Gujarat High Court
Employees State Insurance Corporation vs Aia Engineering Limited on 12 February, 2026
NEUTRAL CITATION
C/FA/4701/2023 JUDGMENT DATED: 12/02/2026
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 4701 of 2023
With
R/FIRST APPEAL NO. 4702 of 2023
With
R/FIRST APPEAL NO. 4703 of 2023
With
R/FIRST APPEAL NO. 4704 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MRS. JUSTICE M. K. THAKKER
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Approved for Reporting Yes No
YES
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EMPLOYEES STATE INSURANCE CORPORATION
Versus
AIA ENGINEERING LIMITED
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Appearance:
MR SACHIN D VASAVADA(3342) for the Appellant(s) No. 1
LD SR ADV. MR DEVANG NANAVATI ASSISTED BY MR VANDAN BAXI
FOR NANAVATI & NANAVATI(1933) for the Defendant(s) No. 1
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CORAM:HONOURABLE MRS. JUSTICE M. K. THAKKER
Date : 12/02/2026
COMMON ORAL JUDGMENT
1 Admit. Learned senior advocate Mr. Nanavati waives service of notice of admission on behalf of the defendant.
2 With the consent of the parties the matter is heard finally.
3 Since the issue raised in the these appeals are similar, they are being decided by a common judgment. The facts of First Appeal No.4703 of 2023 are taken for the purpose of adjudication.
Page 1 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined 4 The present appeal is filed under Section 82 of the Employees' State Insurance Act, 1948 (hereinafter referred to as "the Act"), challenging the judgment and order passed by the learned ESI Court, Ahmedabad, in ESI Application No. 111 of 2007, whereby the learned Court allowed the application and set aside the notice issued under Form C-18 dated 21.09.2006, as well as the order passed under Section 45A of the Act dated 10.10.2007.
Factual Matrix:
5 The appellant is the Employees' State Insurance Corporation, and the opponent is AIA Engineering Company, incorporated under the provisions of the Companies Act. It is the case of the appellant that the opponent engaged contractual workers but failed to submit ESI contributions and also failed to maintain separate records. As per the ESI Revenue Manual, the contributions were required to be paid. Therefore, prior to passing the order under Section 45A of the Act, the ESIC supplied a copy of the Revenue Manual to the employer and afforded an opportunity of hearing. Thereafter, an order was passed directing the employer to pay a contribution of Rs.11,94,402/- for the period from April 2004 to March 2005. Since the employer had already paid an amount of Rs.9,05,371/-, the remaining amount of Page 2 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined Rs.2,89,027/- was directed to be paid within a period of four to five days. Being aggrieved by the said order, the employer preferred an application before the ESI Court being ESI Application No. 111 of 2007, contending that the Insurance Inspector had visited the respondent establishment on 07.09.2006, 08.09.2006, and 12.09.2006, verified all the records of the establishment for the period from April 2001 to March 2005, and issued the Inspector's Observation Slip on 12.09.2006. In that background, it was submitted that the provisions of Section 45A of the Act were not applicable and, therefore, the order passed thereunder was not sustainable in the eyes of law. At the end, after considering the evidence placed on record, the learned Court has allowed the application, which is the subject matter of challenge before this Court.
6 The learned EI Court has framed following issues for adjudicating the issues and answer accordingly.
(1) Whether the application of the applicant is barred by limitation?
Answer is in negative.
(2)Whether the applicant proves that the applicant is not liable to pay the amount of contribution under the Page 3 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined provisions of the Employees' State Insurance Act, 1948, for the period from April, 2004 to March, 2005, on the difference between the wages paid by the applicant to the contractor and the wages paid by the contractor to his employees?
Answer is in affirmative.
(3) Whether the applicant proves that the order passed by the opponent under Section 45-A is illegal and unjust?
Answer is in affirmative.
(4) What order?
Answer is as per final order.
7 Heard the learned advocate Mr. Vasavada for the appellant Corporation and learned senior advocate Mr. Devang Nanavati assisted by the learned advocate Mr. Vandan Baxi for the defendant employee.
