REGIONAL DIRECTOR vs M/S. RUBI COACH BUILDERS PVT. LTD
- Court
- Gujarat High Court
C/FA/1972/2004 (GJHC240376472004) CAV JUDGMENT DATED:
01/09/2026
Reserved On : 12/08/2026
Pronounced On : 01/09/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 1972 of 2004
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J. C. DOSHI
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Approved for Reporting Yes No
Yes
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REGIONAL DIRECTOR
Versus
M/S. RUBI COACH BUILDERS PVT. LTD & ANR.
==========================================================
Appearance:
MS DIMPLE A THAKER(6838) for the Appellant(s) No. 1
MR CS NAIDU(1218) for the Defendant(s) No. 1
MR DIPAK R DAVE(1232) for the Defendant(s) No. 1
RULE SERVED for the Defendant(s) No. 2
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CORAM: HONOURABLE MR. JUSTICE J. C. DOSHI
CAV JUDGMENT
1. By way of this appeal, the Employees' State Insurance
Corporation (for short “ESIC”) has challenged judgment and
order dated 31.12.2003 passed by ESI Court, Ahmedabad in ESI
Application No.43 of 1989, whereby application of the
respondent herein – original petitioner – M/s. Rubi Coach
Builders Pvt. Ltd. filed under section 75 of the ESI Act, 1948 was
allowed and it was declared that ESI Corporation is not entitled
to recover contribution amount of Rs.46,472/- plus interest and
surcharge amount, total amount of Rs.63,107/- from the
respondent company. Consequently, recovery proceedings
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initiated by ESI Corporation vide C-18 dated 13.08.1986 for
recovery of Rs.46,471.40 ps. and letter written to Collector dated
05.04.1989 (C-19) and subsequent letter written by Mamltadar
to the petitioner dated 24.04.1989 to recover amount of
contribution as arrears is declared illegal and unjust. Some
additional order was also passed.
2. For convenience, parties are referred as per their status
before the learned Trial Court.
3. Original petitioner – M/s. Rubi Coach Builders Private
Limited, filed the application under Section 75 of the ESI Act,
1948, challenging the order passed by ESI Corporation on
05.04.1989 and consequently by Mamlatdar on 24.04.1989 to
recover the amount of contribution as arrears of land revenue.
The petitioner company had been allotted ESI Code No. 37-6947-
74 by the ESI Corporation. Insurance Inspector visited the
petitioner company and checked the record. The application was
tendered pursuant to the checking that the petitioner company
has paid its contribution, and consequently two previous cases
were closed. Some factual aspect in regards to travelling
allowance and transport charges were found. They, according to
petitioner, were limited to reimbursement.
3.1. On 07.04.1983, the petitioner addressed a representation
to the ESI Corporation clarifying that payments disbursed
towards traveling allowances and overtime do not fall within the
ambit of "wages" as defined under Section 2(22) of the ESI Act,
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and therefore, any demand for contributions thereon is arbitrary
and unlawful. However, without adjudicating upon the core
dispute, the ESI Corporation issued a recovery warrant under
Section 45B of the ESI Act on 05.04.1989, demanding an
aggregate sum of Rs. 63,107/- inclusive of contributions,
surcharges, and interest. The petitioner wrote letter on
14.04.1989 to the ESI Corporation that they are not liable to pay
any amount, yet, without considering the written submission,
recovery proceedings were started under 45B of ESI Act, and
Mamlatdar issued a notice to recover the amount of alleged
contribution plus amount of surcharge and interest on
24.4.1989 vide Annexure-E.
3.2. Mainly upon aforesaid contention, the petitioner company
approached the ESI Court under Section 75 of the ESI Act for
setting aside that recovery proceedings.
4. In reply (Exhibit 17), the ESI Corporation denied the
averment made by the petitioner, with a further contention that
Corporation had rightly assessed and demanded the
contribution based on the inspection report which assessed the
total salary and allowances at Rs. 8,59,448/-. It was further
contended that the petitioner's contention regarding the payment
of Rs. 2,10,518/- made to R.K. Contractor for building
construction not falling within the definition of wages cannot be
accepted. Additionally, the Corporation maintained that
allowances paid towards overtime and traveling expenses fall
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squarely within the statutory definition of wages. All these
aspects were thoroughly examined by the Insurance Inspector
while preparing the report, thereby justifying the initiation of the
recovery proceedings as legal and proper.
