Employees State Insurance Corporation v. Pattath Bricks and Clay Works

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE P.N.RAVINDRAN** **WEDNESDAY, THE 10TH DAY OF OCTOBER 2012/18TH ASWINA 1934** ## **Ins.APP.No. 65 of 2011 ( )** **-------------------------IC.NO.119/2008 of EMPLOYEES'S INSURANCE COURT, PALAKKAD ------------------------** **APPELLANT/OPP. PARTY:** **---------------------------------------** **EMPLOYEES STATE INSURANCE CORPORATION, REGIONAL OFFICE, NORTH SWARAJ ROUND, THRISSUR-680 020.** **BY ADV. SMT.T.D.RAJALAKSHMY, SC, ESI CORPN.** **RESPONDENT(S)/APPLICANT:** **-----------------------------------------------** **M/S. PATTATH BRICKS AND CLAY WORKS, CHITTISERY, THRISSUR DISTRICT-680 301.** **BY ADV. SRI.P.SANTHOSH (PODUVAL) SMT.R.RAJITHA SRI.C.B.MUKUNDAN (THRISSUR)** **THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 10-10-2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** ## **P.N.RAVINDRAN, J.** ## **----------------------------------------Ins.Appeal No.65 of 2011 ----------------------------------------Dated this the 10[th] day of October, 2012** ## **JUDGMENT** The Employees State Insurance Corporation represented by its Regional Director at Thrissur, has filed this appeal challenging the order dated 3.1.2011 passed by the Employees Insurance Court, Palakkad in I.C.No.119 of 2008. The brief facts of the case are as follows: 2. The respondent herein, a partnership firm, is an establishment governed by the provisions of the Employees State Insurance Act, 1948 (hereinafter referred to as the Act for short). During the period from October, 2003 to March, 2005 the respondent employer committed default in remittance of the contribution. The total amount of contribution payable during the said period was Rs.26,700/-. The said amount was remitted together with interest only on 25.6.2007, after a long delay. The Assistant Director, Employees Provident Fund Organization, Thrissur, thereupon issued Ext.A1 show cause notice dated 10.12.2007 calling upon the respondent to show cause why the _**Ins.A**_ **.No.65 of 2011** -:2:- sum of Rs.19,550/-, as shown in the statement appended to it, should not be levied as damages and recovered in exercise of the power conferred on him under section 85B of the Act. The Assistant Director had likewise issued Ext.A3 notice dated 10.12.2007 calling upon the respondent to show cause why the sum of Rs.30,709/-, as shown in the statement appended to it, should not be levied as damages and recovered under section 85B of the Act in relation to the period from April, 2002 to September 2003. Likewise, by Ext.A5 notice dated 10.12.2007 the Assistant Director had called upon the respondent to show cause why the sum of Rs.27,724/- should not be levied and recovered as damages in respect of the period from March, 2000 to March 2002. By the said notices the respondent firm was also called upon to appear before the Assistant Director on 10.1.2008 for a personal hearing, failing which it was cautioned that it will be presumed that the employer does not want a personal hearing and the case will be decided on the merits after taking into consideration the written representation, if any, submitted by the employer. 3. On receipt of Exts.A1, A3 and A5 notices, the Managing Partner of the respondent firm sent a letter dated 7.1.2008 _**Ins.A**_ **.No.65 of 2011** -:3:- requesting for a postponement of the personal hearing. The hearing was accordingly postponed to 28.2.2008, but he did not appear. He did not also submit a written representation against the proposed action. By Exts.A2 and A4 orders passed on 2.6.2008 and A6 order passed on 20.5.2008, nearly three months after the adjourned hearing date, namely, 28.2.2008, the Assistant Director levied the sum of Rs.19,550/-, Rs.30,709/- and Rs.27,724/- respectively as damages and directed the respondent firm to pay the said amount within thirty days from the date of the order. Aggrieved by Exts.A2, A4 and A6 orders, the respondent firm filed I.C.No.119 of 2008 in the Employees Insurance Court, Palakkad under section 75 read with section 77 of the Act. In the application filed before the Employees Insurance Court, the respondent contended that though initially the unit was running profitably, it was closed in July, 2001 on account of heavy financial loss, that it was reopened only in November, 2011 with the help of friends and relatives, that thereafter an overdraft facility to the tune of Rs.3,50,000/- was sanctioned by the State Bank of Travancore, that in the meanwhile the Employees State Insurance Corporation took steps to recover the sum of Rs.1,11,720/- as arrears of contribution in relation to the disputed _**Ins.A**_ **.No.65 of 2011** -:4:- period and also took steps to recover the said amount from the overdraft facility sanctioned by the State Bank of Travancore, that the respondent thereupon moved the Employees Insurance Court by filing I.C.No.7 of 2002 and that pursuant to the direction issued by the Employees Insurance Court in I.C.No.7 of 2002, a fresh assessment of the contribution payable was made and the amount thus determined was paid. The respondent contended that such being the situation, the levy of damages was not called for. 4. Though the appellant filed written objections, it did not dispute the fact that the initial demand for payment of the sum of Rs.1,11,720/- that was made in January, 2002 was recalled and a fresh demand was made