Kerala High Court
The Regional Director vs M/S.Indian Coffee Workers on 31 October, 2012
Author: P.N.Ravindran
Bench: P.N.Ravindran
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE P.N.RAVINDRAN
WEDNESDAY, THE 31ST DAY OF OCTOBER 2012/9TH KARTHIKA 1934
Ins.APP.No. 76 of 2009 (B)
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EIC.NO.52/1999 of E.I.COURT, KOZHIKODE
APPELLANTS/RESPONDENTS:
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1. THE REGIONAL DIRECTOR,
E.S.I.CORPORATION, THRISSUR.
2. THE AUTHORISED OFFICER,
E.S.I.CORPORATION, THRISSUR.
3. THE RECOVERY OFFICER,
E.S.I.CORPORATION, THRISSUR.
BY ADV. SRI.T.V.AJAYAKUMAR, SC, ESI CORPORATION.
RESPONDENT/APPLICANT:
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M/S.INDIAN COFFEE WORKERS
CO-OPERATIVE SOCIETY LTD.NO.4317, KANNUR
REPRESENTED BY ITS SECRETARY.
BY ADVS. SRI.P.V.SURENDRANATH
SRI.B.S.SYAMANTHAK
SMT.BINDUMOL JOSEPH
SRI.SAJU RAGHAVAN
THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 31-10-2012,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
MJL
"C.R"
P.N.RAVINDRAN, J.
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Ins.A.No.76 of 2009
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Dated this the 31st day of October , 2012
JUDGMENT
The Regional Director, Employees State Insurance Corporation, Thrissur and two other officers of the Employees State Insurance Corporation (herein after referred to as "the Corporation" for short) have filed this appeal canvassing the correctness of the order dated 24.3.2009 passed by the Employees Insurance Court, Kozhikkode in E.I.C.No.52 of 1999. By the said order, the Employees Insurance Court held that the respondent is not liable to pay any amount towards contribution for the period from 1.1.1997 to 31.12.1997 pursuant to Ext.P1 series demand notices issued by the Corporation. The brief facts of the case are as follows:
2. The Indian Coffee Workers Co-operative Society Ltd., No.4317, Kannur, the respondent herein, is a co-operative society registered under the Kerala Co-operative Societies Act, 1969. It was formed for rehabilitation of retrenched workers of the Coffee Board and is engaged in the business of running restaurants Ins.A.No.76 of 2009 -:2:- under the name and style Indian Coffee House at different centers in various districts. All the employees of the Indian Coffee Workers Co-operative Society Ltd., are its members and the establishments run by the said society are covered under the provisions of the Employees State Insurance Act, 1948, herein after referred to as "the Act" for short. However it is stated that the employees working in the Mananthavadi branch are not covered under the Act since Manathavadi is not an area to which the applicability of the Act has been extended.
3. By a notification dated 23.12.1996 issued under section
2 (9)(b) of the Act read with rule 50 of the Employees State Insurance (Central Rules), 1950, the Central Government raised the wage limit for coverage of employees from ` 3,000/- per mensem to ` 6,500/- per mensem, with effect from 1.1.1997. The result was that all employees of the respondent society who were being paid monthly wages up to ` 6,500/- become eligible for benefits under the Act. Three employees of the respondent society of whom one was the Convener of a trade union of employees of the respondent society filed O.P.No.3300 of 1997 in this Court challenging the aforesaid notification. The notification was under challenge in O.P.No.570 of 1997 and other Ins.A.No.76 of 2009 -:3:- connected cases which had already been filed in this Court and were pending. When O.P.No.3300 of 1997 came up for admission hearing before a learned single Judge of this Court on 21.2.1997, it was admitted and an interim order was passed on C.M.P.No.6100 of 1997 staying the operation and implementation of the notification dated 23.12.1996. The order passed by this Court on 21.2.1997 on C.M.P.No.6100 of 1997 in O.P.(MV) No.3300 of 1997 reads as follows:
"Urgent notice and an interim stay on condition that the petitioners undertake they will discharge the liability if ultimately O.P is dismissed."
4. The Secretary of the Indian Coffee Board Workers Co- operative Society Ltd., No.4317, Kannur, the Union of India and the Employees State Insurance Corporation represented by its Regional Director were the respondents in O.P.No.3300 of 1997. O.P.No.570 of 1997 and connected cases including O.P.No.3300 of 1997 were heard and dismissed by a learned single Judge of this Court by judgment delivered on 19.11.1997, relying on the decision of the Apex Court in Employees' State Insurance Corporation v. Kerala State Handloom Development Corporation Employees Union (CITU), Kannur, District Ins.A.No.76 of 2009 -:4:- Kannur, Kerala & others [1994 (1) SCC 268] and the decision of this Court in Tata Employees Union v. Union of India [1992 (2) KLT 910] wherein a learned single Judge of this Court had upheld the validity of an earlier notification dated 27.3.1992 raising the wage limit from ` 1,600/- per mensem to ` 3,000/- per mensem. While dismissing the writ petitions, the learned single Judge of this Court observed as follows:
"No valid grounds are urged before me to quash Ext.P1 notification. Therefore, all these original petitions are dismissed. If any exemption application is pending before the Government, it is for the Government to dispose of the excemption application according to law. The petitioners are also free to approach the Government for exemption if they are of the opinion that they are entitled to get exemption as they are getting better facilities."
5. With the dismissal of O.P.No.3300 of 1997, the respondent society started remitting the contribution in respect of employees governed by the notification dated 23.12.1996 with effect from 1.1.1998. Though the petitioners in O.P.No.3300 of 1997 had filed W.A.No.923 of 1998 accompanied by an application to condone the delay in filing the appeal, the appeal was dismissed as infructuous by judgment delivered on Ins.A.No.76 of 2009 -:5:- 25.10.2005. After O.P.No.3300 of 1997 was dismissed, the Corporation issued demand notices dated 7.9.1999 demanding payment of arrears of contribution for the period from 1.1.1997 to 31.12.1997, in respect of the employees governed by the notification dated 23.12.1996. At that stage, the first petitioner in O.P.No.3300 of 1997 filed O.P.No.24814 of 1999 in this Court relying on the decision of a learned single Judge of this Court in Tata Employees Union v. Union of India [1992 (2) KLT 910]. He contended that when the wage limit was raised from `1,600/- to ` 3,000/- per mensem, by notification dated 27.3.1992, even while dismissing the writ petitions challenging the said notification, a learned single Judge of this Court had directed that the notification shall be implemented as against the employees and the employers only with effect from the month immediately following the month in which the writ petition was dismissed and therefore, the same yard stick has to be adopted in the instant case as well. In O.P.No.24814 of 1999, the petitioner therein had prayed for an interim order staying further proceedings pursuant to the demand notices issued by the Corporation which were produced and marked as Exts.P2 to P12 therein. An interim order of stay was passed on C.M.P.No.41727 Ins.A.No.76 of 2009 -:6:- of 1999 in O.P.No.24814 of 1999, when it came up for consideration before a learned single Judge of this Court on 5.10.1999. By the said order, this Court stayed recovery of the amount demanded in the notices impugned in the writ petition, from the employer, namely, the respondent herein. The interim order passed by this Court on 5.10.1999 in C.M.P.No.41727 of 1999 in O.P.No.24814 of 1999 was in force till the writ petition was heard and dismissed by judgment delivered on 1.1.2007. The learned single Judge dismissed O.P.No.21814 of 1999 on the ground that the relief sought in it should have been sought when O.P.No.3300 of 1997 was heard and disposed and therefore, on the principles of constructive resjudicata, the relief prayed for cannot be granted. It was also held that though a learned single Judge of this Court had in Tata Employees Union v. Union of India [1992 (2) KLT 910] directed that the notification dated 27.3.1992 raising the wage limit from ` 1,600/- to ` 3,000/- per mensem, will take effect only from the month immediately following the date of the judgment, the said direction was vacated by the Apex Court on appeal filed by the Corporation, as per the decision in Employees' State Insurance Corporation v. Kerala State Handloom Development Corporation Ins.A.No.76 of 2009 -:7:- Employees Union (CITU), Kannur, District Kannur, Kerala & others [1994 (1) SCC 268]. The learned single Judge however observed that the right reserved in favour of the petitioners in O.P.No.3300 of 1997 in the judgment delivered on 19.11.1997 to move the Government for exemption, shall remain intact.
6. With the dismissal of O.P.No.3300 of 1997, the Corporation issued demand notices to the respondent society calling upon it to pay the arrears of contribution relating to the period from 1.1.1997 to 31.12.1997 in respect of the employees governed by the notification dated 23.12.1996. The respondent society thereupon filed E.I.C. No.52 of 1999 in the Employees Insurance Court, Kozhikkode seeking the following reliefs:
a. declaring that the petitioner is not liable to pay any amount as contribution for the period from 1.1.97 to 31.12.97 in respect of employees who came under the scheme after 23.12.86 and working in the Head office Branch and Kannur Branch No.1 and Kannur Branch No.2 in view of the stay order passed by the Honourable High Court of Kerala.
b. declaring that the petitioner is not liable to pay any amount as interest on the amount alleged to be due as contribution for the period from Ins.A.No.76 of 2009 -:8:- 1.1.97 to 31.12.97.
c. for a consequential injunction restraining the respondents from recovering any amount due as E.S.I. contribution from the petition as per notice No.54-2089-102/Ins.III dt:31.12.1998 and Notice No.54-2089/102/Recovery/18603, 18604, 18605 dated 27.1.99 d. awarding the cost of this petition; and e. granting such other reliefs as this Honourable court may deem fit and proper in the circumstances of the case.
