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 State

Insurance Act, 1948 (for short the Act) on the premise that they had not

deposited the Employees 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 :

With 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.

 

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 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 :

In view of the judgment of the Honble 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 Honble Chief

Justice for referring the issue involved in this case

for consideration by a larger Bench.

 

 

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 :

 

The 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.

 

 

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

has placed strong reliance upon a decision of P. Sathasivam, J., (as His

Lordship then was) in Ashok Leyland Limited v. Employees 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 employee 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. 

     Immediate employer has been defined in Section 2(13) to mean :

2(13) immediate employer, 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;

 

 

            Section 2(17) defines principal employer in the following terms :

2(17) principal employer mens

(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;

 

 

            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-

section (1) whereof reads, thus :

45A(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.

 

 

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 :

And 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

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.

 

 

11.       Appellant herein affirmed an affidavit in support of its application in

implead the third parties/contractor, stating :

For 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

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.

 

 

            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 Provident Funds and Miscellaneous Provisions Act,

1952 held :

It 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.

 

            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 :

An 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.

 

 

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

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 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 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 :

Under 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

whether the particular employee or employees

cease to be employee/employees after the

contribution period and the benefit period expire.

 

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 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 :

13.  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.

 

 

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.