Bench of this Court in Union of India v. Dharmendra Textile Processors and others (supra) while examining the scope and ambit of Section 271(1)(c) of the Income Tax Act, 1961 held that as far as the penalty inflicted under the provisions is a civil liability is concerned, mens rea or actus reus is not an essential element for imposing civil penalties and overruled the two- Judge Bench judgment in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and Another7 and approved the view expressed by a two-Judge Bench of this Court in Chairman, SEBI (supra) and held in paras 18 and 20 as under:Page 4 of 7 Downloaded on : Sat Sep 16 15:55:53 IST 2023
NEUTRAL CITATION C/FA/2453/2023 JUDGMENT DATED: 04/09/2023 undefined "18. The Explanations appended to Section 271(1)
(c) of the IT Act entirely indicates the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return. The judgment in Dilip N. Shroff case [(2007) 6 SCC 329] has not considered the effect and relevance of Section 276-C of the IT Act. Object behind enactment of Section 271(1)(c) read with Explanations indicate that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276-C of the IT Act.
20. Above being the position, the plea that Rules 96- ZQ and 96-ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff case [(2007) 6 SCC 329] was not correctly decided but SEBI case [(2006) 5 SCC 361] has analysed the legal position in the correct perspectives. The reference is answered. The matter shall now be placed before the Division Bench to deal with the matter in the light of what has been stated above, only so far as the cases where challenge to vires of Rule 967-Q(5) are concerned. In all other cases the orders of the High Court or the Tribunal, as the case may be, are quashed and the matter remitted to it for disposal in the light of present judgments. Appeals except Civil Appeals Nos. 3397 & (2007) 6 SCC 329 3398-99 of 2003, 4096 of 2004, 3388 & 5277 of 2006, 4316, 4317, 675 and 1420 of 2007 and appeal relating to SLP (C) No. 21751 of 2007 are allowed and the excepted appeals shall now be placed before the Division Bench for disposal."
17. It may be noticed that Dilip N. Shroff(supra) on which reliance was placed has been overruled by this Court in Union of India and Others v. Dharmendra Textile Processors and others . For the aforesaid reasons, the view expressed by this Court in Employees State Insurance Page 5 of 7 Downloaded on : Sat Sep 16 15:55:53 IST 2023 NEUTRAL CITATION C/FA/2453/2023 JUDGMENT DATED: 04/09/2023 undefined Corporation may not be of binding precedent on the subject and of no assistance to the appellant(s)."
8. What appears from the aforesaid judgment that Apex Court while deciding the issue in the case of ESIC v/s. HMT Ltd. (supra) has taken assistance from the judgment of Dilip Shroff v/s. CIT [(2007) 6 SCC 329]. Later on in the case of Union of India v/s. Dharmendra Textile Processor [(2008) 13 SCC 369, judgment in the case of Dilip Shroff (supra) has been overruled. Thus, it is held that view expressed by Apex Court in ESIC v/s. HMT Ltd. (supra) would not be binding precedent on the subject and would not render any assistance.
9. Perusal of the impugned judgment and order, it transpires that ESIC Court has taken clue from the findings and observations made in the case of ESIC v/s. HMT Ltd. (supra) to reduce the amount of damages from 100% to 50%. Since by clear proposition of law in case of Horticulture Experiment Station (supra), judgment in case of ESIC v/s. HMT Ltd. (supra) does not have element of binding precedent, judgment of learned Trial Court suffered from following view which is overruled. In fact, ESIC Court was required to abreast with the latest proposition of law to decide the issue under challenge before it and arrive at decision. ESIC Court was expected to have gone through judgment of Horticulture Experiment Station (supra) which is covering dispute before it. Ignorance of judgment in the case of Horticulture Experiment Station (supra) by the ESIC Court has led to follow to the error of passing erroneous impugned order. ESIC Court has reduced amount of damages from 100% to 50% by taking clue from overruled judgment Page 6 of 7 Downloaded on : Sat Sep 16 15:55:53 IST 2023 NEUTRAL CITATION C/FA/2453/2023 JUDGMENT DATED: 04/09/2023 undefined delivered in ESCI v/s. HMT Ltd. (supra). Thus, the impugned judgment is bad in law and is required to be quashed and set aside. The parties are required to be relegated back to the ESIC Court for deciding the issue afresh.
10. For the foregoing reasons, the appeal is allowed. The impugned judgment is quashed and set aside. The matter is remitted back to the ESIC Court, Vadodara for fresh hearing in accordance with law and after providing opportunity of hearing to both the parties. All the contentions are open for both the parties to be agitated before the Court below.
(J. C. DOSHI,J) SATISH Page 7 of 7 Downloaded on : Sat Sep 16 15:55:53 IST 2023