7. The respondent society contended that as there was an order of stay in force in O.P.No.3300 of 1997 till it was dismissed by judgment delivered on 19.11.1997, it had not deducted any contribution from the wages of the employees governed by the notification dated 23.12.1996 during the period from 1.1.1997 to 31.12.1997, that the concerned employees were not in receipt of any benefits under the Act during the said period, that it had provided them medical benefits on a higher scale during the said period and that in respect of the employees who are governed by the notification dated 23.12.1996, it started remitting the contribution with effect from 1.1.1998. It was contended that as the respondent society had not deducted any contribution from the wages paid to the employees governed by the notification Ins.A.No.76 of 2009 -:9:- dated 23.12.1996 during the period from 1.1.1997 to 31.12.1997, in view of the order of stay passed by this Court in O.P.No.3300 of 1997, it is not liable to pay any contribution during the said period. It was also contended that the respondent society is not liable to pay interest on the amount of contribution payable during the said period.
8. The appellants herein resisted E.I.C.No.52 of 1999 by filing a written objection dated 15.2.2000. It was contended that in the interim order passed by this Court on 21.2.1997 on C.M.P.No.6100 of 1997 in O.P.No.3300 of 1997, it had been stipulated that there will be an interim stay of the notification dated 23.12.1996 in the event of the petitioners undertaking to discharge the liability if ultimately the writ petition is dismissed, that the writ petition was dismissed by judgment delivered on 19.11.1997 and therefore, the respondent society should have remitted the contribution in respect of the employees governed by the notification dated 23.12.1996, immediately after the dismissal of the writ petition. It was contended that since the respondent society did not remit the contribution notwithstanding the dismissal of O.P.No.3300 of 1997, the impugned notices were issued. As regards the contention of the Ins.A.No.76 of 2009 -:10:- respondent society that it had not deducted the contribution from the wages paid to the employees governed by the notification dated 23.12.1996 during the period from 1.1.1997 to 31.12.1997, it was contended that such non-deduction from the wages paid to the employees is not a reason to decline to pay the contribution. Relying on the decision of the Division of the High Court of Karnataka in Workmen of Bharath Electronics Ltd. v. Employees' State Insurance Corporation of India & others, [1997] 90 FJR 445] it was contended that the order of stay passed by this Court in O.P.No.3300 of 1997 filed by the employees of the respondent society had no effect on the obligation of the respondent society to pay the contribution in accordance with the stipulation contained in sub-section (1) of section 40 of the Act.
9. In the Employees Insurance Court, the Secretary of the respondent society was examined as PW-1 and the demand notices issued by the Corporation were produced and marked as Ext.P1 series. On the side of the appellants Exts.D1 to D10 were produced and marked. In the proof affidavit filed by the Secretary of the repondent society in lieu of Chief Examination it was stated that during the period from 1.1.1997 to 31.12.1997 Ins.A.No.76 of 2009 -:11:- the employees governed by the notification dated 23.12.1996 had been given medical benefits under the Kerala Service Rules, that the respondent society had incurred heavy expenditure in that regard and that during the relevant period no amount had been deducted from the wages paid to the employees governed by the notification dated 23.12.1996 as contribution. He also stated that 90% of the employees who were in service during the period from 1.1.1997 to 31.12.1997 and were governed by the notification dated 23.12.1996 have retired from service and therefore, it is not possible to recover the employee's share of contribution from them. He however admitted in cross examination that no documents have been produced to substantiate the claim that during the relevant period, medical benefits had been extended to the employees governed by the notification dated 23.12.1996 under the provisions of the Kerala Service Rules.
10. The Employees Insurance Court considered the rival contentions and held relying on the decision of the Honourable the Supreme Court of India in Employees State Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. [AIR 2006 SC 2721] that the respondent society is not Ins.A.No.76 of 2009 -:12:- liable to pay any amount towards contribution during the period from 1.1.1997 to 31.12.1997, as demanded in Ext.P1 series demand notices. The Employees Insurance Court held that on account of the order of stay passed by this Court in O.P.No.3300 of 1997 and for the reason that the Corporation had not given medical benefits to the employees governed by the notification dated 23.12.1996 during the said period and the respondent society was giving medical benefits to them at its own expense, contribution is not payable during the disputed period in respect of the employees governed by the notification dated 23.12.1996. The appellants have aggrieved thereby, filed this appeal.
11. I heard Sri.T.V.Ajayakumar, learned counsel appearing for the appellants and Sri.B.S.Syamanthak, learned counsel appearing for the respondent. Sri.T.V.Ajayakumar, the learned counsel appearing for the appellants, contended referring to Ext.D1 interim order passed by this Court on 21.2.1997 in C.M.P. No.6100 of 1997 in O.P.No.3300 of 1997 that the order staying the operation and implementation of the notification dated 23.12.1996 was not unconditional but was subject to the condition that the writ petitioners shall discharge the liability if ultimately the writ petition is dismissed, that the writ petition Ins.A.No.76 of 2009 -:13:- was dismissed upholding the validity of the notification by judgment delivered on 19.11.1997 and therefore, the liability of the employer/employees to pay the contribution stood revived. The learned counsel contended that in such circumstances the mere fact that in O.P.No.24814 of 1999, this Court had passed Ext.D3 interim order staying recovery of the arrears of contribution due for the period from 1.1.1997 to 31.12.1997 from the employer, is not a reason to hold that the Corporation is not entitled to realise the amount of contribution payable during the period from 1.1.1997 to 31.12.1997 from the employer/employees. The learned counsel appearing for the Corporation contended relying on the decision of the Apex Court in Employees State Insurance Corporation v. Hotel Kalpaka International (AIR 1993 SC 1530) that under section 40 of the Act, the primary liability to pay not only the employer's contribution but also the employee's contribution is on the employer and therefore, the employer cannot be heard to contend that since he had not deducted the employee's share of contribution, he cannot be held liable for the same. The learned counsel appearing for the appellants contended that the respondent society could have remitted the employee's share of Ins.A.No.76 of 2009 -:14:- contribution also and deducted it from the wages of the employees by virtue of the statutory provisions and therefore the respondent society cannot be heard to contend that it is not liable to pay the contribution relating to the period from 1.1.1997 to 31.12.1997 in respect of the employees governed by the notification dated 23.12.1996.
12. Relying on the decision of the Apex Court in Employees State Insurance Corporation. v. M/s.Harrison Malayalam Pvt. Ltd. (AIR 1993 SC 2655), the learned counsel appearing for the Corporation contended that there is no relationship between the contribution made and the benefit availed, that the contribution has no relation to the risks against which the workman stands statutorily insured, that the contribution made by him and by his employer is credited to the insurance fund created under the Act and it becomes available for others or for himself during other benefit periods if he continues in employment, that the obligation to make contribution does not depend upon whether a particular employee has ceased to be an employee and that the obligation to pay the contribution is automatic, once the factory or establishment is covered by the Act. Relying on the decision of Ins.A.No.76 of 2009 -:15:- the Apex Court in Regional Director, E.S.I.Corporation v. Kerala State Drugs & Pharmaceuticals Ltd. & Others (1995 Supp (3) SCC 148) the learned counsel for the Corporation contended that there is no quid pro quo between the persons insured and the benefits available under the Act and therefore, the mere fact that the contribution for the period from 1.1.1997 to 31.12.1997 is in respect of employees who are no longer in service, is not a reason to hold that the contribution for the said period need not be paid as the employees are no longer employed in the respondent's establishment.
13. With reference to Ext.D1 interim order passed by this Court in C.M.P.No.6100 of 1997 in O.P.No.3300 of 1997, the learned counsel for the appellant contended that apart from the fact that it was conditional and subject to the undertaking that the petitioners will discharge their liability if ultimately the writ petition is dismissed, the interim order does not have the effect of wiping out the notification dated 23.12.1996, that when O.P.No.3300 of 1997 was ultimately dismissed on 19.11.1997 by Ext.D2 judgment, this Court did not observe that the liability to pay the contribution will take effect only prospectively and therefore, with the dismissal of O.P.No.3300 of 1997, the liability Ins.A.No.76 of 2009 -:16:- of the employer/employees to pay the contribution stood restored. The learned counsel also contended that though on an earlier occasion, when the wage limit was raised from ` 1,600/- to ` 3,000/- per mensem, by the notification dated 27.3.1992, a learned single Judge of this Court had in Tata Employees Union v. Union of India, 1992 (2) KLT 910, even while upholding the notification, directed that the notification shall be implemented only with effect from a prospective date, namely 1.11.1992, the said direction was vacated by the Apex Court in Employees State Insurance Corporation v. Kerala State Handloom Development Corporation Employees Union, (CITU), Kannur, District Kannur, Kerala & others, (1994) 1 SCC 268, wherein it was held that the notification amending the rules being a piece of delegated legislation, this Court could not have interfered with the date of operation of the notification and therefore, as the notification dated 23.12.1996 took effect on 1.1.1997 as stipulated therein, the respondent society or its employees cannot avoid the liability to pay the contribution.
