High Court of KeralaDivision Bench2008-05-22Appeal adjourned to be heard by a Division Benc...

Employees' State Insurance Corporation, Thrissur & Recovery Officer, E.S.I.C., Kollam v. M/S QETCOS Ltd., Rep. by R. Syamnath

Case / Petition Number:Ins. Appeal No. 11 of 2004; IC.16/2001 (E.I.Court Kollam)

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: J.B. Koshy
P.N. Ravindran
K. Padmanabhan Nair
Judgment Date: 2008-05-22
Court Decision / Holding: The appeal is adjourned to be heard and determined by a Bench of two Judges; the Registry is directed to place the file before the Chief Justice for appropriate orders.
Final Disposition: Appeal adjourned to be heard by a Division Bench; matter to be reconsidered by two judges to settle the principles governing damages under the ESI Act.

Parties to the Case

Appellants / Petitioners

THE REGIONAL DIRECTOR, E.S.I.CORPORATION, THRISSUR
THE RECOVERY OFFICER, E.S.I.CORPORATION, KOLLAM

Respondents

THE MANAGING DIRECTOR, M/S.QETCOS LTD., REP. BY SRI R.SYAMNATH

Legal Representation & Advocates

Counsels for Petitioners

• SRI.T.V.AJAYAKUMAR

Counsels for Respondents

• SRI.PIRAPPANCODE V.SREEDHARAN NAIR
• SRI.PIRAPPANCODE V.SUDHIR

Case Synopsis & Summary

This is an Insurance Appeal filed by the Employees' State Insurance Corporation (ESIC) challenging an order of the Employees’ Insurance Court, Kollam (I.C. No.16/2001), which exonerated a government-owned Co‑operative Society (M/S QETCOS Ltd.) from damages and allowed the employer to remit contributions in instalments for the period 1992–1994. The ESIC contends that delay in remittance occurred despite the Society’s state ownership and alleged promises of working capital, and that damages under Regulation 31C of the ESI Regulations are warranted where there is non‑compliance with the statutory obligation. The respondents (QETCOS Ltd.) rely on financial distress and instalment payments to explain the delay, arguing that the court’s reasoning to impose no damages should be affirmed, while invoking case law to support a measured approach to damages. The judgment discusses multiple precedents: Chandrasenan (1996) holds that instalment payments do not automatically exempt from damages; Prestolite of India Ltd. (1994) permits mitigation; Sovin Knit Works (1997) and Hindustan Times Ltd. (1998) discuss when damages may be imposed, including consideration of non‑culpable financial hardship; Premanandan (2007/2009) contemplates reconsideration of penalties under amended Regulation 31C; and the need for Division Bench review is emphasized. The High Court ultimately adjourns the appeal to a two‑judge bench to reexamine the settled principles on damages under the ESI Act.

Provisions of Law Cited

Employees' State Insurance Act, 1948Regulation 31C of the Employees' State Insurance (General) Regulations, 1950 (as amended 27.03.2003)

Legal Doctrines & Maxims

Damages under Regulation 31C are not automatic; adjudicating authority may consider mitigating circumstances (Prestolite)
Existence of mens rea/actus reus as an essential ingredient for levy of damages
Non‑compliance can attract damages but must be assessed under statutory principles (Sovin Knit Works; Hindustan Times)
Installment payments are not per se a ground to exempt damages (Chandrasenan)
Premanandan’s case (2007/2009) requires reconsideration of the penalties principle; not a settled rule at present

Submissions & Arguments

Contentions of Appellants / Petitioners

The appellants (ESIC) contend that despite the Society being fully owned by the State government and promises of working capital, delay in remittance occurred and the ESI Court’s exoneration from damages cannot stand. They argue that the delay is not excusable on the ground of financial crisis and that damages are permissible under Regulation 31C, especially when non‑compliance with the Act is established. They rely on Chandrasenan to reject automatic exemption for instalment payments, and on Prestolite, Sovin Knit Works, and Hindustan Times to emphasize that damages may be imposed with consideration of mitigating factors and without mechanical application of the upper limit. They further submit that the 2003 amendment to Regulation 31C requires reconsideration, and Premanandan’s case should be re‑evaluated by a Division Bench, so that the governing principles are clarified and consistently applied.

