2006 Supreme(SC) 1149

2007(1) Supreme 77
SUPREME COURT OF INDIA
(From Kerala High Court)
Arijit Pasayat and Tarun Chatterjee, JJ.
E.S.I.C.—Appellant
versus
C.C. Santhakumar—Respondent
Civil Appeal No. 4291 of 2000
With
(C.A.Nos. 6295/2004, 6297/2004, 6298/2004, 4810-11/2005, 6299/2004, 6300/2004, 6301/2004, 7366/2005, 1798/2006, 1799/2006, 1800/2006 and 2453/2006)
Decided on 21-11-2006
Counsel for the Parties :
For the Appellant : C.S. Rajan, K.K. Venugopal, Vijay Narayana, Sr. Advocates, V.J. Francis, Anupam Mishra, C.M. Jaykumar, Jenis, K.V. Viswanathan, B. Raghunath, Ms. Uttara Babbar, Balaji, Ms. Mahalakshmi Parani, S.V. Shyamuganathan, M/s. Mahalakshmi Balaji and Co. and S. Hariharan, Advocates.
For the Respondent : Pratap Venugopal, Ms. Surekha Raman, Ms. Ruma Bose, E. Venu Kumar (for K.J. John & Co.), Biswanath Agrawalla, Rajiv Mehta, E.M.S. Anam, G. Prakash, B.V. Deepak, Dilip Pillai (for M/s. T.T.K. Deepak & Co., C.N. Sreekumar, Ms. Deepti and M.T. George, Advocates.

IMPORTANT POINT
The Amendment to Section 77(1A)(b), proviso of the Employees State Insurance Act by Act 29 of 1989 providing five year limitation has no relevance so far as orders passed by the Corporation under Section 45A of the Act are concerned.

Headnote:(i) Employees State Insurance Corporation Act, 1948—Sections 45A, 45B, 74, 75, 76, 77—Employees State Insurance (General) Regulations 1950—Regulation 66—Time limit in which the Corporation can make a claim from the employer, on basis of orders passed u/s 45 of the Act—Proviso to Section 77(1A)(b) of the Act provided limitation of 5 years for claiming contribution—Corporation claimed ESI contributions as arrears from various employers—Writ petitions filed by employers challenging the demand—Full Bench of Kerala High Court held that limitation prescribed u/s 77 restricting the claim for a period of five years, contribution for a period of more than five years cannot be claimed by the Corporation—Does the proviso to Clause (b) of Section 77(1A) fix the limit of time, in which the Corporation can make a claim from the employer, on basis of orders passed u/s 45 of the Act—(No)—Whether there is any connecting link between Chapter IV and Chapter VI of the Act—(No)—Whether a concept of reasonable time can be read into the provision even though not specifically provided for.

       Held : A reading of Chapter IV, as a whole, makes it clear that there is no limitation prescribed. Section 38 imposes the obligation on the employer to pay contribution and, upon his failure, he is liable to pay interest on a recurring basis until it is paid. Section 40 imposes an obligation to pay on the principal employer in the first instance. This means, even if the employees were those of the contractors, it is the principal employer who has to pay. Section 44 mandates the employer to furnish proper returns so that the Corporation can scrutinize, assess and pass an order for a claim. Section 44 does not provide for any limitation and, originally, it did not prescribe any mode of recovery. Therefore, Act 44 of 1966 was introduced. Under this Act, Sections 45A and 45B were brought into force. Thereafter Sections 45-C to 45-I were introduced, prescribing the mode of recovery. The apparent purpose of introduction of these Sections is to curb default by the employers and also to provide for an efficient method of recovery without any delay.(Para 12)