14. With reference to the contention raised by the respondent society before the Employees Insurance Court, relying on the decision of the Apex Court in Employees State Ins.A.No.76 of 2009 -:17:- Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. [AIR 2006 SC 2721], the learned counsel for the appellant contended that in the case before the Apex Court unconditional interim orders had been passed in the writ petitions to the effect that no deduction shall be made from the wages paid to the employees towards contribution to the Employees State Insurance Scheme and in some cases conditional orders directing the employer to provide the workmen with medical benefits had been passed and the said orders were in force un-interruptedly for a period of 17 years and that it was in such circumstances that the Apex Court held that the direction issued by the High Court that the notification will take effect only from a future date, namely, from the date of disposal of the writ petition, does not merit interference. The learned counsel contended that in the instant case, the liability of the employer and the employees to remit the contribution stood restored, even assuming that during the period of stay there was no such liability, on the date on which O.P.No.3300 of 1997 was dismissed, namely 19.11.1997 and therefore, as the order of stay was in force only for a short period of about nine months, the principles laid down by the Apex Court in Employees State Ins.A.No.76 of 2009 -:18:- Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. (supra) can have no application. The learned counsel for the appellant also invited my attention to the decision of a Division Bench of the High Court of Karnataka in Workmen of Bharath Electronics v. Employees' State Insurance Corporation of India and others, [1997] 90 FJR 445 and contended that Ext.D1 order of stay did not affect the obligation of the principal employer to remit the contribution as required under sub-section (1) of section 40 of the Act. The learned counsel for the appellant also invited my attention to the decision of this Court in Regional Director, ESI Corporation v. Cannanore Spinning & Weaving Mills, 2001 (3) KLT 393 wherein, interpreting the very same notification and a conditional order of stay passed in O.P.No.2771 of 1997, a Division Bench of this Court held that the only effect of the order of stay is that there was no obligation to pay the contribution in terms of the notification during the period when the order of stay was in force, that the amount of contribution fell due only on the expiry of 21 days from the date of dismissal of the writ petition and that interest on the contribution can be levied only from the day immediately following the date on which the period of 21 days, Ins.A.No.76 of 2009 -:19:- computed from the date of dismissal of the writ petition challenging the notification dated 23.12.1996, expired.
15. Per contra, Sri.B.S.Syamanthak, learned counsel appearing for the respondent, contended relying on the decision of the Apex Court in Employees State Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. (supra), the decision of a learned single Judge of the Karnataka High Court in HMT V. Employees State Insurance Corporation 92 FJR 454 and of a learned single Judge of the High Court of Madras in Fenner (India) Ltd. v. Joint Regional Director, Employees' State Insurance Corporation, 2003(II) LLJ 477, that although the validity of the notification dated 23.12.1996 was eventually upheld by this Court, the respondent employer was not at liberty to deduct the contribution from the wages of the employees governed by it until O.P.No.3300 of 1997 was dismissed and even after the dismissal of the said writ petition, recovery of the contribution for the disputed period was stayed during the period from 5.10.1999 to 1.1.2007 by Ext.D3 interim order passed in O.P.No.24814 of 1999 and therefore, the respondent cannot be held liable to pay the contribution at this belated stage. The learned counsel for the respondent Ins.A.No.76 of 2009 -:20:- contended with reference to the proof affidavit sworn to by the Secretary of the respondent society in lieu of chief examination that during the period when the orders of stay passed by this Court were in force, the respondent had provided medical benefits in terms of the provisions contained in the Kerala Service Rules to 45 of its employees, that nearly 90% of the employees who were governed by the notification dated 23.12.1996 and were in service during the period from 1.1.1997 to 31.12.1997 have retired from service, that the employer is thus not in a position to recover the employee's share of the contribution from such employees and therefore, for that reason also, the respondent is not liable to pay the contribution during the disputed period. The learned counsel contended that the order passed by the Employees Insurance Court is perfectly justified in view of the fact that an order staying the operation of the notification was passed and thereafter an order staying the recovery of the contribution payable during the disputed period was in force for a period of 8 years, and therefore, as the Employees Insurance Court has granted relief after considering the equities, no interference is called for with the impugned order. The learned counsel lastly contended that even in respect Ins.A.No.76 of 2009 -:21:- of the employees, who were governed by the notification dated 23.12.1996, with the dismissal of O.P.No.3300 of 1997 on 19.11.1997, the respondent society started remitting the contribution from 1.1.1998, that the effect of the impugned order of the Employees Insurance Court is that the respondent is not liable to pay any contribution during the period from 1.1.1997 to 31.12.1997 in respect of those employees who were governed by the notification dated 23.12.1996 and were in service during the period from 1.1.1997 to 31.12.1997 and as no benefit was availed by such employees during the said period from the Corporation, there is no reason to hold that the respondent society is liable to pay the contribution in terms of the notification dated 23.12.1996 during the disputed period.
16. I have considered the submissions made at the Bar by the learned counsel appearing on either side. I have also gone through the pleadings and the materials on record. One of the questions of law that arise for consideration in the instant case is whether Ext.D1 interim order passed by this Court on 21.2.1997 on C.M.P.No.6100 of 1997 in O.P.No.3300 of 1997 staying the operation of the notification dated 23.12.1996, has the effect of effacing the liability of the employer to pay the contribution. Ins.A.No.76 of 2009 -:22:- Incidentally the question whether the mere fact that during the period from 1.1.1997 to 31.12.1997, the employees of the respondent Corporation, who were governed by the notification dated 23.12.1996, had not availed medical benefits from the Corporation and the further fact that many among the employees governed by the notification dated 23.12.1996 who were in service during the said period have retired from service, is a reason to hold that the employer and the employees are not liable to pay the contribution during the said period, also arises for consideration. The next question of law that arises for consideration is whether for the reason that in a subsequent writ petition, O.P.No.24814 of 1999 filed by the first petitioner in O.P.No.3300 of 1997, challenging the steps taken by the Corporation to recover the amount of contribution payable during the disputed period, an order of stay was in force during the period from 5.10.1999 to 1.1.2007, the liability of the respondent and consequently that of the respondent's employees to remit the contribution for the disputed period is effaced.
17. The question whether an employer can be held liable to pay the employee's share of contribution even in cases where he had not deducted the employee's contribution from them, was Ins.A.No.76 of 2009 -:23:- considered by the Apex Court in Employees State Insurance Corporation v. Hotel Kalpaka International, AIR 1993 SC 1530. The establishment in that case was a hotel, which was established in July, 1985 and was closed on 31.3.1988. In the interregnum, the Insurance Officers verified the records of the establishment and after such inspection, it was treated as a covered establishment and the fact of coverage was intimated to the establishment by notice dated 21.3.1988. Later, an order under section 45A of the Act was issued demanding payment of contribution for the period from 11.7.1985 to 31.3.1988. Challenging the said order, the establishment filed an application under section 75 of the Act in the Employees Insurance Court, Alleppey. The Employees Insurance Court held that after the establishment was closed, the Corporation was not justified in initiating recovery proceedings. The Corporation carried the matter in appeal to this Court. Dismissing the appeal, a Division Bench of this Court held that since the demand was made after the closure of the establishment, the Corporation was not justified in proceeding against the establishment. The Corporation thereupon moved the Apex Court. The Apex Court considered the question whether the Corporation was entitled to Ins.A.No.76 of 2009 -:24:- demand contribution during the period when the establishment was in existence, by raising a demand after it was closed. After analysing the statutory provisions, the Apex Court held as follows:-
"16. The Employees' State Insurance Act is an Act for certain benefits to employees in cases of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto. Section 1(4) makes it applicable to all factories, in the first instance. Under sub-section (5) of the said section, the Government may, by a Notification, extend the provisions of the Act to any other establishment or class of establishment industrial, commercial, agricultural or otherwise. Admittedly, in this case, the hotel industry like that of the respondent has been notified under the Act. Under Section 26, a fund called Employees' State Insurance Fund. is created by all the contributions paid under this Act, the purposes, for which it may be expended, are catalogued under Section 28.
17. Section 38 requires all employees in factories or establishments shall be insured. Section 39 talks of contribution. In respect of an employee it shall comprise of contribution payable by the employer (employer's contribution) and contribution payable by the employee. It is this contribution which has to be paid to the Corporation. Section 40 imposes the liability to pay contributions, in the first instance, Ins.A.No.76 of 2009 -:25:- on the principal employer. After such contribution the employee's contribution could be deducted from his wages. Sub-section (4) of Section 40 is important. That says as follows:
"(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted."