pursuant to the directions issued by the Employees Insurance Court in I.C.No.7 of 2002 and that the contribution thus re-determined was remitted. The appellant however, contended that as the respondent had delayed remittance of contribution, the action taken to levy and recover damages is perfectly in order. The Employees Insurance Court considered the rival contentions and held by the impugned order that the levy of damages cannot be sustained. Exts.A2, A4 and A6 orders issued by the Assistant Director under section 85B of the Act were accordingly set aside. Hence this appeal. _**Ins.A**_ **.No.65 of 2011** -:5:- 5. I heard Smt.T.D.Rajalakshmi, learned counsel appearing for the appellant and Sri.Santhosh Poduval, learned counsel appearing for the respondent. Smt.T.D.Rajalakshmi, learned counsel appearing for the appellant contended that as the contribution was admittedly paid belatedly, long after the due dates, and the respondent had not filed any objection to Exts.A1, A3 and A5 notices and put forward any mitigating circumstances, the order passed by the Employees Insurance Court cannot be sustained and is liable to be set aside. Per contra, Sri.Santhosh Poduval, learned counsel appearing for the respondent firm contended, relying on the decisions of this Court in _**E.S.I.Corporation v. Premanandan**_ , 2007 (2) KLT 666 and _**E.S.I.Corporation v. Qetcos Ltd.**_ , 2008 (3) KLT 336, that as no mens-rea had been established and the respondent had shown that it was unable to pay the contribution due circumstances beyond its control, levy of damages was not called for and was rightly interfered with by the Employees Insurance Court. 6. I have considered the submissions made at the Bar by the learned counsel appearing on either side. The operative portion of Exts.A2, A4 and A6 orders, which are identically worded, discloses that damages was levied on the short ground _**Ins.A**_ **.No.65 of 2011** -:6:- that failure to remit the contribution within the stipulated time attracts the penal consequence of levy of damages as laid down in section 85B of the Act, that default in remittance of contribution stands clearly established from the records, that the employer has not offered cogent explanation for non-remittance of contribution in time and therefore levy of damages for delayed remittance of contribution is called for. After an analysis of the pleadings and the materials on record, the Employees Insurance Court held that pursuant to the order passed by the Employees Insurance Court in I.C.No.7 of 2002, the demand for payment of contribution (initially determined at Rs.1,11,720/-) was modified and a re-assessment was made and the said amount, which was admittedly a lesser amount, was thereafter paid, though belatedly. The Employees Insurance Court also noticed that the said fact is not controverted by the appellant in the written objections filed by it. In the Employees Insurance Court the respondent had also produced Ext.A7, profit and loss account to contend for the position that during the period from 2000 to 2005 its establishment was running at a loss. Exts.A2, A4 and A6 orders do not disclose that the authority levying damages had considered the various aspects referred to by the Employees Insurance Court in the order under _**Ins.A**_ **.No.65 of 2011** -:7:- challenge. On the other hand, a reading of the said orders disclose that it was on account of the failure of the respondent to be present on the adjourned hearing date, namely 28.2.2008, and to offer explanation for delayed remittance of contribution that the said orders were passed. The competent authority under the Act has proceeded on the basis that mere delay in payment of contribution would justify levy of damages. As held by this Court in _**E.S.I.Corporation v. Premanandan**_ , 2007 (2) KLT 666 and _**E.S.I.Corporation v. Qetcos Ltd.**_ , 2008 (3) KLT 336., imposition of damages under section 85B is purely penal in character, the compensatory part being taken care of by stipulating payment of interest; penalty cannot be imposed unless the party has acted either deliberately or in defiance of law or was guilty of contumacious or dishonest conduct. In Exts.A1, A3 and A5 show cause notices there was no allegation that the employer had acted deliberately or was guilty of contumacious or dishonest conduct. The only allegation in the show cause notices issued before damages was levied was that there was failure to remit the contribution within the stipulated time and therefore, it was proposed to levy and recover damages from the establishment. In the light of the principles laid by this Court in _**Ins.A**_ **.No.65 of 2011** -:8:- ## _**E.S.I.Corporation v. Premanandan**_ , and _**E.S.I.Corporation v.**_ _**Qetcos Ltd.**_ , (supra) and in the absence of a finding to the effect that the employer had the mens-rea to contravene the provisions in the Act in regard to payment of contribution or was guilty of contumacious or dishonest conduct, I am of the considered opinion that the order passed by the Employees Insurance Court does not merit interference. For the reasons stated above I hold that there is no merit in the appeal. The appeal fails and is accordingly dismissed. The parties shall bear their respective costs. **P.N.RAVINDRAN, Judge.** **ahg.** **P.N.RAVINDRAN, J. --------------------------Ins.Appeal No.65 of 2011 ----------------------------** ## **JUDGMENT** **10[th] October, 2012**