Delhi District Court
M/S Bistro Hospitality Pvt. Ltd vs Employees State Insurance Corporation on 21 February, 2014
M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09
IN THE COURT OF MS. SURYA MALIK GROVER
SCJCUMRC (SOUTH) SAKET COURTS COMPLEX
NEW DELHI
S67/09
UNIQUE CASE ID NO. 02403C0059852009
IN THE MATTER OF:
M/S BISTRO HOSPITALITY PVT. LTD.
THROUGH SHRI V.P. GUPTA
32, 3RD FLOOR, OKHLA INDUSTRIAL AREA PHASE III,
NEW DELHI110020.
....PETITIONER
VERSUS
EMPLOYEES STATE INSURANCE CORPORATION
THROUGH ITS REGIONAL DIRECTOR
RAJENDRA PLACE, RAJENDRA BHAWAN,
NEW DELHI110008.
....RESPONDENT
DATE OF INSTITUTION : 17.01.2009
DATE OF RESERVING THE JUDGMENT : 27.01.2014
DATE OF DECISION : 21.02.2014
JUDGMENT
1. By virtue of this judgment, the petition under Section 7576 of Page 1 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 the Employees State Insurance Corporation Act is being disposed off (hereinafter, referred to as 'Act').
PLEADINGS
2. Briefly the facts of the plaint are as under:
2.1 The petitioner is a private limited company duly incorporated under the Companies Act and the plaint has been filed by the Chief Financial Officer of the plaintiff company, who is duly authorized to institute the petition.
2.2 It is averred that in the month of December, the respondent corporation (hereinafter, referred to as 'Corporation') is stated to have issued C18 (adhoc) notice no. D/R.O./BIG CE11/1146207 dated 27.12.2007 to the petitioner company vide which a demand of Rs.22,86,071/ was raised against the contribution period from 04/2000 to 03/2006. The petitioner company appeared before the Corporation and explained that the demand raised is baseless and against some heads upon which the contribution is not payable but the Corporation did not pay any heed to the submissions.Page 2 of 23
M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 2.3 The petitioner company is stated to have calculated their actual ESI calculation at the rate of Rs.8,09,223/ and informed the same to the Corporation vide letter dated 12.02.2008 which amount was deposited vide two challans dated 12.02.2008 and 03.03.2008. 2.4 It is averred that the Corporation kept silent on the matter for more than 6 months and thereafter dropped the earlier adhoc C18 notice and issued the C18 on actual basis on 30.09.2008 and further raised a demand of Rs.4,18,341/ against the interest on the amount deposited by the petitioner company on selfassessment. 2.5 It is averred that the petitioner company officials again made a representation that the demand of interest is not justified and the same be exempted but as the request was not considered, the petitioner company had to deposit the interest amount vide challan dated 15.12.2008.
2.6 Further, on 30.09.2008 another notice in the form of D18 was issued against the petitioner company thereby demanding amount of Rs.6,63,107/ against levy of damages for contribution period from 04/2000 to 03/2007.
Page 3 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 2.7 A representation was made and contested by the petitioner company. Consequently, the Corporation passed order No. D/R.O./BIG.CELL/1143217 dated 18.12.2008 thereby directing the petitioner company to make the payment of the amount of Rs. 6,63,107/ damages within 30 days of the order. In the light of the aforesaid facts, the following reliefs have been sought by the petitioner:
i. Quash the impugned order dated 18.12.2008 passed by the respondents Corporation under Section 85(B) of ESI Act as well as the demand of Rs.6,63,107.00 against damages raised by the respondentcorporation against the Petitioner Company.
ii. Restrain the officials of the respondents corporation from further operation of the D18 notice dated 30.09.2008.
iii. Pass any other/order/direction which this Hon'ble Court may deem fit and proper in the facts and circumstances of the case in favour of the petitioner company.
3. It is stated by Ld. counsel for the petitioner at bar that Page 4 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 inadvertently in the entire petition an amount of Rs.6,63,107/ has been mentioned instead of Rs.6,33,107/,and the amount of damages may be considered as the latter, as merely typographical error. As the Ld. counsel for the respondent has not raised any objection, the request was allowed and the amount of damages shall be read as Rs.6,33,107/.