(Emphasis supplied)
18. Therefore, this sub-section puts the matter beyond doubt that there is an entrustment. In other words, the employer is a trustee.
19. Under Section 44 there is an obligation on the-employer to furnish returns and maintain registe
20. The benefits available to the insured.
persons are stated in Section 46:
1. Sickness
2. Maternity
3. Disablement
4. Injury
5. Medical treatment for and attendance on insured persons.
21. Lastly, there is power to prosecute under Section 85 which includes punishment for failure to pay contributions as well as for contravention of or non-compliance with any of the requirements of the Act. In the above legal background we may analyse the factual situation.
Two facts stare at us.
1. The liability to contribution of the Ins.A.No.76 of 2009 -:26:- respondent-employer relates to a period between 11-7-85 to 31-3-88.
2. The respondent-establishment was closed on 31-3-88.
22. The contention of the respondent that at no time there were 20 or more employees in his establishment has to be rejected because at no point of time the respondent sought an adjudication on this aspect. On the contrary, the inspections made by the officials of the appellant on 8-12-86, September '87 and October ' 87 state to the contrary. Therefore, we have to proceed on the basis that the provisions of the Act are applicable to the respondent-
establishment, since (i) it is a notified industry, (ii) in the establishment more than 20 employees were working at the relevant time.
23. From the above provisions it is clear that from the date of his commencement of business, namely, 11-7-85, there was a liability to contribute. It has already been seen under S. 40 the primary liability is his, to pay, not only the employer's contribution but also the employee's contribution. Therefore, he cannot be heard to contend that since he had not deducted the employee's contribution on the wages of the employees, he could not be made liable for the same. The object of making a deeming entrustment under sub-section (4) of Section 40 will be altogether rendered nugatory if such a contention were to be accepted. After all, when he makes employees' contribution he is entitled to deduct from Ins.A.No.76 of 2009 -:27:- the wages. Therefore, by force of the application of the statutory provisions, the liability to contribute, during this relevant period, namely, 11-7-85 to 31-3- 88, arose. There is no gainsaying in that. Hence, we reject the arguments of Mr. Subramanian Poti, learned senior counsel for the respondent.
24. From the above statutory provisions, it would be clear that from out of the common fund maintained under Section 26, the employees derive various benefits like sickness, maternity, disablement, injury, medical treatment for and attendance on insured persons. Therefore, it is a beneficial piece of social security legislation. As a matter of fact, this Court had occasion to consider the same in B. M. Lakshmanamurthy's case (1974 (4) SCC 365: AIR 1974 SC 759) (supra). At page 370, paragraph 16 (of SCC) : (at p. 762, para 19 of AIR), it was held:
"The Act is thus a beneficial piece of social security legislation in the interest of labour in factories at the first instance and with power to extend to other establishments. Provisions of the Act will have to be construed with that end in view to promote the scheme and avoid the mischief."
25. Mr. M. L. Verma, learned senior counsel, for the appellant is right in his submissions in this regard.
26. The Insurance Court as well as the High Court have correctly upheld the demand for contribution. But it is rather strange to conclude that the demand could not be enforced against a closed business. If this finding were to be accepted it would Ins.A.No.76 of 2009 -:28:- not promote the scheme and avoid the mischief. On the contrary, it would perpetrate the mischief. Any employer can easily avoid his statutory liability and deny the beneficial piece of social security legislation to the employees, by closing down the business before recovery. That certainly is not the intendment of the Act. To hold as the High Court has done, would set at naught all these beneficial provisions.
27. It is equally fallacious to conclude that because the employees had gone away there is no liability to contribute. It has to be carefully remembered that the liability to contribute arose from the date of commencement of the establishment and is a continuing liability till the closure. The very object of establishing a common fund under Section 26 for the benefit of all the employees will again be thwarted if such a construction is put.
28. We cannot also accept the finding of the High Court that because Ext. P3 notice was issued on 23-6-88 after the closure of the respondent- establishment on 31-3-88, the appellant was not justified in proceeding against the respondent. The proceeding for the recovery is of the dues of contribution which arose prior to the closure on 31-3-
88. Therefore, it matters little when notice was issued, calling upon to pay the contribution. In our considered view, such a notice is only a reminder to the employer to discharge his statutory obligation."
18. The Apex Court held that under section 40 of the Act, Ins.A.No.76 of 2009 -:29:- the primary liability to pay the contribution, not only the employer's contribution but also the employee's contribution is on the employer and therefore, he cannot be heard to contend that since he had not deducted the employee's contribution on the wages of the employees, he could not be made liable for the same. The Apex Court also held that the Act being a beneficial piece of social security legislation, if it is held that demand could not be enforced against a closed business, it would enable an employer to avoid a statutory liability to the employees by closing down the business before recovery. The Apex Court also held that merely because the employees have gone away, it cannot be held that there is no liability to contribute, that the liability to contribute arose from the date of commencement of the establishment and continues till its closure, that the very object of establishing a common fund under section 26 of the Act will be thwarted if such a construction is placed and therefore, the Corporation was entitled to proceed to recover the contribution due in relation to the establishment.
19. The question whether an employer is obliged to make payment of contribution on the employee ceasing to be in employment after the contribution period and the benefit period Ins.A.No.76 of 2009 -:30:- expired, was considered by the Apex Court in Employees State Insurance Corporation v.M/s.Harrisson Malayalam Pvt. Ltd., AIR 1993 SC 2655. The demand made by the Corporation for contribution was found to be illegal by the Employees Insurance Court and this Court on the ground that the workers in respect of whom the contribution was demanded were casual employees of the contractor and since the contract was over long ago they are not identifiable. The Apex Court held that the scheme under the Act for insuring the workmen for conferring on them benefits in case of accident, disablement, sickness, maternity etc., is distinct from the contract of insurance in general, that the scheme under the Act is more akin to group insurance, that the contribution paid entitles the workman insured to benefits under the Act, but he does not get any part of the contribution back if he does not during the benefit period qualify for such benefits and that the contribution made by him and by his employer is credited to the insurance fund created under the Act and it becomes available for others or for himself during other benefit periods if he continues in employment. It was held that the obligation to pay the contribution does not depend upon whether a particular employee or employees have Ins.A.No.76 of 2009 -:31:- ceased to be an employee or employees after the contribution period and the benefit period expired and that there is no relation between the contribution made and the benefit availed. The operative portion of the judgment of the Apex Court is extracted below:-
"3. We are afraid that the ground given by both the Courts is not justifiable. Under the Act, it was the duty of the respondent-Company to get the necessary details of the workmen employed by the contractor at the commencement of the contract since the primary responsibility of payment of the contribution is on the principal employer. On the admitted fact that the respondent-Company had engaged the contractor to execute the work, it was also the duty of the respondent-Company to get the temporary identity certificates issued to the workmen as per the provisions of Regulations 12, 14 and 15 of the Employees' State Insurance [General] Regulations, 1950 and to pay the contribution as required by Section 40 of the Act. Since the respondent-Company failed in its obligation, it cannot be heard to say that the workers are unidentifiable. It was within the exclusive knowledge of the respondent-Company as to how many workers were employed by its contractor. If the respondent-Company failed to get the details Ins.A.No.76 of 2009 -:32:- of the workmen employed by the contractor, it has only itself to thank for its default. Since the workmen in fact were engaged by the contractor to execute the work in question and the respondent-Company had failed to pay the contribution, the appellant-Corporation was entitled to demand the contribution although both the contribution period and the corresponding benefit period had expired. The scheme under the Act for insuring the workmen for conferring on them benefits in case of accident, disablement, sickness maternity etc. is distinct from the contract of insurance in general. Under the Act, the scheme is more akin to group insurance. The contribution paid entitles the workman insured to the benefit under the Act. However, he does not get any part of the contribution back if during the benefit period, he does not qualify for any of the benefits. The contribution made by him and by his employer is credited to the insurance fund created under the Act and it becomes available for others or for himself, during other benefit periods, if he continues in employment. What is more, there is no relation between contribution made and the benefit availed of. The contribution is uniform for all workmen and is a percentage of the wages earned by them. It has no relation to the risks against which the workman stands statutorily insured. It is for this reason that the Act envisages automatic obligation to pay the Ins.A.No.76 of 2009 -:33:- contribution once the factory or the establishment is covered by the Act, and the obligation to pay the contribution commences from the date of the application of the Act to such factory or establishment. The obligation ceases only when the Act ceases to apply to the factory/ establishment. The obligation to make contribution does not depend upon whether the particular employee or employees cease to be employee/employees after the contribution period and the benefit period expire."