4.1. In line of this contention, it was prayed to dismiss the
petition.
5. Learned ESI Court, after taking into consideration the
definition of the “wages”, the various authoritative
pronouncement as well as considering the fact that amount of
Rs. 2,10,518/- paid by the petitioner to RK Construction for
construction of new building do not fall within definition of
wages, held that the said amount could not be subjected to
contribution, and accordingly passed the judgment in the
aforementioned terms.
6. Being aggrieved, ESI Corporation has preferred this appeal
under Section 82(2) of the ESI Act.
7. Vide order dated 13.07.2005, the Co-ordinate Bench
admitted the first appeal, framing following question as
substantial question of law:
“(i)Whether an amount paid to a suspended employee by the
employer by way of subsistence allowance would be
included in term “wages” as defined under Sections 2(22) of
the ESI Act?
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(ii) Whether over-time wages and special allowance can
be included in the definition of term “wages” as envisaged
under Section 2(22) of the ESI Act?
(iii) Whether travelling allowance or transport charges paid
to employee by way of reimbursement can be included in
definition of term “wages” under Section 2(22) of the ESI
Act?”
8. Learned advocate Ms.Dimple Thaker, appearing for the
Appellant - ESI Corporation tendered written submission, which
is taken on record. In her written submission, learned advocate
Ms.Thaker referred to the report of the Insurance Inspector and
mainly submitted that the exclusion of the overtime allowance
from the “wages” by ESI Court is contrary to the judgment of
Supreme Court in [Indian Drugs and Pharmaceuticals Limited
versus Employees' State Insurance Corporation [1997 (9)
SCC 71] , particularly para 5 and 9 thereof.
8.1. Learned advocate Ms. Dimple Thacker further argued that
in light of aforesaid judgment it has been categorically held that
held that overtime wages fall within the ambit of "wages" under
Section 2(22) of the Employees' State Insurance Act, 1948, and
liable for ESI contribution. To that extent, she submitted, the
finding of the learned ESI Court is legally not sustainable and
requires interference. Secondly, she would submit that exclusion
of an amount of Rs.2,10,878/- by the ESI Court paid by the
petitioner company to RK Construction Work towards building
work along with other payment towards pipe fitting, repairs,
machinery work, are also erroneous. She further submitted that
the vouchers of this payment are placed on record at page
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No.123 of the paper-book (Exhibit 56). Therefore, learned
advocate Ms.Thaker submits that the issue deserves
consideration in light of the judgment of Hon’ble Supreme Court
in case of [Employees' State Insurance Corporation versus
Harrison Malayalam Private Limited, 1993 (4) SCC 361] ,
wherein, Hon’ble Supreme Court held that the employees of a
contractor engaged by the principal employer are covered by the
ESI Act and that the statutory obligation to pay contribution
arise once the establishment is covered by the Act.
8.2. Learned advocate Ms. Dimple Thaker thirdly, would submit
that petitioner-company disbursed special allowance,
conveyance allowance, and washing allowance to its employees,
which were erroneously excluded from the computation of ESI
contributions. She would submit that the relevant calculations
based on the inspection material, including the C-18 notice
dated 07.10.1985, had been duly placed before the learned Trial
Court. She further argued that while the petitioner-company
who claims such payments as mere reimbursement of expenses,
failed to discharge the burden of proving this contention;
moreover, such allowances do not fall within any of the specific
statutory exclusions contained under Section 2(22) of the
Employees' State Insurance Act, 1948. It is submitted that it is
actual nature and character of the payment that determines
whether it constitutes 'wages'. She refereed and placed reliance
on a judgment of a Co-ordinate Bench of this Hon’ble Court in
Regional Director, Employees' State Insurance Corporation
v. Jamnagar Vegetable Product Unit [2016 (1) CLR 620] ,
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whereby, this Court categorically held that washing allowance
forms part of 'wages' under Section 2(22) of the Act, and
contribution upon such allowance is payable. Therefore, it is
submitted that exclusion of the special allowance, conveyance
allowance, and washing allowance from the purview of ESI
contribution is erroneous finding of learned Trial Court. Lastly,
learned advocate Ms.Thaker submitted that the disputed
amounts were identified from the petitioner-company’s own wage
registers and books of account during the inspection and it
revealed contribution liability under the disputed heads
amounting to Rs.46,471.40, along with applicable interest and
surcharge.