4. Written statement was filed on behalf of the respondent denying the averments made by the petitioner as false and baseless and taking the following defence:
a) It is stated that adhoc C18 was issued after checking of records produced before the Insurance Inspector and balance sheet of the petitioner.
b) The petitioner has admitted the part payment on the basis of their selfassessment and for the remaining dues, adjudication is pending before the ESI Authority.
c) It is denied that the Corporation kept silent for 6 months after the part contribution was deposited by the petitioner. Rather, the respondent had deputed its Insurance Inspector to verify the Page 5 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 contentions of the petitioner.
d) It is stated that the respondent Corporation had not issued C18 Actual and afforded various opportunities to the petitioner to represent their plea against the claim.
e) It is stated that the action on C18 has yet not been finalized and pending consideration.
f) It is stated that C18 on actual basis dated 30.09.2008 was issued as per law towards interest on late payment of contribution.
g) It is stated that when interest was not deposited within 15 days, opportunity for personal hearing was afforded to the petitioner to submit their representation but when the same was not done, recovery certificate was issued by the Corporation as per law.
h) It is admitted that notice D18 was also issued on 30.09.2008 with directions to the petitioner to show cause why damages should not be imposed upon him giving him an opportunity of personal hearing on 27.10.2008.
i) In response to the said show cause notice, the petitioner represented his case before the competent authority but their submissions were not found acceptable and a speaking order dated Page 6 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 18.12.2008 was passed under Section 85B of the Act.
j) It is stated that the alleged selfassessment made by the employer is provisional and its finalization is pending. Hence, it is prayed that the petition may be dismissed subject to costs.
5. Replication has been filed reiterating and reaffirming the averments in the petition and denying the defence taken by the Corporation as false and after thought. It is further stated that demand raised by the respondent is baseless and in violation of the principles of natural justice.
6. It is pertinent that vide order dated 19.01.2009, Ld. Predecessor of this Court was pleased to stay the order dated 27.10.2008 subject to deposit of a sum of Rs.75,000/.
ISSUES
7. On the basis of the material on record, following issues were framed by my Ld. Predecessor on 19.04.2011 :
1. Whether the order dated 18.12.08 passed by the respondent and the demand of Rs.6,33,107/ raised by the respondent against the petitioner company Page 7 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 is illegal? OPP
2. Whether the operation of C18 (sic)notice dated 30.09.08 issued by the respondent is liable to be stayed? OPP
3. Relief EVIDENCE ON RECORD
8. The petitioner in support of its case examined PW1 Ms. Shankari Singh who filed her affidavit in evidence which is Ex.PW1/A. PW1 has relied on documents i.e. certificate of incorporation and Memorandum and Articles of Association as Ex.P1/1; certified copy of resolution as Ex.PW1/2; notice as Ex. P3; letter dated 12.02.2008 as well as challans dated 12.02.2008 and 03.03.2008 as Mark A to Mark C (although exhibited as Ex.PW1/4, Ex.PW1/5 and Ex.PW1/6 in affidavit); Actual C18 along with other documents as Ex.PW1/7 to Ex.PW1/9; challan dated 15.12.2008 and other documents as Ex.PW1/10 to Ex.PW1/12; D18 notice as Ex.PW1/13; order No. D/R.O/Big.Cell/1146217 dated 18.12.2008 as Ex.PW1/14.
8.1 In her crossexamination, the witness has stated that she has Page 8 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 been authorized to file the present case and to sign and verify the pleadings. However, on being confronted with Ex.PW1/2, in her crossexamination, the witness has stated that a separate resolution dated 22.06.2010 was issued authorizing her which was filed on 07.10.2011. It is further stated that they had met Sh. P.N. Ghai, the then Joint Director of the Corporation for correction of the demand which had been verbally approved but the said fact has neither been mentioned in the petition nor in the affidavit. On the other points, the witness has remained uncontroverted and unrebutted and has stuck to her version in the evidentiary affidavit.
9. The respondent in support of its case examined RW1 namely Sh. D.D. Dhawan who also filed his affidavit in evidence as Ex.R1. Respondent also examined Sh. M.L. Gera as RW2. 9.1 The respondent has examined Sh. D.D. Dhawan as RW1. RW1 has tendered his affidavit in evidence as R1 and has relied on documents i.e. C18 dated 27.12.2007 and 30.09.2008 as Ex.RW1/1 and Ex.RW1/2; D18 dated 30.09.2008 as Ex.RW1/3; letters dated 15.12.2008 as Ex.RW1/4 and Ex.RW1/5 and order dated 18.12.2008 as Page 9 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 Ex.RW1/6.