Contentions of Respondents

The respondent submits that the ESI Court rightly exonerated the Society from damages due to financial crisis and the lack of working capital. They argue that payment delays were due to circumstances beyond control, and that there was no deliberate contumacious conduct. They contend Regulation 31C is only a guideline and that penalties should not be mechanically applied, citing Premanandan’s line of reasoning and the need for a Division Bench to reconsider the earlier principle. They also emphasize that the employer’s financial difficulties do not abrogate the statute’s remedial purposes, but the available case law supports a measured, rights‑respecting approach to damages and may require limited or no damages where non‑deliberate non‑compliance is shown. They urge that the appeal be adjourned for two‑judge consideration to harmonize principles and avoid erroneous exaction of damages in the present context.

Cited Precedents (6)

Case Name	Citation	Treatment	Explanation
Chandrasenan v. Regional Director, E.S.I. Corporation	1996 1 KLT 243	Positive	Used to support the proposition that installment payments do not automatically exempt from damages.
Prestolite of India Ltd. v. Regional Director	AIR 1994 SC 521	Positive	Recognizes that mitigating circumstances may be considered in determining damages.
Sovin Knit Works v. E.S.I. Corpn.	AIR 1997 SC 1771	Positive	Affirms that non‑compliance can lead to damages; context supports penalties under statutory obligation.
Hindustan Times Ltd. v. Union of India	AIR 1998 SC 688	Positive	Financial difficulties of employer not a ground to exempt from damages; supports stringent approach.
Emp. State Insurance Corporation v. H.M.T. Ltd. & Anr.	2008 (1) SCALE 341	Positive	Contextualization of ESI Act’s social objective; cited for statutory framework.
Premanandan’s case	2007 (2) KLT 666	Mentioned Only	Case cited as needing reconsideration; not adopted as current rule; the division bench notes it requires re‑examination.

