Full Judgment Text
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CASE NO.:
Appeal (civil) 1271 of 2008
PETITIONER:
Bharat Heavy Electricals Ltd.
RESPONDENT:
ESI Corporation
DATE OF JUDGMENT: 14/02/2008
BENCH:
S.B. Sinha & V.S. Sirpurkar
JUDGMENT:
J U D G M E N T
(Arising out of SLP (C) No.2082 of 2007)
S.B. Sinha, J.
1. Leave granted.
Background facts :
2. Appellant herein is a Public Sector Undertaking. It used to engage
contractors for various purposes. It received a notice on or about 3.9.1992
purported to have been issued under Section 45A of the Employees\022 State
Insurance Act, 1948 (for short \023the Act\024) on the premise that they had not
deposited the Employees\022 State Insurance contribution for the period
19.7.1981 to 30.9.1991.
3. In its show cause, in response to the notice issued by the respondents,
the appellant stated that the workmen concerned had been engaged by the
contractors who would be in possession of the relevant records to show as to
whether or not any contribution was payable or whether the Act was
applicable in respect of the concerned workmen. A list of contractors along
with their addresses who were involved during the period in question was
annexed to the said show-cause. A prayer was made before the Authority to
implead the said contractors as parties in the said proceedings under Section
45A of the Act as immediate employers.
4. By a letter dated 8.3.1993 the said prayer was rejected by the
competent authority of the respondent, stating :
\023With reference to the above, I have to invite your
kind attention on the above subject and inform you
that engaging the contractors for BHEL works is
an internal affair of the factory and our
Corporation is not preventing you in any manner in
bringing along with you those contractors to
explain the nature of expenditure incurred by you
through the contractors. You are not denied any
opportunity to represent your case properly. You
may recover the ESI contribution along with
employers share from your contractors (i.e.
immediate employer) under Section 40 and 41 of
the ESI Act. As per Section 41(1) of the ESI Act,
the principal employer can recover the
contributions from the immediate employer even
as deduction from any amount payable by them
under any contract or even as a debt payable by the
contractors. So, it is not necessary for the
Employees State Insurance Corporation to implead
the contractors to enable you (principal employer)
to invoke your right of recovery. I am therefore, to
intimate you that your request as communicated in
the affidavit cannot be acceded to.\024
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Proceedings :
5. A Writ Petition was preferred thereagainst before the Madras High
Court wherein a decision of the said court in Madras Gymkhana (represented
by its Honourary Secretary), Madras v. Employees\022 State Insurance
Corporation (represented by its Regional Director), Madras [1990 (2)
Labour Law Notes 777] was relied upon. By an order dated 11.4.2000, a
learned Single Judge, doubting the correctness of the said decision, referred
the matter to a Division Bench opining :
\023In view of the judgment of the Hon\022ble Supreme
Court of India referred to above, namely, AIR
1993 SC pg.2655 and the other judgment namely,
JT 1989 (4) SC 380, I am of the respectful opinion
that the judgment of this Court reported in 1990-2
L.L.N pg.777 does not appear to have decided the
issue correctly and, therefore, it definitely calls for
a reconsideration by a larger Bench. The Registry
is, therefore, directed to place this order of
reference, my judgment containing reasons and the
material papers before My Lord the Hon\022ble Chief
Justice for referring the issue involved in this case
for consideration by a larger Bench.\024
6. By reason of the impugned judgment, a Division Bench of the Madras
High Court, while overruling the said decision in Madras Gymkhana (supra)
held :
\023The scheme of the ESI Act does not envisage
separate and independent determination of
contribution payable by the principal employer and
the immediate employer in respect of employees
directly employed by the principal employer and
the contract employees respectively. When once
the authority is satisfied that persons were
employed by or through an immediate on the
premises of the factory or establishment or under
the supervision of the principal employer and if for
any reason the principal employer fails to submit,
furnish or maintain the records and registers in
accordance with the provisions of Sec.44, the
Corporation is within their powers to determine the
contribution payable in respect of contract
employees against the principal employer without
looking for the immediate employer. As already
stated, in an enquiry under Section 45-A of the ESI
Act all that is required is the authority must give a
reasonable opportunity of being heard to the
employer concerned. That has been complied with
by the respondent in the present case by issuing the
show cause notice dated 3.9.1991, wherein the
Corporation has also afforded a personal hearing to
the petitioner. The decisions relied on by the
petitioner, viz. Food Corporation of India, Ashok
Leyland Limited and Chennai Petroleum
Corporation Ltd., cited supra, are of no assistance
to them.\024
Contentions :
7. Mr. Milon K. Banerjee, learned Attorney General for India appearing
for the appellant, submitted that the High Court committed a serious error in
passing the impugned judgment in so far as it failed to construe the
provisions of the Act in their proper perspective. Learned Attorney General
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has placed strong reliance upon a decision of P. Sathasivam, J., (as His
Lordship then was) in Ashok Leyland Limited v. Employees\022 State
Insurance Corporation [(2000) 2 LLJ 593].