9.2 In his crossexamination, the witness has admitted that he was not the part of investigation team during inspection of the record of the petitioner. Further he as admitted that he is not the issuing authority of any of the documents relied upon by him. The witness has denied having knowledge whether proceedings have been finalized with respect to C18 (Adhoc) notice dated 27.12.2007. It has been admitted that the petitioner selfassessed the contribution amount and C18 Actual was issued for the same amount. The witness has denied having knowledge as to whether any letter was issued from their department for the short amount. It has been admitted that there is a notification of ESI that if the amount is deposited within 21 days of demand, then no damages will be levied. He has denied that there was no delay on the part of the petitioner in depositing ESI contribution. The witness has denied having knowledge if there was any intentional avoidance in depositing the contribution.
9.3 The respondent has examined Sh. M.L. Gera as RW2. RW2 has tendered his affidavit in evidence as Ex.R2. He has relied on the documents which have been exhibited by RW1. Page 10 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 9.4 During his crossexamination he was directed to produce document on the basis of which interest and demand of damages was raised and connected notification which has been filed by him as MarkX1. In his crossexamination, it is admitted that the witness was not a part of the investigation team with respect to inspection and the documents filed have not been prepared by him. It is further admitted that C18 proceedings have not been finalized. He has been confronted with document Ex.RW2/D1 i.e. payment of interest amount and has stated that the said amount was credited to SBI. The witness has admitted that no reasons have been mentioned for declining the demand of the plaintiff for waiver of the damages are provided in Ex.RW1/6.
10. I have heard the arguments and perused the record carefully.
11. Ld. counsel for petitioner has relied on judgment titled 'Emp. State Insurance of Corporation v. H.M.T. Ltd. & Anr.' AIR 2008 SC 1322 and judgment of Hon'ble High Court of Madras titled 'Madras Hotel Ashoka (Pvt.) Ltd. v. ESIC decided on 31.03.1993. Page 11 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 CASE LAW
12. In 'Emp. State Insurance Corporation v. H.M.T. Ltd. & Anr.', the law on damages has been enunciated by the Hon'ble Apex Court. The relevant paras of the judgment are being reproduced below for the sake of clarity:
"17. A penal provision should be construed strictly. Only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable from Section 85B of the Act. When a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages by reason of an enabling provision, the same cannot be construed as imperative. Even otherwise, an endeavour should be made to construe such penal provisions as discretionary, under the statute is held to be mandatory in character.
18. In Prestolite (India) Ltd. v. Regional Director & Anr. (1994) Supp. (3) SCC 690), this Court rejected a contention raised by the Regional Director of Employees Insurance that under the Employee's State Insurance General Regulations guidelines have been indicated showing as to how damages for delayed payment are to be imposed and since such guidelines have been followed, no exception should be taken thereto made to the impugned Page 12 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 adjudication, stating:
"Even if the regulations have prescribed general guidelines and the upper limits at which the imposition of damages can be made, it cannot be contended that in no case, the mitigating circumstances can be taken into consideration by the adjudicating authority in finally deciding the matter and it is bound to act mechanically in applying the uppermost limit of the table. In the instant case, it appears to us that the order has been passed without indicating any reason whatsoever as to why grounds for delayed payment were not to be accepted. There is no indication as to why the imposition of damages at the rate specified in the order was required to be made. Simply because the appellant did not appear in person and produce materials to support the objections, the employee's case could not be discarded in limine. On the contrary, the objection ought to have been considered on merits".
20.
We agree with the said view as also for the additional reason that the subordinate legislation cannot override the principal legislative provisions.
The statute itself does not say that a penalty has to be levied only in the manner prescribed. It is also not a case where the authority is left with no discretion. The legislation does not provide that adjudication for the purpose of levy of penalty proceeding would be a mere formality or imposition of penalty as also computation of the quantum thereof became a foregone conclusion. Page 13 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 Ordinarily, even such a provision would not be held to providing for mandatory imposition of penalty, if the proceeding is an adjudicatory one or compliance of the principles of natural justice is necessary thereunder.