8 Learned advocate Mr. Vasavada submits that, before passing the impugned order, the learned ESI Court ought to have considered the statutory rules, namely, the Revenue Manual prepared and approved by the Government while exercising powers under Section 95 of the Act. It is submitted by the learned advocate Mr. Vasavada that the learned ESI Court has gravely erred in ignoring the mandate of the Page 4 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined rules framed under the Revenue Manual for assessment of contribution on the wages paid to the contractor. It is further submitted that, in the absence of any evidence produced before the learned ESI Court to demonstrate that the contractor was paid a particular amount towards labour charges, the learned Court committed a serious error in allowing the application. Learned advocate Mr. Vasavada further contends that the learned ESI Court ought to have directed the employer to deposit the remaining contribution at the rate of 30%, as the employer had already paid 30% of the wages. Instead of issuing such a direction, the learned ESI Court allowed the application in its entirety. Therefore, it is submitted that the impugned judgment and order deserves to be set aside by allowing the present First Appeal.
9 In the appeal memo of learned advocate Mr. Vasavada formulated the substantial question of law is extracted below:
"A) WHETHER the El Court is right and justified in ignoring the admission on part of Employer that they were given all documents and hearing was done before passing an order u/s. 45A?
B) WETHER EI Court is right and justified in ignoring the Page 5 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined Revenue Manual prepared by the ESIC and erred in issuing the direction to deposit balance amount i.e. 30% of unpaid amount of contribution as the Employer, on its own, deposited 30% against the requirement to deposit 60% as per Revenue Manual?"
10The present appeal is vehemently opposed by the learned senior advocate Mr. Nanavati, who submits that the respondent-employer is engaged in the manufacture of cast engineering articles used in the cement industry, thermal power stations, etc., and for the said purpose, the factory is being run at the address mentioned in the application. It is submitted by the learned senior advocate Mr. Nanavati that the respondent-employer is amenable to the provisions of the Employees' State Insurance Act and has been regularly complying with the statutory requirements under Code No. 37-11241-57 INS-II. It is further submitted by the learned senior advocate Mr. Nanavati that two Insurance Inspectors visited the premises of the respondent establishment on three occasions, as stated earlier, and verified the records of the establishment for the period from April 2001 to March 2005. Pursuant thereto, an Inspector's Observation Slip bearing No. 2877 came to be issued on 12.09.2006. It is submitted by the learned senior Page 6 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined advocate Mr. Nanavati that, as per the said Observation Slip, the alleged ESI contribution on omitted wages of Rs.23,28,122/- was determined at Rs.1,51,976/-. The said amount was paid to Employees' State Insurance Corporation on 21.09.2006, and the challan acknowledging such payment was also issued by the Corporation.
10.1 It is further submitted by the learned senior advocate Mr. Nanavati that, thereafter, the Corporation issued show-cause notices in Form C- 18 dated 15.04.2008 and 08.05.2008, i.e., after almost 18 months from the date of payment of contribution, demanding an additional contribution of Rs.2,13,741/- on the alleged difference in wages paid to the labour contractor. It is submitted by the learned senior advocate Mr. Nanavati that the respondent employer replied to the said notices by contending that all contractor employees were duly covered under the provisions of the ESI Act and that contributions were being regularly paid in respect of all such employees on the total wages drawn by them. In that background, it was submitted that the issuance of notice in Form C-18 was contrary to law and that assessment based on 60% of the contractor's bill was illegal and not in consonance with the provisions of the Code.
Page 7 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined 10.2 It is submitted by the learned senior advocate Mr. Nanavati that, thereafter, a notice in Form C- 19 came to be issued on 31.07.2009, whereby an amount of Rs.76,877/- was levied as interest at the rate of 12% per annum on the original assessment of Rs.2,30,741/-. By the said communication, the Corporation revised the demand to Rs.2,19,618/- and directed the respondent employer to pay the same along with costs and notice charges. Challenging the aforesaid communications, the respondent filed an application under Section 75 of the Act before the learned ESI Court, Ahmedabad, wherein conditional stay was granted on 24.08.2009, directing the employer to deposit 50% of the assessment amount. The said amount was deposited by the respondent on 16.09.2009.