20. The very same view was reiterated by the Apex Court in Regional Director, E.S.I. Corporation v. Kerala State Drugs & Pharmaceuticals Ltd. & others, 1995 Suppl. (3) SCC
148. In the said case also it was contended by the employer that since the contribution was demanded in respect of employees who had since long ceased to be employees working on the premises, no contribution was leviable from the company. The said contention was accepted by the Employees Insurance Court and by this Court. On appeal, the Apex Court held that there is no quid pro quo between the persons insured and the benefit available under the Act and that the contribution which had become payable for the relevant period has to be paid even if the employees concerned are no longer in employment. The Ins.A.No.76 of 2009 -:34:- Apex Court held that the question whether the employees are unidentifiable today or not, is therefore, irrelevant so long as the contribution was liable to be paid on their behalf when they were in employment. The relevant portion of the decision of the Apex Court in E.S.I. Corporation v. Kerala State Drugs & Pharmaceuticals Ltd. is extracted below:
"3. There is thus no quid pro quo between the persons insured and the benefit available under the Act. As regards the finding that the workmen were unidentifiable, what is forgotten is that under the Act, once an establishment comes to be covered by the Act, the employer becomes liable to pay the contribution in respect of the employees in his employment directly or indirectly. The contribution which had become payable for the relevant period has to be paid even if the employees concerned are no longer in employment. Whether the employees are unidentifiable today or not is, therefore, irrelevant so long as the contribution was liable to be paid on their behalf, when they were in employment."
21. In the light of the principles laid down by the Apex Court in the aforesaid decisions it cannot be said that the demand being in relation to the period from 1.1.1997 to 31.12.1997, as many among the employees, who were then in Ins.A.No.76 of 2009 -:35:- service and were governed by the notification dated 23.12.1996 have since then retired from service, the Corporation is not entitled to raise a demand for contribution in respect of the said period. The fact that such a demand was made initially in the year 1998 and thereafter in the year 1999 is also not in dispute.
22. Prior to the notification dated 23.12.1996, the Central Government had issued a notification dated 27.3.1992 raising the wage limit from ` 1,600/- to ` 3000/- per mensem. The validity of the said notification was canvassed in this Court. Repelling the challenge to the notification, a learned single Judge of this Court held in Tata Employees Union v. Union of India, 1992 (2) KLT 910, that the fixation of ceiling of wages is in no way arbitrary or illegal. However, having regard to the fact that during the pendency of the writ petitions an order of stay had been passed staying the operation of the notification and no benefit had been extended to the employees by the Corporation, even while dismissing the writ petitions, the learned single Judge directed as follows:-
"13. It is seen that there is an order from this Court staying the operation of the notification and circular extending the coverage to the employees falling within the wage bracket of Ins.A.No.76 of 2009 -:36:- 1,600/- and 3,000/-. They were enjoying the benefits by virtue of the stay from the respective employers and no benefits have been extended to them by the E.S.I.Corporation. Of course, if the rule is valid, the extension of the benefits is not a condition precedent for valid realisation of contribution from the employers and the employees. By virtue of the stay, the employers were prevented from collecting the amount from the employees. Therefore, taking a realistic view of the situation, I direct that the impugned notification and circular be implemented as against the petitioners and the respective employers with effect from 1.11.1992 only."
23. The said decision was upheld by a Division Bench of this Court. The Employees Insurance Corporation thereupon moved the Apex Court canvassing the correctness of the direction issued by the learned single Judge that the notification shall be implemented only with effect from a prospective date, namely 1.11.1992. On appeal, the Apex Court held in Employees State Insurance Corporation v. Kerala State Handloom Development Corporation Employees Union, (CITU), Kannur, District Kannur, Kerala & others, (1994) 1 SCC 268, that the notification being one amending the rules is a Ins.A.No.76 of 2009 -:37:- piece of delegated legislation and therefore this Court could not have interfered with the date of operation of the notification. It can therefore be taken as settled that this Court could not have postponed the date of operation of the notification dated 23.12.1996. As a matter of fact, no such direction had been issued by this Court while dismissing O.P.No.3300 of 1997. That apart, the interim order passed by this Court on C.M.P.No.6100 of 1997 in O.P.No.3300 of 1997 was, as stated earlier, not an unconditional order. The order of stay was subject to the undertaking given by the writ petitioners, namely the office bearers of a trade union representing the employees of the respondent society and two of its employees that they will discharge the liability if ultimately the writ petition is dismissed.
24. Ext.D1 interim order passed by this Court on 21.2.1997 on C.M.P.No.6100 of 1997 in O.P.No.3300 of 1997 reads as follows:-
"Urgent notice and an interim stay on condition that petitioners undertake they will discharge the liability if ultimately O.P. is dismissed."
It is evident from a reading of the aforesaid interim order that it was not an unconditional interim order, but an order keeping Ins.A.No.76 of 2009 -:38:- alive the liability of the employer and the employees to make the contribution in the event of the writ petition being dismissed. In Sree Chamundi Mopeds Ltd. v. Church of South India Trust Association, (1992) 3 SCC 1, the Apex Court held that the stay of operation of an order does not have the effect of wiping out that order. The relevant portion of paragraph 10 of the aforesaid decision is extracted below:-
"10. In the instant case, the proceedings before the Board under Sections 15 and 16 of the Act had been terminated by order of the Board dated April 26, 1990 whereby the Board, upon consideration of the facts and material before it, found that the appellant-company had become economically and commercially non-viable due to its huge accumulated losses and liabilities and should be wound up. The appeal filed by the appellant- company under Section 25 of the Act against said order of the Board was dismissed by the Appellate Authority by order dated January 7, 1991. As a result of these orders, no proceedings under the Act were pending either before the Board or before the Appellate Authority on February 21, 1991 when the Delhi High Court passed the interim order staying the operation of the order of the Appellate Authority dated January 7, 1991. The said stay order of the High Court cannot have the effect of reviving the proceedings which had been disposed of by the Ins.A.No.76 of 2009 -:39:- Appellate Authority by its order dated January 7, 1991. While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. xx xx xx "
(emphasis supplied)
25. In Kanoria Chemicals and Industries Ltd. v. U.P.State Electricity Board, (1997) 5 SCC 772 the Apex Court held that an order of stay granted pending disposal of a writ petition/suit or other proceeding, comes to an end with the dismissal of the substantive proceeding and it is the duty of the court in such a case to put the parties in the same position they would have been but for the interim orders of the court. It was held that any other view would result in the act or order of the court prejudicing a party for no fault of his and would also mean rewarding a writ petitioner in spite of his failure. In the light of Ins.A.No.76 of 2009 -:40:- the authoritative pronouncements of the Apex Court on the scope of an interim order and on the terms of the interim order passed on C.M.P.No.6100 of 1997 in O.P.No.3300 of 1997, the contention of the respondent that it is not liable to pay the contribution during the period from 1.1.1997 to 31.12.1997 in respect of the employees governed by the notification dated 23.12.1996 cannot be accepted.
26. The validity of the notification dated 23.12.1996 was challenged in yet another writ petition, namely O.P.No.2771 of 1997, which was disposed of by judgment delivered on 26.11.1997. In that writ petition, an interim order of stay was passed on C.M.P.No.5034 of 1997. The said stay order was also subject to the condition that the petitioners therein would undertake to discharge the liability if ultimately the writ petition is dismissed. After the writ petition was dismissed, the Corporation demanded payment of contribution during the period when the order of stay was in force together with interest in terms of sub-section (5) of section 39 of the Act read with regulation 31 of the Employees State Insurance (General) Regulations, 1950. The employer thereupon raised a dispute and moved the Employees Insurance Court contending that during Ins.A.No.76 of 2009 -:41:- the period when the order of stay was in force it is not liable to pay interest. The Employees Insurance Court accepted the said contention and held that during the period when the order of stay passed by this Court staying the notification dated 23.12.1996 was in force, the employer is not liable to pay interest. The Corporation carried the matter in appeal to this Court. Dismissing the appeal, a Division Bench of this Court held in Regional Director, ESI Corporation v. Cannanore Spinning & Weaving Mills, 2001 (3) KLT 393 as follows:-
3. It is contended by the appellant that when the challenge against the amendment was turned down, the provision became operative from the date of amendment itself. In such circumstances, all the liabilities cast in terms of the said amendment rest upon the employer and therefore the employer shall be liable to pay not only the contribution but also interest in terms of S. 39(5) of the Act from the date when the contribution was due for payment. It is further submitted relying on Union of India v. Delhi Cloth & General Mills Co. Ltd. & Anr. (1997 (5) SCC
772) that when challenge against notification or statutory amendment is repelled, the liabilities that is arising from the amendment shall be discharged by the person who is liable to pay and if there is any provision to charge interest, that shall also be paid.
4. There cannot have any quarrel with that Ins.A.No.76 of 2009 -:42:- proposition. The point covered by the decision cited by the counsel for the appellant is the challenge against the enhancement of electricity tariff.