21. Existence of mens rea or actus reus to contravene a statutory provision must also be held to be a necessary ingredient for levy of damages and/or the quantum thereof. "
13. The Hon'ble High of Madras has held in Madras Hotel Ashoka (Pvt.) Ltd. v. E.S.I.C in A.A.O. No. 239/1986 dated 31.03.1993 as under:
"9. .... The Corporation will not be justified in levying the damages in cases where the employer, or the person who is bound to pay the amount in respect of the contribution payable in this regard, is able to offer sufficient or cogent explanation for nonremittance, or in cases where there is only a technical or venial breach of the provision of the Act, or there exists bona fide circumstances, which will point out that there was no deliberate omission on the part of the employer. In this perspective, it has to be held that the Insurance Court, which is a proper forum prescribed by the Act to adjudicate as to whether the order or proceeding initiated by the Corporation to recover damages is justified, can evaluate the entire matter, and if it is satisfied that there are extenuating circumstances, it Page 14 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 can dispense with the recovery of damages, or delete or reduce the quantum of damages levied or afford such other relief, which in its opinion, is deserving in the circumstances. "
14. In Madras Hotel Ashoka (Pvt.) Ltd. v. E.S.I.C., Hon'ble High Court of Delhi held as under:
"8. .... So the determination of quantum of damages is not be a subjective determination. There must be an objective approach taking into account all the matters which are relevant therein. Such objective exercise must be reflected in the order. It is not possible to lay down any hard and fast rule as to what are the matters that would have relevance in fixing the quantum of damages under Sec. 85 B. To lay down any formula in regard to such quantum would be to trespass upon the powers of the Corporation, which is to make its independent exercise in determining the quantum under Sec. 85 B. However, the quantum must necessarily be related to the gravity of the penal element in the default on the part of a party. That in turn must depend upon the validity of the explanation the party may give for default. Other matters which may have relevance in determining how far the party has been indifferent or callous in meeting the obligations under the Act may also call for consideration. If a party is able to satisfy the Regional Director that though default has been committed by him it was due to circumstances beyond his control or Page 15 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 that despite his best efforts he could not make the contribution in time that would certainly be a mitigating circumstance which would serve to soften the rigour of the penalty that may be imposed under the section.
9. ... In E.S.I.C. v. Sakthi Tiles, (1988) 2 K,K,B, 468 the question whether the E.S.I. Court has jurisdiction to reduce the damages levied by the E.S.I. Corporation for delay in payment of contribution by employer came up consideration. A Division Bench of the Kerala High Court has held that a mere look at Sec. 85B of the Employees' State Insurance Act will show that even where the employer fails to pay the amounts due in respect of any contribution payable under the Act, it is not obligatory on the Corporation to levy or recover damages. The power to levy damages is discretionary. The section has only stated the maximum amount that can be so recovered. The power to levy and recover damages provided in Sec. 85B of the Act is in the nature of a quasipenal provision. The proviso to Sec. 85B itself indicates that, before recovering such damages, the employer should be given a reasonable opportunity of being heard. It postulates that there should be an adjudication in the matter. Since the failure to carry out the statutory obligation should be adjudicated by a quasijudicial enquiry, and the levy of damages is penal in character, such damages will not ordinarily be imposed unless the party obliged to pay the amount due, acted either deliberately or in defiance of law, or was guilty of contumacious or dishonest conduct, or acted in conscious Page 16 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 disregard of its obligation. The mere fact that the Corporation is empowered to recover damages, does not mean that the Corporation can act mechanically and without taking into account the facts and circumstances of each case. It is to be noted that the statutory provision does not prescribe any minimum to be recovered as damages. What is provided is the maximum that can be recovered. Since the opportunity that is provided before recovering the damages should be effective and meaningful, the authority empowered to levy damages, should have the discretion either to levy the damages or to dispense with the levy of the damages."
DECISION AND LEGAL REASONING Issue No.1: Whether the order dated 18.12.08 passed by the respondent and the demand of Rs.6,33,107/ raised by the respondent against the petitioner company is illegal? OPP and Issue No.2: Whether the operation of C18 (sic)notice dated 30.09.08 issued by the respondent is liable to be stayed? OPP
15. Both the issues are being simultaneously decided as similar evidence has been led on them.
Page 17 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09
16. Adverting to the facts of the case in hand in the light of the settled law, the Court was required to give its findings if the petitioner was able to establish that there was no deliberate attempt on the part of the petitioner to contravene any statutory provision.