10.3 Learned senior advocate Mr. Nanavati further submits that, during cross-examination, the witness of the Corporation categorically admitted that the officers had verified employee records and contributions for the period from October 2002 to July 2006 and had also verified the account books, ledger, cash book, and bills for the period from April 2001 to December 2004. It is submitted that, upon appreciation of the oral as well as documentary evidence, the learned ESI Court held that the appellant Corporation failed to prove that Page 8 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined the amount demanded towards wages was legally due and payable, and accordingly allowed the application filed by the present respondent.
10.4 Learned senior advocate Mr. Nanavati has placed reliance on the decision of the Apex Court rendered in the case of M/s. Carborandum Universal Ltd. v. ESI Corporation, reported in 2025 LiveLaw (SC) 1232, and submits that the exercise of powers under Section 45A is permissible only in cases of non-production of records, lack of cooperation, or obstruction of inspection. It is submitted that, in the present case, despite complete verification of records by the Inspector, the appellant invoked powers under Section 45A, which is wholly erroneous. It is therefore submitted that no error has been committed by the learned ESI Court in allowing the application and that the present appeal, being devoid of merits, deserves to be dismissed.
11 Considering submissions of the learned advocates for the respective parties, following point arises for determination:
Whether the order passed under Section 45A of the Employees' State Insurance Act, 1948 by apellate authority is tenable in the eye of law and whether the Page 9 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined learned ESI Court has committed an error in allowing the application filed by the present respondent?
Answer is in Negative.
12Having considered the submissions made by the learned advocates for the respective parties and upon perusal of the record produced along with the memo of First Appeal, more particularly the order passed under Section 45A of the Act as well as the notice issued in Form C-18, it emerges that, as per the order passed under Section 45A, the findings recorded by the authority are as under:
"(1)The quantum of contribution proposed to be assessed in arrived at on the basis of the report dated 08.08.06 of the Insurance Inspector who has verified the employers records. The Insurance Inspector has reported that the employer has failed to consider and pay contribution on wages as detailed in the C.18 dated 21.9.06.
(2) As admitted by employer, the employer is liable to pay contribution of Rs.2959 and Rs.896697 against item no.1 and 3 of C.18 dated 21.9.06. Employer has paid Rs.
899656 (Rs.2959+896697).
(3) The contention of the employer with regard to item no.2 was found to be correct. As per the records of the Corporation, the Security Agencies M/s.Real Security and Page 10 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined M/s. Star Security were found making compliance separately under independent code no., i.e. 31-18104-90 and 37-19378-90 respectively during the year 2004-05. Hence, employer is not liable to pay Rs.5719/-.
(4) In regard to item no.4-Difference of wages-Rs.44,66,55/- the employer could not justify with documentary evidence, the difference in the contractors Bill amount and wage amount."
12.1 From the aforesaid findings, it emerges that the Insurance Inspector, after verifying the employer's records, reported that the employer failed to consider and pay the contribution on wages as determined and specified in Form C-18 dated 21.09.2006. A copy of the communication dated 01.04.2006 addressed by the respondent- employer to the Deputy Director of the ESI Authority reveals that, during the course of inspection, the following records were produced for verification:
(i) Attendance Register;
(ii) Wage Register;
(iii) Leave Register;
(iv) Bonus Register;
(v) Identity Card Register;
(vi) Register maintained under the Apprentices Act, 1991; and
(vii) Records maintained under the Contract Page 11 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined Labour (Regulation and Abolition) Act, 1971.