Consumers were really aggrieved by the notification. In such circumstances, when such consumers want to avert payment of enhanced rate by filing Original Petition and obtained stay and finally the Original Petition was dismissed upholding the amendment, casting the liability to pay the enhanced rate of tariff on the consumers together with interest, they are liable for interest from the due date. But in this case, the facts are different. As per the amendment impugned in the Original Petition employees earning wages more than 3000/- were brought under the coverage of the Act and they were aggrieved by the amendment, they filed Original Petition and obtained stay order as mentioned above. In such circumstances, only when the amendment had become operative as regards the workmen concerned, the employer can pay contribution deducting it from the wages of the workmen. Then alone there arise the contribution payable by the employer. When the amendment was thus inoperative because of the stay order, the payment in terms of the amendment had not become due to be paid. Sub-s. (4) of S. 39 makes it clear that the contribution payable in respect of a period shall ordinarily fall due on the last day of the wage period. Thus, there is an amount of elasticity attached to the liability for payment of contribution making it clear Ins.A.No.76 of 2009 -:43:- that it will ordinarily be payable as mentioned above. When there was stay order, with regard to coverage of employees drawing wage beyond 3,000/-
necessarily, the circumstances in the case is fit to invoke that elasticity and to hold that in this case it was payable only on the lapse of 21 days from the date of disposal of O.P. No. 2771/97. The interest payable beyond the period had been taken care in the judgment impugned. In such circumstances, we hold that the Employees Insurance Court was perfectly justified in denying interest."
(emphasis supplied) The Division Bench of this Court held in Regional Director, ESI Corporation Vs. Cannanore Spinning & Weaving Mills [2001 (3) KLT 393] that the amendment to rule 50 of the Employees' State Insurance (Central) Rules, 1950 did not become operational in view of the order of stay, but took effect when the order of stay was vacated, that because of the order of stay, payment in terms of the amendment had not become due and therefore, the period of 21 days fixed in regulation 31 of the Employees State Insurance (General) Regulations, 1950 begins to run only from the date of dismissal of the writ petition.
27. In Workmen of Bharath Electronics Ltd. and Another Vs. Employees' State Insurance Corporation of Ins.A.No.76 of 2009 -:44:- India and others [1997] 90 FJR 445, a Division Bench of the Karnataka High Court considered the question whether during the period when the operation of the notification dated 23.12.1996 stood stayed, the employer is bound to pay the contribution. Repelling the contention that on account of the order of stay passed by the Karnataka High Court, the employer was prevented from making deductions under the Act from the wages payable to the employees and at the same time, they continued to provide medical facilities to the employees in accordance with their service conditions and, therefore, they will suffer unnecessary loss and hardship if they are forced to make contribution under the Act, the Division Bench held that the order of stay passed by the High Court had no effect on the obligation of the principal employer to pay the contribution as required under section 40 of the Act. The relevant portion of the judgment of the Division Bench of the Karnataka High Court in Workmen of Bharath Electronics (Supra) is extracted below:-
" It was next contended by learned counsel appearing for the employers of some of the factories and establishments that, during the pendency of the proceedings in this court, the employers were prevented Ins.A.No.76 of 2009 -:45:- from making deductions under the Act from the wages payable to the employees and at the same time, they continued to provide the medical facilities to the employees in accordance with the service conditions, and hence they will suffer unnecessary loss and hardship if they have to make the contribution over again under the Act. In short they contended that they should not be made liable for the contribution of the amounts which they have not collected from the employees due to the stay orde It was further submitted that no act of court shall prejudice the party and that the parties should not be made to suffer on account of the delay in disposal of the applications filed for vacating the stay orde Sri.Papanna contended that the orders staying the notification should not be construed as stay of payment of the employer's part of the contribution, inasmuch as it is the liability of the principal employer to make the contribution in the first instance under the provisions of the Act, and having failed to do so, the employers cannot plead that they are prejudiced by the act of the court.
Sri.Kasturi, learned counsel appearing for some of the employers, placed reliance on Advait Charan Sahu Vs. Divisional Forest Officer, Athmallik, AIR 1993 Orissa Ins.A.No.76 of 2009 -:46:- 123, and contended that by mistake of the court a party should not suffer and that the act of a court shall not prejudice any one. He submits that the applications for vacating stay were not disposed of, resulting in the continuance of the orders of stay by which the employers were prevented from collecting the employees' contribution from the employe He submits that nobody should suffer for the action of the court, namely, the delay in disposals of the applications and placed reliance on Mithilesh Kumari Vs. Prem Behari Khare, AIR 1989 SC 1247;
[1989] 177 ITR 97. There is no dispute regarding the propositions of law laid down in the aforesaid decisions. The only question for consideration on this aspect is, whether the employers were prevented from discharging their obligation under section 40 of the Act.
Unless a case is made out before the appropriate forum that the Act is not applicable, all the employees in factories or establishments to which the Act applies shall be insured in the manner provided by the Act, subject to the provisions of the Act under section 38. The contribution payable under the Act in respect of an employee shall comprise the contribution payable by the employer and contribution payable by the Ins.A.No.76 of 2009 -:47:- employee which shall be paid to the corporation under section 39(1). Under sub-section (4), the contribution shall be paid at such rates as may be prescribed by the Central Government, which is 4 per cent by the employer, and 1.5 per cent by the employee. Under section 40(1), the principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employee's contribution.
As seen from the above provisions, the principal employer has to contribute both the employer's as well as the employee's contribution in the first instance. In Employee's State Insurance Corporation Vs. Hotel Kalpaka International, [1993] 82 FJR 204; AIR 1993 SC 1530, the object of making a deeming entrustment under sub-section (4) of section 40 was held to be rendered nugatory, if the employer is not made liable to pay the employee's contribution by contending that he had not deducted the employees' contribution on the wages of the employees and that he could not be made liable for the same. It was held that under section 40, the primary liability is of employer to pay, not only the employer's contribution but also the employees' Ins.A.No.76 of 2009 -:48:- contribution.
The stay orders issued pending disposal of the writ petitions had no effect on the obligation of the principal employer to pay contributions as required by section 40. If any hardship is caused to the employers by their understanding of the implications of the stay orders, it is open to them to make representations to the appropriate Government and seek exemptions under the provisions contained in Chapter VIII of the Act." (emphasis supplied) It was held that the orders of stay passed by the High Court did not prevent the employers from discharging their obligation under section 40 of the Act, which obliges the employer to pay the contribution, both the employee's as well as the employer's contribution in the first instance and entitles them to recover it from the wages payable to the employees.
28. A learned single Judge of the High Court of Karnataka, however, took a different view in H.M.T. Ltd. Vs. Employees State Insurance Corporation and others (1992 FJR 454). In that decision, it was held that, during the period when the operation of the notification dated 27.03.1992 raising the wage limit for coverage of employees under the Act from Ins.A.No.76 of 2009 -:49:- `1,600/- to `3,000/- per mensem was in force, non-payment of contribution does not attract levy of interest. The relevant portion of the said decision is extracted below:-
" Sub-section (4) of section 39, inter alia, provides that the contributions payable in respect of each wage period shall fall due on the last day of the wage period. Regulation 31 of the Employees' State Insurance (General) Regulations, 1950 ("the Regulations" for short), provides that, an employer who is liable to pay contributions in respect of any employee shall pay those contributions within 21 days of the last day of the calendar month in which the contributions fall due. The proviso thereto is not relevant for the present purpose. Sub-section (5) of section 39 of the Act, which is material for the present purpose, reads thus:
"(5)(a). 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:(emphasis supplied).
Provided that higher interest specified Ins.A.No.76 of 2009 -:50:- in the regulations shall not exceed the lending rate of interest charged by any scheduled bank.
(Clause (b) not necessary for the present purpose)".
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 12 per cent, per annum in respect of each day of default or delay in payment of contribution. Regulation 31-B, inter alia, provides that, any interest payable under regulation 31-A may be recovered as an arrears of land revenue.
Sub-section (1) of section 40 of the Act provides that, it is the principal employer who shall pay both the employer's contribution and the employees' contribution in respect of every employee, whether directly employed by him or by or through an immediate employer.
It is in the light of the above said provisions that the first respondent-ESI Corporation has proceeded to recover the interest on the ground that the contributions are not paid in time. Factually, it is true that the contributions are not paid in time. The question is whether the delayed payment, on the facts and in the circumstances of this case, can be said to be failure on the part of Ins.A.No.76 of 2009 -:51:- the employer to pay within the meaning of clause (a) of sub-section (5) of section 39 of the Act. I have extracted the above relevant portion of the said clause (a) of sub-section (5) of section 39 of the Act. The applicability of the said provision is where the employer fails to make contributions. If such failure is on account of circumstances beyond his control or if the circumstances make it impossible for the employer to make contributions-even if he wanted to do so, unless he risks being hauled up for contempt of court, I am of the opinion that, such failure on the part of the employer in making payments in time cannot be called a failure within the meaning of clause (a) of sub-section (5) call for levying of interest. As seen from the narration of facts made earlier, a portion of the very notification having been stayed by the learned single judge and the Division Bench, there was no enabling provision at all permitting him to make payments in respect of employees of the wage scale of 1,600-3,000 even if he wanted to do so. It is to be remembered that, it is not the employer who had questioned the validity of the notification, but, it was the employee's unions that had approached this court. The employer had never felt shy of complying with the said notification. It was Ins.A.No.76 of 2009 -:52:- the operation of the stay order, initially by the learned single judge and later on by the Division Bench, that made it impossible for the employer to make contributions firstly for the reason that the operation of the notification itself had been stayed and, secondly, for the reason that, even if the employer had offered to pay, the ESI Corporation would not have been able to receive it without violating the order of the stay passed by the learned single judge. It was, thus, by acts of this court that the employer was prevented from making contributions in time and not because he did not want to pay the contributions. It is true, the validity of the notification was eventually upheld and as such, the notification was stated to have come into effect from the date it was meant to be brought into force.
