ESI recovery under Section 45B requires prior determination under Section 45A or adjudication under Section 75.

M/s. Rubi Coach Builders Pvt. Ltd., an establishment registered under the Employees’ State Insurance Act, 1948 (“ESI Act”), was inspected by an ESI Inspector.

The Corporation alleged that the company had failed to include various payments—including overtime, special, conveyance, washing and travelling allowances, and certain payments relating to construction and repair work—in the wage computation for ESI contributions.

The Corporation consequently demanded contribution of approximately Rs.46,472, together with interest and surcharge, aggregating to Rs.63,107, and initiated recovery proceedings under Section 45B by directing the Collector and Mamlatdar to recover the amount as arrears of land revenue.

The company challenged the recovery before the ESI Court under Section 75. The ESI Court allowed the application and declared the recovery proceedings illegal, inter alia holding that Rs.2,10,518 paid to R.K. Construction for construction of a new building did not constitute “wages”. The ESI Corporation preferred the present appeal under Section 82(2) of the ESI Act.

1. Whether subsistence allowance paid to a suspended employee constitutes “wages” under Section 2(22) of the ESI Act.

2. Whether overtime wages and special allowance fall within the definition of “wages” under Section 2(22) of the ESI Act.

3. Whether travelling allowance or transport charges paid by way of reimbursement constitute “wages” under Section 2(22) of the ESI Act.

4. Whether the ESI Corporation could initiate recovery under Section 45B without first determining the contribution liability under Section 45A or obtaining adjudication under Section 75.

Section 45A of the ESI Act permits the Corporation to determine contributions summarily only where the employer has failed to submit, furnish or maintain the prescribed returns, particulars, registers or records, or where the employer has obstructed the Corporation’s inspection or statutory functions; a reasonable opportunity of hearing is mandatory.

Section 45B provides the mode of recovering a contribution that is legally payable, namely, as an arrear of land revenue, but does not itself constitute an independent power to adjudicate disputed liability.

Where records are produced and the employer cooperates, the Corporation must pursue adjudication under Section 75(2)(a) or Section 75(1)(c), rather than invoke Section 45A as an alternative method of computation.

The Court relied principally on ESI Corporation v. C.C. Santhakumar, (2007) 1 SCC 584, and M/s. Carborundum Universal Ltd. v. ESI Corporation, 2025 LiveLaw (SC) 1232, which explain the distinct fields of Sections 45A/45B and Sections 75/77. The Corporation also relied on Indian Drugs and Pharmaceuticals Ltd. v. ESIC, 1997 (9) SCC 71, regarding overtime wages, ESIC v. Harrison Malayalam Pvt. Ltd., 1993 (4) SCC 361, regarding contractor employees, and Regional Director, ESIC v. Jamnagar Vegetable Product Unit, 2016 (1) CLR 620, regarding washing allowance.

The High Court held that recovery under Section 45B must have a valid foundation in either an order under Section 45A or adjudication under Section 75.

Although the Corporation relied on the Inspector’s report and contended that the disputed allowances and payments were chargeable as wages, it could not produce any order passed under Section 45A, despite being specifically directed to do so during the appeal.

The record also did not establish the statutory preconditions for invoking Section 45A—namely, non-production or non-maintenance of records, or obstruction of inspection. Since the Corporation had inspected the company’s records and the dispute concerned the legal character of identified payments, the matter required proper adjudication under Section 75 rather than unilateral recovery under Section 45B.

Consequently, the Court did not need to finally determine whether the individual allowances or construction-related payments constituted “wages”; the absence of lawful prior determination was sufficient to invalidate the recovery proceedings.

The recovery demand of Rs.63,107, including contribution, interest and surcharge, and the consequential proceedings before the Collector and Mamlatdar were therefore unsustainable. The appeal was dismissed, the ESI Court’s judgment dated 31 December 2003 was left undisturbed, and any interim relief earlier granted was discontinued.