12.2 If one refers to the cross-examination of the witness examined on behalf of the Corporation, it further reveals that, during the inspection, the factory manager, Mr. Prasad, remained present and produced all the records demanded by the inspecting officer. The said witness has also deposed that, under Mark 5/10, the details of ten contractors were procured from the records maintained by the employer. It is further admitted by the said witness that, as per the annexures at Serial Nos. 1 to 6, compliance in respect of the contractors was made under the company code, whereas contractors at Serial Nos. 7 to 10, who were engaged for security services, were having separate code numbers. From the aforesaid evidence, it clearly emerges that this is not a case of non-production of records, absence of cooperation, or obstruction during inspection. In this factual background, the decision relied upon by the learned senior advocate Mr. Nanavati for the defendant in the case of M/s. Carborandum Universal Ltd. (supra) is required to be referred to, wherein it has been observed as under:
"15. Having noted the relevant legal provisions, we may now deal with the judgments cited at the bar.Page 12 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026
NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined
16. In Bangalore Turf Club Limited, this Court was considering the question as to whether a 'race club' would fall under the scope of the definition of the word 'shop' for the purposes of a notification issued under sub-section (1) of Section 5 of the Act. It was in that context that this Court examined the ambit of the Act and declared that it is a welfare legislation enacted by the Central Government as a consequence of the urgent need for a scheme of health insurance for workers. It is a beneficial legislation which seeks to provide social security for those workers which it encompasses. Taking into consideration the nature and purpose of the Act, it would be more preferable to adopt a liberal rule of interpretation to ensure that the benefits extend to those workers who need to be covered, based on the intention of the legislature. Applying the liberal rule of interpretation, this Court held that a Turf Club would fall within the meaning of the word 'shop' as mentioned in the notification issued under the Act and, therefore, the provisions of the Act would extend to the Turf Club as well.
17. There can be no two views on the aforesaid proposition. Question is whether in the fact situation of the case, invocation of jurisdiction under Section 45A would be justified or not.
18. The scope and ambit of Section 45A of the Act came up for consideration before the Delhi High Court in Masco (Private) Ltd. In that case, appellant had challenged the demand raised by the corporation under Section 45A of the Act on the ground that the appellant had requested the corporation on a number of occasions to inspect the records of the appellant but officials of the corporation declined to inspect the relevant records.Page 13 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026
NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined In the factual backdrop of that case, the question which came up for consideration before the Delhi High Court was whether, having regard to its true meaning and correct interpretation, the resort by the corporation to the provisions of Section 45A of the Act for the purpose of an adhoc determination of the special contribution and the employees contribution payable by the appellant was justified? After analyzing the provisions of Section 45A, Delhi High Court observed that the materials on record did not justify the conclusion that the first condition was satisfied. Section 45A provides for an exception and deals with a situation in which none of the records provided in the various other provisions of the Act are available to the corporation and lays down an extraordinary procedure for the determination of contribution on the basis of material that may be available with the corporation in the absence of any returns, particulars, registers or records. Delhi High Court held that the first condition of Section 45A would be satisfied only if the employer neither submitted the returns nor furnished the particulars nor maintained registers or records required by law. It went on to declare that it would be equally difficult to hold that even after the returns, particulars, registers or records were submitted, furnished or maintained but did not conform strictly to the norms or were incorrect or incomplete or mere discrepant or otherwise unreliable, the first condition of Section 45A would still be attracted.