Nevertheless, there was no opportunity for the employer at all to make contributions until the date the Division Bench disposed of the appeals, because the stay order held the field throughout. Such delayed payments for reasons of which the employer could not be held responsible at all, but on the other hand, making payment by him was impossible in the circumstances, cannot be called willful non-payment, which alone attracted interest in terms of clause (a) of sub-section (5) of Ins.A.No.76 of 2009 -:53:- section 39 of the Act. I have to, therefore, conclude that the delayed payment concerned herein was not the one that section 39(5)(a) contemplated and as such, levying of interest as per annexure "E" and proceeding to recover it in the manner as at annexure "G", cannot be legally sustainable."
29. The very same view was taken by a learned single Judge of the High Court of Madras in Fenner (India) Ltd. Vs. Joint Regional Director, Employees' State Insurance Corporation [2003 (II) LLJ 477], which also arose out of the notification dated 23.12.1996 enhancing the wage limit for coverage from ` 3,000/- to ` 6,500/- per mensem. It was held that, as the notification was stayed in a writ petition filed by the employees, the employer was disabled from collecting the contribution and remitting it with the Corporation and, therefore, the employer cannot be fastened with the liability to pay interest. The relevant portions of the said decision are extracted below:-
"14. In my considered view, the notification extending the coverage was the subject-matter of challenge and the employees' union secured orders of interim injunction as a result of which there could be Ins.A.No.76 of 2009 -:54:- no deduction of employees' contributions. In terms of the provisions of the Act, contribution of both employer and employee has to be paid together and it is not open to the employer to pay employees' nor such a contingency is permissible or contemplated in the ESI Act. It is true that the employer has not challenged the provisions of the Act, but it is the employees' union which challenged the notification. As a result of which the non-payment during the material period cannot be considered as wilful or deliberate omission but it is due to the interdiction orders passed by the Courts of law. Section 39(5) of the ESI Act reads thus:
"5(a). 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:
Provided that higher interest specified in the regulations shall not exceed the lending rate of interest charged by any scheduled bank."
15. The interdiction by the orders passed by this Court prohibits recovery of contribution from the employees' wages and Ins.A.No.76 of 2009 -:55:- as a result the provisions stand suspended and as a consequence the employer could not remit the contribution within the time prescribed under Section 39(4). Such a contingency cannot be treated as a deliberate act on the part of the employer. But, it was beyond his control. However, it is pointed out by Mr.G.Desappan, learned counsel for the respondents, that once the writ petition stands dismissed, the parties are relegated to the original position and, therefore, interest has to be paid.
16. It is not as if the interest is liable to be paid for all belated payments irrespective of there being a reason or cause or not. It is not as if the employer has deducted the contributions of the employees and kept with it and it was also not possible for the employer to deduct contributions from the employees in view of the interim orde As soon as the writ petition is dismissed, the contribution of both employer and employees has been remitted. The act of Court shall prejudice no one. There may be a justification for the petitioner moving the appropriate authority for waiver. This Court is unable to share the view taken by P.SATHASIVAM J. as it is not the employer herein who had moved the High Court and secured interim order. The question of Ins.A.No.76 of 2009 -:56:- placing the parties to the original position may not arise at all as the petitioner has not moved this Court and secured interim orders.
17. It is the interim orders passed by this Court that has disabled the employer from deducting the contribution. Therefore, the employer was unable to pay contributions and the amount of contributions which it is liable to pay has been retained by the employer for the entire period and remitted immediately. It is true that the employer's contribution from month to month was in the hands of the employer and the employer had the benefit of such sum. Even that portion of the employer's contribution which the employer is liable to pay from month to month could not be paid for the reasons that it could not collect the employees' contribution. It is the statutory provision that both employer and employees' contributions have to be paid together only.
18. The employer was ready with contribution and holds reserved the sum for the purpose and for the said sum the employer should not be made liable to pay interest. Admittedly, the employer has not challenged the notification. However, it has been disabled from recovering the employees' contribution, and it was impossible for the employer to remit contributions during the Ins.A.No.76 of 2009 -:57:- material period. The employer was under a predicament, in that it is bound to give effect to interim orders and at the same time it is obliged to pay its contribution, which was not possible in view of the statutory provision that both contributions are to be remitted together. Therefore, it cannot be held that employer has to be mulcted with interest liability for obeying the Court order and was placed in such a situation for no fault of the employer.
19. The legal maxim actus curiae neminem gravabit, namely, an act of the Court shall prejudice no man is based upon justice and good sense with which serves a safe and certain guide for the administration of law. The other legal maxim lex non cogit ad impossibilia means the law does not compel a man to do that which he cannot possibly perform.
20. In the present case, the writ petitioner management cannot possibly perform what it was expected to during the material period in view of the orders of stay secured by the employees. There is no provision to pay employer's contribution alone and contribution, if any, required to be paid should be both employer as well as employees. What was being impossible for the employer was, namely, the remittance of Ins.A.No.76 of 2009 -:58:- the contribution has been rendered impossible at least for the interregnum period and for which the petitioner shall not be punished. It is not as if the petitioner has filed the writ petition and secured orders of stay. On the other hand, it is the employees who filed the writ petition and secured orders of stay, which totally disabled the petitioner from collecting the contributions from the employees and remitting the contributions payable by the petitioner. Therefore, for no fault of his, the petitioner, could be fastened with liability to pay interest."
The learned single Judge thereafter proceeded to direct recovery of interest from the hands of the employees, who had secured orders of stay and enjoyed its benefit and disabled the employer from paying the contributions for the period in question. In H.M.T. Ltd. Vs. Employees State Insurance Corporation and others and in Fenner (India) Ltd. Vs. Joint Regional Director, Employees' State Insurance Corporation, the learned Judges of the Karnataka High Court and Madras High Court did not hold that, during the period when the notification raising the wage limit stood stayed by the High Court, the employees/employer are not liable to pay contribution. All that Ins.A.No.76 of 2009 -:59:- was held was that, during the said period, the employer cannot be held liable to pay interest on belated payment of contribution. In the said decisions, it was not held that as the operation of the notification enhancing the wage limit was stayed by the High Court, the employer/employees have no liability to pay the contribution in respect of the said period, notwithstanding the dismissal of the writ petition. I accordingly hold that the liability of the employer/employees governed by the notification dated 23.12.1996 to remit the contribution during the disputed period, namely from 1.1.1997 to 31.12.1997 was not effaced by Ext.D1 stay order and continued to exist.
30. I shall next consider whether the Employees Insurance Court was right in holding that the respondent employer was not bound to make any contribution during the period from 01.01.1997 to 31.12.1997 and whether the said finding can be sustained in the light of the decision of the Apex Court in Employees State Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. [AIR 2006 SC 2721]. Incidentally, the question whether the respondent society had provided medical benefits to its employees during the period from 01.01.1997 to 31.12.1997 also arises for Ins.A.No.76 of 2009 -:60:- consideration. In the petition filed by the respondent society before the Insurance Court, it was contended that, it had not deducted any amount from the wages of the employees governed by the notification dated 23.12.1996 during the period from 01.01.1997 to 31.12.1997 and during the said period, its employees were not in receipt of benefits under the Act, but the employer was itself providing them medical and other benefits on a higher scale. In the proof affidavit sworn to by the Secretary of the respondent employer, he had averred that medical benefits were extended to 45 employees, who were governed by the notification dated 23.12.1996, in accordance with the provisions contained in the Kerala Service Rules and that, 90% of the employees governed by the notification dated 23.12.1996 retired from service while the order of stay passed by this Court was in force. He did not however state whether they retired from service during the period from 21.02.1997 to 19.11.1997 when O.P. No.3300 of 1997 challenging the notification dated 23.12.1996 was pending in this Court or whether they retired from service while O.P. No.24819 of 1999 was pending in this Court. He did not also produce any evidence to substantiate either of the two contentions. He did not also Ins.A.No.76 of 2009 -:61:- give the names of the 45 employees to whom medical benefits were extended in terms of the provisions contained in the Kerala Service Rules. He has also not explained the nature of the medical benefits available under the Kerala Service Rules. During the course of the arguments also, the learned counsel for the respondent was not in a position to bring to my notice any provision of the Kerala Service Rules entitling the employees to medical benefits other than medical leave. State Government employees are entitled to reimbursement of medical expenses under the provisions contained in the Kerala Government Servants' Medical Attendance Rules, 1960. The respondent has no case that the Kerala Government Servants' Medical Attendance Rules are applicable to its employees. In any case, no material is produced before the Employees Insurance Court or this Court to show that, during the period when the operation of the notification dated 23.12.1996 stood stayed by this Court, medical benefits other than those under the Act were extended to employees of the respondent governed by the said notification. That apart, even the names of the 45 employees, to whom medical benefits are said to have been extended, are not forthcoming. No material is also produced to show that the Ins.A.No.76 of 2009 -:62:- provisions of the Kerala Service Rules are applicable to employees of the respondent. The Employees' Insurance Court, however, fell into the error of holding that "It has also come out in evidence that the respondent was giving medical relief to its employees on its own". Apart from the fact that there is no evidence to support such a finding, there is the further fact that the said finding of the Employee's Insurance Court cannot be sustained in the light of the principles laid down by the Apex court in Employees' State Insurance Corporation Vs. M/s.Hotel Kalpaka International [AIR 1993 SC 1530], Employees' State Insurance Corporation Vs. M/s.Harison Malayalam Pvt. Ltd. [AIR 1993 SC 2655] and Regional Director, ESI Corporation Vs. Kerala State Drugs & Pharmaceuticals Ltd. and others [1995 Supp (3) SCC 148], wherein it was held that there is no quid pro quo between the benefits available under the Act and the contribution made by an employee and by the employer which is credited to the insurance account created under the Act, becomes available for the others or himself during other benefit periods if he continues in employment and that, the obligation to make the payment does not depend upon whether the employee has ceased to be an Ins.A.No.76 of 2009 -:63:- employee after the benefit period expires. In the light of the authoritative pronouncements of the Apex Court, even if 45 employees governed by the notification dated 23.12.1996 had been given medical benefits otherwise than under the Act during the period from 1.1.1997 to 31.12.1997, that will not efface the liability of the employer/employees to make contribution in respect of the period from 01.01.1997 to 31.12.1997 in terms of the notification dated 23.12.1996.