8. Mr. Francis, learned counsel appearing on behalf of the respondent
would, however, support the impugned judgment.
The Act :
9. The Act was enacted to provide for certain benefits to the employees
in cases of sickness, maternity and employment injury and to make
provisions for certain other matters in relation thereto.
The term \021employee\022 has been given a wide definition. In terms of
sub-section (9) of Section 2 of the Act, it includes a person employed
directly by the principal employer or by or through an immediate employer.
\021Immediate employer\022 has been defined in Section 2(13) to mean :
\0232(13) \021immediate employer\022, in relation to
employees employed by or through him, means a
person who has undertaken the execution, on the
premises of a factory or an establishment to which
this Act applies or under the supervision of the
principal employer or his agent, of the whole or
any part of any work which is ordinarily part of the
work of the factory or establishment of the
principal employer or is preliminary to the work
carried on in, or incidental to the purpose of, any
such factory or establishment, and includes a
person by whom the services of an employee who
has entered into a contract of service with him are
temporarily lent or let on hire to the principal
employer and includes a contractor;\024
Section 2(17) defines \021principal employer\022 in the following terms :
\0232(17) \021principal employer\022 mens\027
(i) in a factory, the owner or occupier of the
factory and includes the managing agent of
such owner or occupier, and where a person
has been named as the manager of the
factory under the Factories Act, 1948 (63 of
1948), the person so named;
(ii) in any establishment under the control of
any department of any Government in India,
the authority appointed by such Government
in this behalf or where no authority is so
appointed, the head of the Department;
(iii) in any other establishment, any person
responsible for the supervision and control
of the establishment;\024
Chapter IV of the Act provides for mandatory insurance of all the
employees in the manner provided for therein. Section 39 provides for
payment of contribution. Section 40 provides for the principal employer to
pay contribution in the first instance, whereas an enabling provision has
been enacted for recovery of the contribution from the employee directly if
he is employed by the principal employer directly. Section 41 empowers the
principal employer to recover the amount of the contribution so paid from
the immediate employer either by deduction from any amount payble to him
by the principal employer under any contract or as a debt payable by the
immediate employer. Sub-section (1A) of Section 41 mandates that the
immediate employer shall maintain a register of employees employed by or
through him as provided for in the regulations and submit the same to the
principal employer before the settlement of any amount payable under sub-
section (1).
We may, however, notice that the said provision was introduced by
Act No.29 of 1989 w.e.f 1.2.1991. Section 45A lays down the manner in
which the contributions payable in certain cases shall be determined, sub-
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section (1) whereof reads, thus :
\02345A(1) Where in respect of a factory or
establishment no returns, particulars, registers or
records are submitted, furnished or maintained in
accordance with the provisions of Section 44 or
any Inspector or other official of the Corporation
referred to in sub-section (2) of Section 45 is
prevented in any manner by the principal or
immediate employer or any other person, in
exercising his functions or discharging his duties
under Section 45, the Corporation may, on the
basis of information available to it, by order,
determine the amount of contributions payable in
respect of the employees of that factory or
establishment.
Provided that no such order shall be passed
by the Corporation unless the principal or
immediate employer or the person in charge of the
factory or establishment has been given a
reasonable opportunity of being heard.\024
Application of the Act :
10. The period in question is 19.7.1981 to 30.9.1991. No return of
contribution is also said to have been filed for the said period.
Clause (4) of the show-cause notice dated 3.9.1992 reads as under :
\023And whereas it is proposed to determine and
recover the amount of contribution payable in
respect of the employees of your factory
establishment under Section 45A of the Act, as
under :
S.
No.
Nature of
Dues
Period
Amount of
contribution payable
Basis for
calculation
From
To
1
2
3a
3b
4
5
Contribution
due on the
wages paid
through
immediate
employer
(contractors)
July 1981
Sept. 1991
Rs.3,32,45,042.95
As shown in
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the appendices
And whereas, it is proposed to afford M/s. an
opportunity as required under Section 45A(1)(b) to
show cause against the said determination and
recovery.