18.1. Explaining further, Delhi High Court held that application of Section 45A would depend on if either of the two conditions envisaged by it have been satisfied. The first condition relates to failure to submit, furnish or maintain returns, particulars, registers or records as required under Section 44 and the other relates to obstruction to any officer in exercising his functions or Page 14 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined discharging his duties under Section 45 of the Act. The satisfaction of either of the conditions involves a question of fact. In one case, whether there has been any failure to submit, furnish or maintain the returns, particulars, registers or records and in the other where the employer caused any obstruction to the officers of the corporation. The two pre-conditions have been explained by the Delhi High Court as under:
"33. ......... While Section 44 obliges an employer to submit such returns as may be prescribed and where returns had not been filed, to furnish such particulars as the corporation may requisition and to maintain certain registers or records, Section 45 empowers the Inspector or any other officer specially authorized in that behalf to require an employer to furnish information, to enter any office or establishment, to produce records to examine the employer or any employee, to make copies of or take extracts from the records and to exercise other powers as may be prescribed if such official considers that such a direction is necessary for the purpose of enquiring into the correctness of any of the particulars stated in any returns or for the purpose of ascertaining whether any provisions of the Act had been complied with. The two parts of sub-section (1) of Section 45A, therefore, operate in distinct spheres and do not overlap. It further appears that while mere failure to submit, furnish or maintain returns, particulars, registers or records may attract the application of sub-section (1) of Section 45-A of the Act, the other alternative condition requires that the Inspector or the other official must have been obstructed in exercising his functions or discharging his duties under Section 45 of the Act and if the intention of the Legislature by using Page 15 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined the expression "obstructed" was to make the second condition applicable even if there was a mere failure to comply with the direction that may be made by the officer pursuant to his powers under sub-section (2) of Section 45 of the Act as distinct from causing a physical obstruction or placing a deliberate hurdle, there was nothing to prevent the Legislature from using in relation to the direction under Section 45 of the Act the same phraseology as was used in relation to the first condition. The only reasonable way to explain the distinguishable phraseology used in the two parts of sub-section (1) of S. 45A is to construe the expression "obstructed" so as to confine it to cases of physical obstacle, use of force, or threatened use of force and as excluding a mere failure to comply with any direction."
19. The Andhra Pradesh High Court in EID Parry (India) Ltd. examined the provisions of Section 77 (1A) of the Act to consider as to whether the appellant was not liable to pay the contribution demanded. Adverting to the proviso to the Explanation to sub-section (1A) of Section 77 of the Act, Andhra Pradesh High Court held as under:
11. ........By the proviso to Explanation to subsection (1A) of Section 77 of the Act, incorporated in the Act by Act 29 of 1989, an embargo is placed on the corporation for making a claim after five years of the period to which the claim relates. The intention of the Parliament probably is to arrest the corporation reviving stale claims. As urged by the learned counsel for respondents it is no doubt true that Section 45B of the Act lays down that contribution payable can be recovered as arrears of land revenue. But Page 16 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined that does not mean as contended by the learned counsel for respondent that respondent at anytime can enforce the claim without reference to limitation. The phrase: "Contribution payable under this Act" used in Section 45B of the Act means the "contribution as determined under Section 45-A" of the Act. Subsection (2) of Section 45-A of the Act lays down that order made under sub-section (1) is sufficient proof of the claim under Section 75 of the Act, which relates to the matters to be decided by the Employees' Insurance Court. Subsection (1A) of Section 77 of the Act lays down that application before Employees' State Insurance Court (under Section 75 of the Act) has to be made within three years from the date on which the cause of action arose. Clause (b) to Explanation to sub-
section (1A) of Section 77 of the Act says that cause of action would be deemed to have arisen on the day on which the claim was made by the corporation. So, it is clear that the person from whom the demand is made has to move the Employees' Insurance Court within three years from the date of demand. For what period such demand can be made by the corporation is laid down by the proviso to clause (b) of Explanation to sub-section (1A) of Section 77 of the Act.
19.1. Thereafter, the High Court concluded as under:
11. ..........Therefore, it is clear that the corporation can make a claim in respect of arrears due only for a period of five years prior to the date of demand, and those arrears only can be recovered as amounts of land revenue under Page 17 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined Section 45-B of the Act.
19.2. In the facts of that case, it was held that claim for contribution from the appellant was unsustainable, and, was accordingly, set aside.
