ESI Corporation v. Focus Infotech

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE K.HARILAL & THE HONOURABLE MR. JUSTICE A.M.BABU** **WEDNESDAY, THE 8TH DAY OF NOVEMBER 2017/17TH KARTHIKA, 1939** **Ins.APP.No. 13 of 2017 ()** **--------------------------** **AGAINST THE ORDER/JUDGMENT IN IC 50/2014 OF THE EMPLOYEES INSURANCE COURT, ALAPPUZHA DATED 08-06-2017** **APPELLANT(S)/RESPONDENT.:** **------------------------** **ESI CORPORATION SUB REGIONAL OFFICE, MALU'S COMPLEX, ST. FRANCIS CHURCH ROAD, KALOOR, KOCHI.17 REPRESENTED BY ITS DEPUTY DIRECTOR.** **BY ADV. SRI.T.V.AJAYAKUMAR, SC, ESI CORPN.** **RESPONDENT(S):** ## **--------------** **M/S FOCUS INFOTECH BUILDING NO.34/1884-G, PADMANABHA CHAMBERS, MAMANGALAM,, KOCHI-682023, REPRESENTED BY ITS DIRECTOR, MR. TONY RAPHEL.** **THIS INSURANCE APPEAL HAVING COME UP FOR ADMISSION ON 08-11-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **“CR”** **K.HARILAL & A.M.BABU, JJ. .......................................... Insurance Appeal No.13 of 2017 ........................................... Dated 8[th] November, 2017** ## **JUDGMENT** ## **K.Harilal, J.** The Employees State Insurance Corporation, the appellant herein has preferred this insurance appeal, challenging the order passed by the Employees Insurance Court, interfering with Ext P3 order passed by the appellant, under Sec.85 B of the ESI Act. 2. The appellant passed Ext P3 order, imposing damages for an amount of Rs.4,50,000/-, for the substantial delay up to five years caused by the respondent in the payment of ESI contribution, during the period from 4/2008 to 3/2011. The respondent challenged the said order, on the ground that there was no willful default from their part in causing the delay and they have already paid the entire defaulted contributions with interest. The appellant resisted the said contention contending that there was willful default and neglect from the part of the respondent in causing delay and the ESI Corporation is empowered under Sec.85B of the Act to impose penalty for 2 Insurance Appeal No.13 of 2017 defaulted payment of contributions. 2. On the aforesaid contentions, both parties adduced evidence which consists of Exts P1 to P4 and D1 to D3. After considering the said evidence, the Insurance Court has substantially reduced the damages to an amount of Rs.45,000/-. The legality and correctness of the reduction made in the quantum of damage is under challenge in this appeal. 3. Heard the learned counsel for the appellant. 4. It is the case of the respondent that the establishment was running in profit in the initial stage. However, during the year 2007-2011 the establishment had to face serious setback due to economic recession prevailed globally especially in the IT industry. Consequently, the respondent establishment incurred heavy loss and they were not in a position to pay wages to its employees in time. On account of these financial crisis there was a delay in remitting statutory payments including ESI contributions. Later, the respondent had remitted the employees as well as employer's contributions and also interest demanded. Thus, there was no willful delay or default as alleged by the appellant and hence the levy of damages is illegal. 3 Insurance Appeal No.13 of 2017 5. The appellant contended that as per the provisions of ESI Act the liability to pay contribution is statutory and it arises when it becomes due. In the instant case, contribution for the wage period 4/2008 to 3/2011 was paid only in the year 2013. The delay in payment of contribution resulted in submitting the half yearly return of contribution and that in turn resulted in denial of benefit to the insured persons. This amounts to a malicious activity by the employer and they are bound to pay damages. The respondent was given sufficient opportunity to show cause the reason for delay and the impugned order was passed after considering the contention raised by the respondent. 6. In view of the rival pleas, the question that arises for consideration is whether the appellant ESI Corporation is justified in imposing damages to the delayed payment, after the remittance of entire defaulted contributions with interest. In order to prove the financial status of the respondent establishment during the previous years, they have produced audited balance-sheet and the same was marked as Ext P4. As per the order passed by the appellant, the respondent establishment was liable to pay Rs.4,50,000/- as damages. Going by the impugned order it is seen that the appellant has 4 Insurance Appeal No.13 of 2017 no case that audited balance-sheet is not reliable and the establishment was not running at loss. It is also seen that the Insurance Court placed reliance on **2008 (1) LLJ 814 (E.S.I.C vs. H.M.T Limited)** to determine the correctness and sustainability of the levy of damage. At this juncture, it is apposite to have a look at the proposition laid down by the Supreme Court in the matter of imposition of penalty for the defaulted payment and the same is extracted below: “An employee being required to be compulsorily insured, the employer is bound to make his part of the contribution. An employee is also bound to make his contribution under the Act. But the same does not mean that levy of damages in all situations would be imperative. Sec.85B of the Act uses the words 'may recover'. Levy of damages there under is by way of penalty. The Legislature limited the jurisdiction of the authority to levy penalty, i.e, not exceeding the amount of arrears. Regulation 31C of the Regulations, therefore, in our opinion, must be construed keeping in view the language used in the Legislative Act and not de hors the same. A penal provision should be construed strictly. Only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable from Sec.85B of the Act. When a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages by reason of an enabling 5 Insurance Appeal No.13 of 2017 provision, the same cannot be construed as imperative. Even otherwise, an endeavour should be made to construe such penal provisions as discretionary, under the statute is held to be mandatory in character. 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”. 7. The proposition that can be articulated is that the penalty provision contemplated under Sec.85 B of the ESI Act cannot be invoked in a routine manner invariably in all cases irrespective of the facts and circumstances evidencing bad financial condition of the establishment, merely on the reason that the payment of contribution is delayed. But, the burden of proof of the bad financial condition is on the establishment. The Insurance Court has discretionary jurisdiction to reduce the quantum of penalty, in accordance with the financial condition of the establishment, if the same is proved in evidence. The payment of entire arrears of contribution with interest is a determinant factor for interfering with an order of penalty. The existence of mens rea or actus reus to contravene statutory provision is sine a qua non for the invocation of penalty clause under Sec.85 B of the ESI Act. Therefore, unless the ESI Corporation is convinced of the fact that the establishment has 6 Insurance Appeal No.13 of 2017 willfully defaulted the payment of contributions, despite the availability of sufficient funds in their hand, the penalty provision under Sec.85 B cannot be invoked. In the absence of such satisfaction ESI Court can be justified in the interference with the order imposing penalty. 8. In the instant case, the respondent has produced Ext P4 balance-sheet which would show the bad financial condition of the establishment for the last so many years and the appellant has not challenged the said balance-sheet. Thus, there is no material to prove that the respondent has willfully defaulted payment of contributions despite the availability of sufficient funds in their hand. On the other hand, the respondent contended that the financial condition of the respondent was so pathetic and they were not even paying wages regularly to their employees during the previous periods. The bad financial condition of the respondent establishment is seen proved by Ext P4 audited balance sheet of several years and the same is not challenged by the appellant. However, the respondent has already remitted the defaulted contributions with interest. In the absence of materials to prove the existence of mens rea or actus reus to 7 Insurance Appeal No.13 of 2017 contravene statutory provision the appellant is not justified in imposing huge amount as damages. It follows that the Insurance Court is justified in reducing the quantum of penalty to Rs.45,000/-, a reasonable amount in view of the bad financial condition of the respondent establishment. We do not find sufficient reason to interfere with the impugned order under challenge. Hence this appeal is dismissed. sd/- **K.HARILAL Judge** sd/- **A.M.BABU Judge** _sks/9.11.2017_