Please show cause within 15 days here of as
to why assessment should not be made as proposed
above. In case you have any objections you are
hereby given an opportunity to explain the same
and or to file a statement giving full particulars of
the contributions actually due as per your records
for the above said period within the time specified
above. In case you desire to represent your case
personally you may appear before the undersigned
in person or through an authorized representative
on 24.09.1992 at 10.00 am with necessary
document to explain your case.\024
11. Appellant herein affirmed an affidavit in support of its application in
implead the third parties/contractor, stating :
\023For the period in question, third
parties/contractors are involved and only they
would be in possession of records relevant to
determine whether or not contributions at all are
payable or as to whether at all the Employees\022
State Insurance Act, 1948 is applicable in the first
place.
This Management viz., Bharat Heavy
Electricals Ltd., do not have details with regards to
the work of wages, if any, paid by the third
parties/contractors. The relevant information,
materials and such like would be available only
with said third parties/contractors whose names
and addresses in so far as they are available at
present are enclosed as annexures to this petition.
The names and addresses of the rest of the third
parties/contractors who were involved for the
period in question would be furnished as and when
the same are available.\024
A prayer was made to implead the contractors mentioned in the
annexures to the said affidavit as parties.
Precedent :
12. In Food Corporation of India v. Provident Fund Commissioner & Ors.
[(1990) 1 SCC 68], this Court while considering the provisions of Section
7A of the Employees\022 Provident Funds and Miscellaneous Provisions Act,
1952 held :
\023It will be seen from the above provisions that the
Commissioner is authorised to enforce attendance
in person and also to examine any person on oath.
He has the power requiring the discovery and
production of documents. This power was given to
the Commissioner to decide not abstract questions
of law, but only to determine actual concrete
differences in payment of contribution and other
dues by identifying the workmen. The
Commissioner should exercise all his powers to
collect all evidence and collate all material before
coming to proper conclusion. That is the legal duty
of the Commissioner. It would be failure to
exercise the jurisdiction particularly when a party
to the proceedings requests for summoning
evidence from a particular person.\024
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The Division Bench of the High Court distinguished the said decision
holding that the provisions of Section 7A of the Employees Provident Fund
and Miscellaneous Provisions Act, 1952 are not in pari materia with the
provisions of the Act stating :
\023An inquiry under sub-section (1) of Section 7-A
can be initiated to decide the dispute regarding the
applicability of the Act to an establishment and to
determine the amount due from any employer
under any provisions of the Act, the Scheme or the
Pension Scheme or the Insurance Scheme, as the
case may be. For the purposes of such inquiry, the
authorities under the Act are vested with the same
powers as are vested in a civil court for trying a
suit though such powers are restricted to certain
specified matters, viz. to enforce the attendance of
any person or examining him on oath, requiring
the discovery and production of documents,
receiving evidence on affidavit, issuing
commission for the examination of witnesses. A
fiction is created under Section 7-A that an inquiry
thereunder is deemed to be a judicial proceeding.
The observance of principles of natural justice is
also mandated vide sub-section (3) which says that
no order under sub-section (1) shall be made
unless the employer concerned is given a
reasonable opportunity of representing his case.
Thus, it is obvious that such specific powers are
given to the authorities concerned to decide not
abstract question of law, but to determine actual
concrete differences in payment of contribution
and other dues by identifying the workmen and the
authorities should exercise all their powers to
collect all evidence and collate all material before
coming to proper conclusion and as such an
inquiry under Section 7-A is more or the less a trial
of a suit before a civil court and judicial in nature.
The powers so conferred on the authorities
concerned are being statutory powers, a legal duty
is cast on such authorities to exercise the same
when situation arises and failure to exercise the
jurisdiction, especially when a party to the
proceedings requests for such exercise, would lead
to nullification of the order passed in the inquiry.\024
Analysis :
12. We, with respect to the learned Judges, fail to notice any significant
difference in the purport and object of both the provisions. The purport and
object of both the statutes, for all intent and purport, in our opinion, is the
same. In the proceedings initiated under Section 45A of the Act, an
immediate employer or principal employer may also show that they are not
liable to deposit any contribution on behalf of the employees as the
establishment in question did not come within the purview thereof. The
purpose of the proceedings, both under the Act as also the Employees
Provident Fund Act, is to determine the amount due from any employer in
respect of the employees under the statutory schemes. Both the Acts
envisage compliance of principles of natural justice. The proviso appended
to Section 45A of the Act provides for a statutory mandate of giving a
reasonable opportunity of being heard.