20. The question as to whether the proviso to Section 77(1A)(b) of the Act providing limitation of five years for claiming contribution, debar the corporation from recovering the contribution arrears as arrears of land revenue under Section 45B in pursuance of the order under Section 45A of the Act confronted the Madras High Court in Cosmopolitan Club. The High Court observed that from a reading of Chapter IV of the Act which includes Sections 45A and 45B, it is clear that there is no limitation prescribed. The purpose of introduction of these sections is to curb default by the employers by providing for an efficient method of recovery but where the records are produced, the assessment has to be made under Section 75(2) of the Act. Only when there is a failure in production of records or when there is no cooperation, the corporation can determine the amount due under Section 45A and recover the same as arrears of land revenue under Section 45B. But if the records are produced and if there is cooperation, the assessment has to be made under Section 75(2)(a) It was held thus:
28. Section 45A of the Employees State Insurance Act would provide for determination of contributions in certain cases. A reading of the above section would reveal that when the records are not produced by the establishment to the corporation and when there is no cooperation, the corporation has got the power to make assessment Page 18 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined and determine the amount under Section 45A and recover the said amount as arrears of land revenue under Section 45B of the Act. When the corporation passed an order under Section 45A, the said order is final as far as the corporation is concerned. Under Section 45A(1), the corporation, by an order, can determine the amount of contributions payable in respect of the employees indulged in preventing the corporation from exercising its functions or discharging its duties under Section 45, on the basis of the material available to it, after giving reasonable opportunity. But, where the records are produced, the assessment has to be made under Section 75(2)(a) of the Act. Section 45A(2) would provide that the order under Section 45A(1) shall be used as sufficient proof of the claim of the corporation under Section 75 or for recovery of the amount determined by such order as arrears of land revenue under Section 45B. In other words, when there is a failure in production of records and when there is no co-operation, the corporation can determine the amount and recover the same as arrears of land revenue under Section 45B. But, on the other hand, if the records are produced and if there is cooperation, the assessment has to be made and it can be used as a sufficient proof of the claim of the corporation under Section 75 before the E.S.I. Court. So, the limitation of three years for filing an application before the Court, introduced by Act 44 of 1966, would relate only to the application under Section 75 read with 77(1A). The order under Section 45A need not be executed by the corporation before the E.S.I. Court under Section 77. As such, the amendment to Section 77(1A)(b) proviso by Act 29 of 1989 providing five year limitation has no impact on the orders passed by the corporation under Page 19 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined Section 45A.
20.1. Section 45A contemplates a summary method to determine contribution in case of deliberate default on the part of the employer or there is no co-operation by the employer. There is no doubt that the area and the field covered by Section 45A and Section 75 are quite different. Section 45A is a special provision for expeditious action against an employer who commits default. This special provision has been enacted only in order to weed out unscrupulous employers committing default in the maintenance of the records and submission of correct returns for payment of contributions. If the period of limitation prescribed under the proviso to Clause (b) of Section 77(1A) is read into provisions of Section 45A, it would defeat the very purpose of Sections 45A and 45B. The prescription of limitation under Section 77(1A)(b) of the Act is deliberately not made applicable to the adjudication proceedings under Section 45A by the legislature since such a restriction would restrict the right of the corporation to determine the claims under Section 45A and the right of recovery under Section 45B. Thus, Section 45A does not prescribe any period of limitation. Finally, Madras High Court declared as under:
Having regard to the scheme and object of the Act, while interpreting the provisions so as to advance the remedy and not to defeat and also in keeping with the principles enunciated in the decisions rendered by the Supreme Court, we are of the considered opinion, that the period of limitation, prescribed under Section 77(1A)(b) of the Employees' State Insurance Act, 1948, would not apply to the recovery proceedings under S.45B of the Act, in pursuance of an order under Section 45A.Page 20 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026
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21. In C.C. Santhakumar, this Court examined the contours of Sections 45A, 45B, 75 and 77 of the Act and on a combined reading of the aforesaid provisions, it is observed that no claim shall be made by the corporation beyond five years to which the claim relates as per the proviso to clause (b) of Section 77(1A). On the other hand, a reading of Chapter IV as a whole makes it clear that there is no limitation prescribed. Explaining the difference between Section 45A and Section 77(1A), this Court held as under:
15. Section 45A provides for determination of contributions in certain cases. When the records are not produced by the establishment before the corporation and when there is no co-operation, the corporation has got the power to make assessment and determine the amount under Section 45A and recover the said amount as arrears of land revenue under Section 45B of the Act. This is in the nature of a best-judgment assessment as is known in taxing statutes. When the corporation passes an order under Section 45A, the said order is final as far as the corporation is concerned. Under Section 45A(1), the corporation, by an order, can determine the amount of contributions payable in respect of the employees where the employer prevents the corporation from exercising its functions or discharging its duties under Section 45, on the basis of the material available to it, after giving reasonable opportunity. But, where the records are produced, the assessment has to be made under Section 75(2)(a) of the Act. Section 45A(2) provides that the order under Section 45A(1) shall be used as sufficient proof of the claim of the Page 21 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined corporation under Section 75 or for recovery of the amount determined by such order as arrears of land revenue under Section 45B. In other words, when there is a failure in production of records and when there is no cooperation, the corporation can determine the amount and recover the same as arrears of land revenue under Section 45B. But, on the other hand, if the records are produced and if there is cooperation, the assessment has to be made and it can be used as a sufficient proof of the claim of the corporation under Section 75 before the ESI Court. So, the limitation of three years for filing an application before the court, introduced by Act 44 of 1966, can only relate to the application under Section 75 read with Section 77(1A). The order under Section 45A need not be executed by the corporation before the ESI Court under Section 77.