31. The only question that remains to be considered is whether the finding of the Employees' Insurance Court that the respondent society is not liable to pay contribution during the period from 01.01.1997 to 31.12.1997 can be sustained in the light of the decision of the Apex Court in Employees State Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. [AIR 2006 SC 2721]. The said case arose from a batch of writ petitions filed in the High Court of Allahabad. In one of the writ petitions filed by the Distilleries and Chemical Mazdoor Union, the High Court of Allahabad passed an interim order to the effect that no deduction towards contribution shall be made from the members of the petitioner trade union under the Act. Later, the interim order was modified Ins.A.No.76 of 2009 -:64:- and it was stipulated that no deduction shall be made from the employees towards contribution under the Act, provided, the employer provides medical facilities to its workmen. In another writ petition filed by the Distilleries and Chemical Mazdoor Union, an interim order was passed to the effect that no recoveries shall be made from the salary of workmen. As in the instant case, the petitioners therein had undertaken that in case the writ petition fails, the amount recoverable for the period during which the interim order operates shall be recovered from their salary in monthly instalments. However, when the writ petition was finally disposed of by judgment delivered on 11.05.2004, the High Court directed that no contribution shall be realised from the employer or the employees till 11.05.2004. It was, however, directed that, from that date onwards, they shall start to pay the contribution and the employees may avail the benefit of the ESI scheme. A similar direction was issued in all the writ petitions. Dismissing the appeals filed by the Corporation, the Apex Court held that the High Court was justified in passing an order directing the employees/employer to make the contribution in future, that is from the date of disposal of the writ petitions and that there is no liability in as much as the Ins.A.No.76 of 2009 -:65:- employees had not availed medical facilities from the Corporation and the employer had provided medical facilities due to the interim order. Paragraph 25 of the decision of the Apex Court, which contains the aforesaid finding, is extracted below:-
"25. In our opinion, the High Court was fully justified in passing the judicious order after considering the equities by directing the employer and the employees to make ESIC contribution for the future i.e. from the date of disposal of the writ petition and should not bear with the liability for the past inasmuch as the employees of the respondent No.2 has not availed any medical facilities from ESIC and at the same time the employer was providing the medical facilities due to interim order of the High Court. In these circumstances, the order passed by the High Court, in our considered opinion, meets the ends of justice and does not require interference by this Court under Article 136 of the Constitution of India."
32. The Apex Court held in paragraphs 26 and 29 that, during the period of 17 years, when the interim orders passed by the High Court were in force, several employees had left or retired, that entire salary without any deduction was given to them and, therefore, it is impossible to recover the employee's Ins.A.No.76 of 2009 -:66:- contribution in respect of such employees. In my opinion, in Employees State Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. (supra) the Apex Court has not laid down the law contrary to the law laid down in Employees' State Insurance Corporation Vs. M/s.Hotel Kalpaka International [AIR 1993 SC 1530], Employees' State Insurance Corporation Vs. M/s.Harison Malayalam Pvt. Ltd. [AIR 1993 SC 2655] and Regional Director, ESI Corporation Vs. Kerala State Drugs & Pharmaceuticals Ltd. and others [1995 Supp (3) SCC 148]. It is evident from the observations in paragraphs 25, 26, 28, 29 and 30 of the decision in Employees State Insurance Corporation v. Distilleries and Chemical Mazdoor Union & Ors. (supra) that it was because of the peculiar factual situation obtaining in the case namely the fact that interim orders staying deductions from the wages were in force for a period of 17 years and during the said period the employer was providing medical benefits as directed by the High Court, that the Apex Court held that during the said period, no contribution is payable.
33. In the instant case, the order staying the notification dated 23.12.1996 was in force only for a short period from Ins.A.No.76 of 2009 -:67:- 21.2.1997 to 19.11.1997. Even going by the version of the respondent, only 45 employees had been given medical benefits during the said period. It has no case that the said 45 employees were not given benefits under the Act from 01.01.1998 onwards. As held by the Apex Court, the insurance scheme under the Act is in the nature of group insurance and the contribution of an employee and his employer is credited to the insurance fund created under the Act, available for others and for himself during the other benefit periods if he continues as an employee. That apart, it is also now well settled that there is no quid pro quo between the persons insured and the benefits available under the Act. Therefore, merely for the reason that for a period of nine months, the notification dated 23.12.1996 stood stayed, is not a reason to hold that during the period when the order of stay passed by this Court in O.P. No.3300 of 1997 was in force, there was no liability on the employer/employees to remit the contribution, notwithstanding the dismissal of the writ petition. It is relevant in this context to note that the order of stay passed in O.P.No.24819 of 1999 had nothing to do with the notification dated 23.12.1996, but was in respect of the steps taken by the Corporation to recover the contribution for the Ins.A.No.76 of 2009 -:68:- period from 01.01.1997 to 31.12.1997. The mere fact that the recovery steps were stayed by this Court is not a reason to hold that during the period of eight years, the notification raising the wage limit also stood stayed. The rights of parties stood concluded when O.P.No.3300 of 1997 was dismissed on 19.11.1997. In view of the undertaking given by the petitioners in O.P.No.3300 of 1997 that in the event of the writ petition being dismissed, they will discharge their liability to pay the contribution, the employees cannot contend that they are not liable to pay the contribution. In such circumstances, the Employees Insurance Court erred in holding that the respondent cannot be held liable to pay contribution during the period from 1.1.1997 to 31.12.1997.
34. Though the Apex Court has in Goetze (India) Limited Vs. Employees' State Insurance Corporation [(2008) 8 SCC 705] held that under the Act the liability to pay interest is statutory and there is no power of waiver, a Division Bench of this Court has in ESI Corporation Vs. Appolo Tyres Ltd. [2008 (1)KLT 276] held following the decision of the Division Bench in Regional Director, ESI Corporation Vs. Cannanore Spinning & Weaving Mills [2001 (3) KLT 393] Ins.A.No.76 of 2009 -:69:- that, where the employer is prevented by an order of stay passed by this Court from remitting the contribution, interest on delayed payment of contribution cannot be levied during the period when the order of stay was in force. This view finds support in the decision of the Karnataka High Court in H.M.T. Ltd. Vs. Employees State Insurance Corporation and others (supra) and the decision of the Madras High Court in Fenner (India) Ltd. v. Joint Regional Director, Employees' State Insurance Corporation (supra). I accordingly hold that the liability of the respondent to pay interest on the contribution for the period from 1.1.1997 to 31.12.1997 in respect of the employees governed by the notification dated 23.12.1996 will arise only on the expiry of 21 days from 19.11.1997, when O.P.No.3300 of 1997 was dismissed.
For the reasons stated above, I allow the appeal, set aside the order dated 24.03.2009 passed by the Employees Insurance Court, Kozhikode and dismiss EIC.No.52 of 1999. Consequently, EIC.No.52 of 1999 shall stand dismissed. The parties shall bear their respective costs.
P.N.RAVINDRAN,
rkc/ahg/aks. Judge.
Ins.A.No.76 of 2009
-:70:-
rkc/ahg/aks.
P.N.RAVINDRAN, J.
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Ins.Appeal No.76/2009
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JUDGMENT
31st October, 2012