17. The chronology of events that led to the imposition of the damages must be looked at to decide if the conduct of the petitioner was such so as to burden him with a penalty?
a) C18 (adhoc) notice dated 27.12.2007 was admittedly sent to the petitioner company on 27.12.2007.
b) The selfassessment was made by the petitioner company and informed to the Corporation vide letter Ex.PW1/4 (MarkA) on 12.02.2008 and deposited vide challans dated 12.02.2008 and 03.03.2008 i.e. MarkB and MarkC respectively. As such, the self assessment was made in about 45 days time of issuance of notice and the first installment was deposited on the same day and the second installment was deposited after a gap of 20 days. In a nutshell, the admitted amount was deposited with the Corporation almost within two months of knowledge of the failure to pay the amount.
c)After 6 months of the payment of the admitted/selfassessed amount Page 18 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 by the petitioner company, a notice dated 30.09.2008 i.e. Ex.PW1/7 for demand of interest on the selfassessed amount was issued and a notice under D18 form dated 30.09.2008 i.e. Ex.PW1/13 levying damages against the petitioner company was issued wherein 25% per annum damages were sought to be recovered on account of delay in the contribution.
d)As the interest demanded vide letter Ex.PW1/7 was not paid till 19.11.2008, vide a C19 Recovery Certificate of Interest, Ex.PW1/8, the Recovery Officer of the Corporation was directed to recover the said amount, who gave a notice of demand dated 26.11.2008, Ex.PW1/9 to the petitioner company. Thereafter, the amount was deposited by the petitioner company on 15.12.2008 vide challan Ex.RW2/P1. In a nutshell, it can be said that within 2 ½ months of the demand for interest, the petitioner company deposited the same before any coercive proceedings could be taken up against the petitioner company.
e) Qua D18 notice, a personal hearing was given to the Director of the petitioner company on 27.10.2008. After the personal hearing an order under Section 85B was passed by the Joint Director of the Page 19 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 Corporation stating as under:
".... The employer replied to the said notice vide his letter dated 03.11.2008 requesting for fresh date of personal hearing. The employer was informed vide this office letter dated 26/11/08 fixing the next date of personal hearing as 12/12/08. Ms. Shankri Singh, Manager (HR), appeared before me on 15/12/08 and submitted a letter dated 15/12/08 stating that they were not aware that some of the allowances on which contribution has been claimed were amenable to ESI Act. No inspection was also conducted for eight years. There is no delay as the payment has been made on self assessment and interest has also been paid. It was further requested that since the contribution and interest has been paid a lenient view be taken and damages may be waived off.
I have applied my mind to all the facts of the case and the contention of the employer and find that the same is not acceptable. The contribution has been paid by the employer on account of salary and allowances and contribution was payable as per due date prescribed under the Act. Since the contribution has been delayed, damages are leviable and the same are being levied under Section 85 B of the Act."
From the aforesaid chronology of events, I am of the view that there the petitioner has been able to discharge the onus cast upon it that there was no deliberate attempt on his part to delay Page 20 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 the payment of contribution/ interest as the same was deposited within 2 to 21/2 months of the notice of demand or date of knowledge that such payment was due to be paid.
18. Even otherwise, the petitioner has taken two pleas before the Joint Director, ESIC challenging the order under S.85B :
(a) That the company was not aware that some of the allowances on which contribution had been claimed were amenable to ESI Act.
(b) That no inspection was conducted by the Respondent for the last 8 years.
As far as the first plea is concerned, the respondent has not been able to show either by way of oral or documentary evidence that the said payment was within the knowledge of the petitioner. Further, the second plea taken by the petitioner company that there was no inspection by the Corporation for eight years is a mitigating circumstance as the petitioner company cannot be penalized for the carelessness of the Corporation not to conduct regular inspections and thereafter, issue notice for damages when in fact the Corporation itself was not doing its duties diligently. In similar facts, in a case titled as "Employees' State Insurance Corporation v. Tungabhadra Steel Page 21 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09 Products Ltd., 2002 11 LLJ 238 (Karn.HC)", it was held that damages in such circumstance should be reduced.
19. On the strength of the aforesaid discussion, I conclude that both the issues stand decided in favour of the petitioner and against the respondent.
Relief
20. As both the issues have been decided in favour of the petitioner and against the respondent, accordingly, D18 notice dated 30.09.2008 is set aside and impugned order dated 18.12.2008 passed by the respondents Corporation under Section 85(B) of ESI Act as well as the demand of Rs.6,63,107.00 against damages raised by the respondentcorporation against the Petitioner Company is hereby quashed.
21. Further , amount of Rs. 75,000 deposited by the petitioner with Respondent Corporation in compliance of order dated 19.01.2009 may be released to the petitioner. Page 22 of 23 M/s Bistro Hospitality Pvt. Ltd. v. ESIC S67/09
22. No order as to costs.
23. Decree sheet be prepared accordingly.
24. File be consigned to record room.
Announced in the open Court (Surya Malik Grover) on 21.02.2014 SCJcumRC (South), Saket Courts New Delhi Page 23 of 23