As such, the amendment to Section 77(1A)(b) proviso by Act 29 of 1989 providing five-year limitation has no relevance so far as orders passed by the corporation under Section 45A are concerned.
22. Thus as noticed supra, Sections 45A and 45B on the one hand and Sections 75 and 77 on the other hand operate in different fields. There cannot be any doubt that the area and the scope and ambit of Sections 45A and 75 are quite different. We have already discussed about the pre-conditions which are required to be satisfied before the jurisdiction under Section 45A can be invoked. Subject to fulfillment of the above preconditions, an order passed under Section 45A is final. It need not be executed by the corporation by filing an application under Section 77 before the Employees Insurance Court. Section 45A therefore does not prescribe any period of limitation and the limitation Page 22 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined prescribed under Section 77 does not get attracted. As noticed supra, there is a reason for this. A defaulting employer or an obstructionist employer should not be allowed to avoid contributions required to be paid by them. However, where an order is passed under Section 45-A, it is for the employer to approach the Employees Insurance Court if he wants to challenge the same. In such an eventuality, the limitation prescribed is three years. On the other hand, ordinarily if the corporation disputes any contribution of the employer, it has to take recourse to Section 75 in which event, it has to move the Employees Insurance Court for recovery of the amounts due. For that, corporation has to invoke Section 77 for initiation of proceedings before the Employees Insurance Court. However, to ensure that stale claims are not agitated, legislature has prescribed a limitation of five years for raising of such claims or disputes by the corporation. The limitation for institution of claims by the corporation before the Employees Insurance Court, as noticed supra, is prescribed under the proviso to Section 77(1A)(b) which mandates that no claim shall be made by the corporation after five years of the period to which the claim relates.
23. As explained in Santhakumar the limitation prescribed in the proviso to Section 77(1A)(b) applies only to claims made by the corporation before the Employees' Insurance Court and not to proceedings undertaken under Section 45A. It has been explained that if the fiveyear bar is read into Section 45A, it would defeat the very purpose for which Sections 45A and 45B were enacted, since such a restriction would curtail the corporation's authority to make a best- judgment determination in cases of non-production of records or obstruction to inspection and would undeservedly benefit employers who evade statutory Page 23 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined obligations.
24. Thus, Section 45A is designed as a mechanism which the corporation may employ only when there is a default qua Section 44 or when statutory inspection under Section 45 becomes impossible on account of the conduct of the employer. The foundation for exercise of the power under Section 45A, as explained in Santhakumar, is either nonproduction of records or absence of cooperation or obstruction of inspection. The power is conceived as a best judgment determination akin to similar provisions in taxing statutes. What is equally significant is the clear statement of law that when records are produced and cooperation is forthcoming, assessment must be carried out under Section 75(2)(a) and not under Section 45A. The distinction drawn is therefore fundamental to the statutory architecture. Section 45 A is not meant to be an alternative mode of computation at the option of the corporation. It is a residuary power available only when the employer makes a default under Section 44 or disables the corporation from carrying out inspection under Section 45.