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Extracted Judgment Text

Exact text extracted from official judgment records.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE J.B.KOSHY & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN THURSDAY, THE 22ND MAY 2008 / 1ST JYAISHTA 1930 Ins.APP.No. 11 of 2004() -----------------------IC.16/2001 of E.I.COURT, KOLLAM .................... APPELLANTS/OPPOSITE PARTIES :- ---------------------------------- 1. THE REGIONAL DIRECTOR, E.S.I.CORPORATION, THRISSUR. 2. THE RECOVERY OFFICER, E.S.I.CORPORATION, KOLLAM. BY ADV. SRI.T.V.AJAYAKUMAR RESPONDENT/APPLICANT :- ---------------------------- THE MANAGING DIRECTOR, M/S.QETCOS LTD., REP. BY SRI R.SYAMNATH. BY ADV. SRI.PIRAPPANCODE V.SREEDHARAN NAIR - R1 SRI.PIRAPPANCODE V.S.SUDHIR - R1 THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 22/05/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **K. PADMANABHAN NAIR, J.** = = = = = = = = = = = = = = = = = = = **INS. APPEAL NO.11 OF 2004 = = = = = = = = = = = = = = = = = = = Dated this the 12[th] day of March, 2008** **R E F E R E N C E O R D E R --------------------------------------** **Appeal is filed by the Employees' State Insurance Corporation, Thrissur challenging the order passed by the Employees' Insurance Court, Kollam, in I.C. No.16 of 2001 by which the respondent, a Co-operative Society, fully owned by the Government, was exonerated from payment of damages. Respondent-Society was constituted to provide employment opportunities to unemployed Engineers and Technicians. Appellants demanded contribution to the extent of Rs.1,14,396/-. Subsequently, appellants demanded Rs.1,84,994/- as damages on account of delayed payment. Challenging that order, respondent filed I.C. No.16 of 2001 before the EI Court, Kollam.** **2. The main contention raised was that though the Society is fully owned by the State Government and State Government have promised to make available necessary working capital, the same was not done and on account of** ## **INS. APPEAL NO.11 OF 2004** ## **-: 2 :-** **that fact delay in remitting the contribution occurred. The period for which contribution was claimed was from 4/1992 to 7/1994. The EI Court took a view that the respondent was in financial crisis and it was allowed to pay the contribution in instalments and as such it was not liable to pay damages. In Chandrasenan v. Regional Director, E.S.I. Corporation (1996 (1) KLT 243) a Division Bench of this Court held that the fact that employer was allowed to pay the contribution in instalments is not a ground to exempt it from paying the damages.** **3. Learned counsel appearing for the respondent has placed reliance on a decision reported in E.S.I. Corporation v. Premanandan (2007 (2) KLT 666) in which it was held that if imposition of damages is by way of penalty, then such damages can be imposed only in accordance with the principles applicable for imposing penalty for failure to carry out a statutory obligation. It was further held that damages cannot be imposed unless the party acted either deliberately or in defiance of law or was guilty of** ## **INS. APPEAL NO.11 OF 2004** ## **-: 3 :-** **contumacious or dishonest conduct. The Division Bench also considered Regulation 31C of Employees State Insurance (General) Regulations, 1950 and held that Regulation 31C would only be guidelines in the matter of imposition of damages and percentage fixed is not absolute. Shri T.V.Ajayakumar, learned counsel appearing for the appellants, argued that in M/s. Prestolite of India Ltd. v. Regional Director (AIR 1994 SC 521) the Apex Court held that while adjudicating damages, the adjudicating authority can take mitigating circumstance into consideration, but should not act mechanically in applying upper most limit of damages. It is argued that in Sovin Knit Works v. E.S.I. Corpn. (AIR 1997 SC 1771) the Apex Court had taken a view that in the case of non-compliance of the provisions of the Act by the employer, the demand is valid. In M/s. Hindustan Times Ltd. v. Union of India (AIR 1998 SC 688) it was held that financial difficulties of the employer is not a ground to exempt it from payment of damages. Learned counsel also relied on an unreported decision of this Court in** ## **INS. APPEAL NO.11 OF 2004** ## **-: 4 :-** ## **R.P. No.732 of 2007 in Ins. Appeal No.25 of 2003** **decided on 14.9.2003. In Ins.Appeal No.25 of 2003 a Division Bench of this Court took a view that unless the employer is guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation, damage is not leviable. Appellant in that appeal filed R.P. No.732 of 2003 and in the R.P. the Division Bench has clarified that the legal principles laid down by this Court in the present case shall not be treated as having general application and it shall not be a precedent.** **4. In Emp. State Insurance Corporation v. H.M.T. Ltd. & Anr. (2008 (1) SCALE 341) the Apex Court has held that the ESI Act was enacted to provide certain benefits to the employees of an establishment in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto.** **5. It was also held that existence of mens rea or actus reus to contravene a statutory provision must also be held to be a necessary ingredient for levy of damages and/or the quantum thereof.** **6. Regulation 31C was initially introduced in the** ## **INS. APPEAL NO.11 OF 2004** ## **-: 5 :-** ## **Regulations with effect from 1.1.1992. It reads as follows:** **31-C. Damages or contribution or any other amount due, but not paid in time. - An employer who fails to pay contributions within the periods specified under Regulation 31 or any other amount payable under the Act, shall be liable to pay damages as under.** **It is argued that Regulation 31C was amended with effect from 27.3.2003. It was contended that before amendment in 2003 once the court finds that employer is liable to pay damage it has no discretion at all, but damage is to be imposed as provided in Regulation 31C of the Regulations because of the mandatory provisions contained in that Regulation. It is pointed out that Premanandan's case (supra) arose in the year 1999. So the provision contained in amended Regulation 31C has no application to the facts of that case and in this case. It is also pointed out that challenging the decision in Premanandan's case (supra) appellant had filed SLP No.9899 of 2007 before the Apex Court and the same is pending. Considering all aspects of the matter, I am of the view that the principles laid down in** ## **INS. APPEAL NO.11 OF 2004** ## **-: 6 :-** **Premanandan's case (supra) require reconsideration. For that purpose the case is to be heard by a Division Bench.** **In the result, the appeal is adjourned to be heard and determined by a Bench of two Judges. The Registry is directed to place the file before the Honourable the Chief Justice for appropriate orders.** **K. PADMANABHAN NAIR, JUDGE.** ## **vsv** **K. PADMANABHAN NAIR, J. ===================== M.F.A.** **===================== J U D G M E N T ------------------------------------------TH MARCH, 2008**