13. The quantum of amount due has to be determined in respect of all
contract workers engaged by the contractors. The principal employer would
be entitled to recover the contributions from the contractor; they being the
immediate employers. Whereas under the Provident Fund Act, the principal
employer is statutorily liable in terms of the provisions of the Act to comply
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with the provisions therein; in terms of the Act, the principal employer is
entitled to recover the amount of contribution payable by the immediate
employer for them.
Section 45A of the Act enables the appropriate authority to recover
such dues both from the principal as also the immediate employer. It
provides for an opportunity of hearing to both of them.
Apart from Section 41(1A), Regulation 32 of the Employees\022 States
Insurance (General) Regulations, 1950 mandates an immediate employers to
maintain registers in the prescribed form(s). An order passed under Section
45A of the Act has a serious civil and/or financial consequence as the
amount so determined is liable to be recovered as arrears of land revenue.
Section 44 of the Act, not only mandates the principal employer, but also the
immediate employer to file its reports and maintain registers. Under Sub-
section (2) of Section 44, when such reports are not submitted either by the
principal employer or by the immediate employers, the Corporation may
require the person in charge of the factory or establishment to furnish such
particulars as it may consider necessary for the purpose of enabling the
Corporation to decide whether the factory or establishment is a factory or
establishment to which this Act applies. Sub-section (3) of Section 44 of the
Act enjoins upon the principal as also the immediate employers to maintain
registers or records as may be required by regulations. Section 45 also
empowers the Inspector of Corporation to require an immediate or principal
employer to furnish to him such information as he may consider necessary in
regard to the compliance of the provisions of the Act by them. The Act,
therefore, recognizes the existence of an immediate employer.
14. We may also notice that in terms of the provisions of the Contract
Labour (Regulation and Abolition) Act, 1970 and the Rules framed
thereunder, a contractor is required to maintain a register of the workmen
employed by him. The contractor is also required to issue an employment
card to the said workers. Muster rolls, wages registers and other records in
respect of each worker engaged by the contractor are also required to be
maintained.
Reliance has been placed by the Division Bench as also by Mr.
Francis on Employees\022 State Insurance Corporation v. Harrison Malayalam
Pvt. Ltd. [(1993) 4 SCC 361]. Unfortunately, therein attention of this Court
was not drawn to the case of Food Corporation of India (supra). Even
otherwise, the said decision has no application to the fact of the present case.
The question therein which arose for consideration was as to whether the
employees of the contractor who were casual employees were identifiable or
not. It is in that context, this Court opined :
\023Under 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 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
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whether the particular employee or employees
cease to be employee/employees after the
contribution period and the benefit period expire.\024
15. In that case, it was not disputed that the Act applied to casual
workmen. Here, however, the applicability of the Act itself is in question.
In proceedings under Section 45A, not only the applicability of the Act but
also the quantum thereof which may be held to be payable may be the
subject matter of determination.
16. Reliance has also been placed on a decision of this Court in
Employees\022 State Insurance Corporation v. Harrisons Malayalam Ltd. (2nd
case) [(1998) 9 SCC 74, wherein this Court referring to the first case opined
that the liability of the employer to contribute arose from the very first day
of employment. There is no dispute with regard to the aforementioned
proposition of law but the dispute being both in regard to the applicability as
also the quantum, in our opinion, the respondent authority had the requisite
jurisdiction to implead the third party or summon them before it to produce
all relevant documents.
In Ashok Leyland, P. Sathasivam, J following the Food Corporation
(supra) and Madras Gymkhana (supra) held :
\02313. \005 The respondent is also directed to implead
the contractors/sub-contractors if it (respondent)
feels that they are necessary and proper parties on
the basis of the information furnished by the
petitioner, for adjudication of the matter in
controversy and to proceed further.\024
Conclusion :
17. Determination of the exact liability on the part of the contractors is
necessary keeping in view the fact that they or some of them may not be
under the control of the principal employer having regard to the fact that the
contract has come to an end. It will bear repetition to state that the principal
employers have a statutory right to recover the dues from the
contractors/immediate employers.
18. It appears that the determining authority did not give an opportunity
of hearing to the petitioner in regard to the names and other particulars of the
contractors. The impugned judgment, therefore, cannot be sustained. It is
set aside accordingly. The appeal is allowed and the matter is remitted to the
ESI Corporation/determination authority for considering the matter afresh.
The authority shall either implead the contractors as parties and/or summon
them for producing necessary records for the said purpose. In the facts and
circumstances of the case, there shall be no order as to costs.