25. In so far the impugned judgment and order of the High Court is concerned, we find that the High Court itself recorded that the appellant had appeared before the corporation through its authorized representative(s) and that relevant records were produced during the course of personal hearings. If the records were produced and the appellant had participated in the personal hearings which indicates that there was no non co-operation or obstruction, the conditions precedent for invoking jurisdiction under Section 45A were clearly absent. While it is true that there is no limitation under Section 45A of the Act, it is equally true that invocation Page 24 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined of the said provision is dependent upon fulfillment of the aforesaid two conditions which are the functional requirement for invoking Section 45A viz non- production of records or obstruction of inspection. Mere inadequacy of the record would not confer jurisdiction upon the corporation to invoke Section 45A. The legislative intent is clear: summary determination under Section 45A would be permissible only in exceptional situations as alluded to hereinabove. The Act does not contemplate Section 45A as an alternative assessment mechanism available at the option of the corporation whenever the employer's records are perceived as deficient or inadequate. 26. Once Santhakumar is read and understood in its factual setting, its ratio becomes clear. In that case, the employer had failed to produce records and had not cooperated with the inspection. Invocation of Section 45A, therefore, rested squarely on the statutory preconditions. It would not be appropriate to extend the rationale of Santhakumar to cases where records have in fact been produced and where repeated personal hearings have been attended by the employer. Dissatisfaction with the completeness or quality of documents does not convert production into non- production, nor does it permit the corporation to invoke a power meant for exceptional situations. If the corporation, after examining the materials produced, believes that the computation made by the employer is incorrect or that further evidence is needed to decide the true nature of particular entries, the proper course is to raise a dispute under Section 75. To enlarge Section 45A so as to cover situations of partial dissatisfaction or perceived inadequacy would tantamount to rewriting the statute in a manner plainly contrary to its text and structure.
27. In the present case, the materials placed before us shows that the appellant had produced ledgers, cash Page 25 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026 NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined books, journal vouchers, contractor records and returns of contribution for the period in question. Personal hearings were granted on numerous dates and the appellant had appeared through its authorised representative in such hearings. The corporation has itself recorded in its order that records were produced but certain supporting bills were not furnished in respect of some heads of expenditure. This finding, even if accepted at face value, does not bring the case within the ambit of Section 45A. The statutory threshold is not inadequate production but non-production. The statute does not permit a best judgment determination merely because the record produced is inadequate."
12.3 As held by the Apex Court in the aforesaid decision, once the employer has produced materials such as ledger, cashbook, and general vouchers, merely because such material is perceived to be inadequate, the statute does not permit resort to a best judgment determination. The power to make an assessment on best judgment be exercised, in the absence of production of records, lack of cooperation, or obstruction to inspection. But where the records are produced the assessment has to be made under section 75(2)(A) of the Act and the record can be used as a sufficient proof of the claim of the Corporation under section 75 before the ESI Court.
Page 26 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026NEUTRAL CITATION C/FA/4701/2023 JUDGMENT DATED: 12/02/2026 undefined 13 In the instant case also, as discussed hereinabove, it is not in dispute that the requisite material was produced before the authority. As per the case of the appellant-Corporation, upon scrutiny of the said material, a difference was noticed between the wages reflected in the contractors' bills and the wages actually paid. Such an issue, being a disputed question of fact, in the opinion of this Court, requires adjudication by leading appropriate oral and documentary evidence. However, the power exercised under Section 45A of the Act is in the nature of a best-judgment assessment, which can be resorted to only in cases of non-production of records or lack of cooperation. In the present case, therefore, the assessment could not have been carried out by invoking Section 45A of the Act. Considering the aforesaid legal position and the ratio laid down, this Court deems it fit to dismiss the First Appeal.
14 Resultantly, the First Appeal stands dismissed.
The judgment and order passed by the learned ESI Court, Ahmedabad in ESI Application No.111 of 2007 is hereby confirmed.
(M. K. THAKKER,J) M.M.MIRZA Page 27 of 27 Uploaded by M.M.MIRZA(HC01407) on Thu Feb 19 2026 Downloaded on : Fri Mar 13 23:38:32 IST 2026