8.3. In line of the aforesaid argument, learned advocate Ms.
Dimple Thacker submitted that the finding of learned ESI Court
is bad in law, erroneous, and unjust, and required interference
by allowing this appeal.
8.4. Upon above submission, learned advocate Ms.Thaker
submitted to allow this appeal and to quash and set aside the
impugned judgment and order, and to sustain the recovery
proceeding initiated against the petitioner company.
9. Learned advocate Mr.Dipak Dave on the other side referred
to judgment of Supreme Court in case of ESI Corporation v/s.
C.C. Santhakumar [2007 (1) SCC 584] , and the recent
judgment of Supreme Court in case of M/s. Carborundum
Universal Limited v/s. ESI Corporation [2025 LiveLaw (SC)
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1232] , and submitted that the statutory scheme of the
Employees' State Insurance Act, 1948, demands that under
exceptional exigencies or eventualities, the ESI Corporation must
first pass a determination order under Section 45A of the Act;
only upon non-compliance with such an order, recovery
proceedings under Section 45B can be initiated. He further
submitted that any demand for contribution must first be legally
adjudicated under Section 45A, which empowers the Corporation
to exercise summary determination only in specific instances
where an employer either fails to furnish the requisite
particulars/records or completely refrains from participating in
the hearing. Learned advocate Mr. Dave submitted that in the
present case, the ESI Corporation bypassed the mandatory
procedure established under Section 45A and straightaway
issued a C-19 demand notice (page No.29 of the paper-book)
under Section 45B to recover the contribution, along with
interest and surcharge. It is submitted that such action on the
part of the ESI Corporation is completely arbitrary and cannot
sustain in the eyes of the law. Therefore, learned advocate Mr.
Deepak Dave submit that this appeal should be dismissed solely
on this ground.
9.1. Learned advocate Mr. Deepak Dave further submitted that
when the ESI Corporation itself did not follow the process laid
down in the ESI Act, it cannot raise any demand towards the
contribution on the pretext of it being legitimate. In absence of
following the mandatory provision of ESI Act and without
judicially adjudicating the liability, the Corporation cannot
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invoke the drastic recovery powers vested under Section 45B to
recover the amount of contribution.
9.2. In light of the aforesaid submission, learned advocate Mr.
Deepak Dave submits that even without entering into the factual
aspect of the case, the appeal deserves to be dismissed, and
therefore, he submitted to dismiss the appeal.
10. Regard being had to the rival submission of the learned
advocate for both the side, let me examine the scheme of the ESI
Act. Section 45A and 45B of the ESI Act reads as under :-
“45A. Determination of contributions in certain cases.
(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 Social Security Officer 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:
Provided further that no such order shall be passed by the
Corporation in respect of the period beyond five years from
the date on which the contribution shall become payable.
(2) An order made by the Corporation under sub-section (1)
shall be sufficient proof of the claim of the Corporation under
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section 75 or for recovery of the amount determined by such
order as an arrear of land revenue under section 45B or the
recovery under sections 45C to 45-I.”
45B. Recovery of contributions.
—Any contribution payable under this Act may be recovered
as an arrear of land revenue.
11. Plain reading of the aforesaid provision indicates that
before invocation of summary power to determine the
contribution under Section 45A, two conditions are essential:
first, where the principal or immediate employer fails to submit
the requisite returns or particulars, or fails to maintain the
registers or records in accordance with the mandates of Section
44; or second, where the Social Security Officer is obstructed or
prevented from exercising his functions or discharging his duties
under Section 45(2) by the principal employer, immediate
employer, or any other person. It is only upon the fulfillment of
these statutory preconditions that the ESI Corporation is
empowered to summarily determine the amount of contribution
payable in respect of the employees of the factory or
establishment, on the basis of the information available to it,
invoking section 45A of the Act.
12. The proviso to Section 45A also demands that no such
summary determination shall be made without giving a
reasonable opportunity of being heard to the immediate
employer or principal employer or person in charge of the factory
or establishment. The statute also prescribes a period of
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limitation, stipulating that the ESI Corporation is barred from
determining contributions under Section 45A after the expiry of
five years from the date on which the said contributions became
payable. In contradistinction, Section 45B specifically governs
the recovery of the contributions so determined.
13. In case of C.C. Santhakumar (supra) , the Supreme Court
examined the contours of Section 45A, 45B, 75, and 77 of the
ESI Act, and on combined reading of the aforesaid provision, the
Supreme Court observed that no claim shall be made by the
Corporation beyond five years to which the claim relates. The
Hon’ble Supreme Court observed 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
cooperation, 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 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
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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 E.S.I. 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 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 relevance so far as
orders passed by the Corporation under Section 45A are
concerned.”
14. In the case of Carborundum Universal Limited (supra) ,
the Supreme Court examined the scope of Section 45 of the ESI
Act, and in para 18, 18.1 to 24 observed as under:
“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. 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
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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 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
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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 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 sub- section (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
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recovered as arrears of land revenue. But 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.
Sub- section (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.
Sub-section (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
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
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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 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
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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 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 .
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
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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 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
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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 pre- conditions, 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
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 five- year 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 obligations.
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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 non-
production 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 .”
15. Thus, for foundation of the recovery under Section 45B,
there should be an order under Section 45A or under Section 75.
As observed herein-above, to invoke the summary power under
Section 45A, presence of certain essentials as stated in the
Section 45A of the ESI Act are needed to be established, and
while doing so, the ESI Corporation is required to afford
opportunity of hearing to the principal or immediate employer or
the person in charge of the factory or establishment before any
action of recovery proceeding under Section 45B is initiated. In
the absence of the essential conditions qualifying under Section
45A, the ESI Corporation in order to determine any disputed
liability concerning contributions payable by a principal
employer in respect of any employee must approach the
Employees' Insurance Court under Section 75(1)(c) of the Act for
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judicial adjudication.
16. In the present case, the recovery proceeding started with
the recovery order under Section 45B (page No.29 of the paper-
book), whereby the Regional Office of the ESI Corporation
directed the Collector to recover the amount of Rs.63,107.00
from one Mr. Dhirajlal Kapasi, the person in charge of the
petitioner company, and consequently, on 09.04.1989, the Alien
Recovery Mamlatdar Office initiated the recovery proceedings
(page No.35 of paper book) to recover the amount of contribution
as arrears of land revenue.
17. During the course of hearing, it was asked to the learned
advocate Ms. Dimple Thacker appearing for the ESI Corporation
as to whether any order under Section 45A of the ESI Act has
been passed. Consequently, to that effect the order was also
passed on 05.08.2026, which reads as under:
“The oral arguments are concluded.
Learned Advocate Ms. Dimple A Thaker for the appellant is
permitted to file the written submissions in the Registry for
the limited purpose that whether order under Section 45A of
the ESI Act, 1948 has been passed by the concerned Officer
or not.
Registry to accept the same.
Upon request of learned Advocate Ms. Dimple Thaker, the
matter is adjourned.”
18. In reply, learned advocate Ms. Dimple Thaker submits that
despite efforts she was unable to trace out any order passed
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under Section 45A of the ESI Act from the record. Nonetheless
no such order is placed before the learned ESI Court during the
proceeding before it. Even there is no reference of such order
under Section 45A in the written submission filed by learned
advocate Ms. Dimple Thaker.
19. In the aforesaid circumstances, this Court finds that the
recovery proceedings initiated by the ESI Corporation was in
exercise of the totalitarian and dictatorial power, and cannot
sustain. Although the learned Employees' Insurance Court below
interfered with the recovery proceedings on other grounds, this
Court, upon examination of the statutory scheme and purport of
the ESI Act, particularly, Sections 45A, 45B, and 75, is of the
considered view that initiating recovery proceedings without
prior adjudication is unjust, arbitrary, perverse, and against the
law settled by the Hon’ble Supreme Court in the aforesaid
judgments cited hereinabove.
20. In view of above, the impugned judgment and order does
not deserve any interference. The Appeal being devoid of merits,
is accordingly dismissed. Interim relief granted earlier, if any,
stands discontinued. Record and proceedings, if any, be send
back to learned Trial Court concerned.
(J. C. DOSHI,J)
SATISH
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