       Section 45A provides for determination of contributions in certain cases. When the records are not produced by the establishment before the Corporation and when there is no cooperation, the Corporation has got the power to make assessment and determine the amount under Section 45A and recover the said amount as arrears of land revenue under Section 45B of the Act. This is in the nature of a best judgment assessment as is known in taxing statutes. When the Corporation passes an order under Section 45A, the said order is final as far as the Corporation is concerned. Under Section 45A(1), the Corporation, by an order, can determine the amount of contributions payable in respect of the employees where the employer prevents the Corporation from exercising its functions or discharging its duties under Section 45, on the basis of the material available to it, after giving reasonable opportunity. But, where the records are produced, the assessment has to be made under Section 75(2)(a) of the Act. Section 45A (2) provides that the order under Section 45A(1) shall be used as sufficient proof of the claim of the Corporation under Section 75 or for recovery of the amount determined by such order as arrears of land revenue under Section 45B. In other words, when there is a failure in production of records and when there is no cooperation, the Corporation can determine the amount and recover the same as arrears of land revenue under Section 45B. But, on the other hand, if the records are produced and if there is cooperation, the assessment has to be made and it can be used as a sufficient proof of the claim of the Corporation under Section 75 before the E.S.I. Court. So, the limitation of three years for filing an application before the Court, introduced by Act 44 of 1966, can only relate to the application under Section 75 read with 77(1A). The order under Section 45A need not be executed by the Corporation before the E.S.I. Court under Section 77. As such, the amendment to Section 77(1A)(b) proviso by Act 29 of 1989 providing five year limitation has no relevance so far as orders passed by the Corporation under Section 45A are concerned. (Para 13)

       Section 45A of the Act contemplates a summary method to determine contribution in case of deliberate default on the part of the employer. By amendment Act 29 of 1989, Sections 45-C to 45-I were inserted in the Principal Act, for the purpose of effecting recovery of arrears by attachment and sale of movable and immovable properties or establishment of the principal or immediate employer, without having recourse to law or E.S.I. Court. Therefore, it cannot be said that a proceeding for recovery as arrears of land revenue by issuing a certificate could be equated to either a suit, appeal or application in the Court. Under Section 68(2) and Sections 45-C to 45-I, after determination of contribution, recovery can be made straightaway. If the employer disputes the correctness of the order under Section 45A, he could challenge the same under Section 75 of the Act before the E.S.I. Court. On a plain reading of Sections 45A and 45B in Chapter IV and 75 and 77 in Chapter VI of the Act, as indicated above, there cannot be any doubt that the area and the scope and ambit of Sections 45A and 75 are quite different.(Paras 23 and 24)

       If the period of limitation, prescribed under proviso (b) of Section 77(1A) is read into the provisions of Section 45A, it would defeat the very purpose of enacting Sections 45A and 45B. The prescription of limitation under Section 77(IA)(b) of the Act has not been made applicable to the adjudication proceedings under Section 45A by the legislature, since such a restriction would restrict the right of the Corporation to determine the claims under Section 45A and the right of recovery under Section 45B and, further, it would give a benefit to an unscrupulous employer. The period of five years, fixed under Regulation 32(2) of the Regulations, is with regard to maintenance of registers of workmen and the same cannot take away the right of the Corporation to adjudicate, determine and fix the liability of the employer under Section 45A of the Act, in respect of the claim other than those found in the register of workmen, maintained and filed in terms of the Regulations.(Para 25)

       Section 77 of the Act relates to commencement of proceedings before the E.S.I. Court. The proviso to sub-Section 77 of the Act cannot independently give any meaning without reference to the main provision, namely, Section 77 of the Act. Therefore, the proviso to Clause (b) of Section 77(1A) of the Act, fixing the period of five years for the claim made by the Corporation, will apply only in respect of claim made by the Corporation before the E.S.I. Court and to no other proceedings.(Para 27)

       A "reasonable period" would depend upon the factual circumstances of the case concerned. There cannot be any empirical formula to determine that question. The court/authority considering the question whether the period is reasonable or not has to take into account the surrounding circumstances and relevant factors to decide that question.(Para 33)

       In the circumstances we dispose of all these appeals with the following directions :

       (1) The employers shall move the E.S.I. Court within a period of two months, if not already done;

       (2) They shall deposit 25% of the amount claimed with the E.S.I. Court along with the application in terms of Sections 75 & 76 of the Act before the E.S.I. Court.

       (3) The E.S.I. Court shall determine the quantum of contribution, if any, payable and consider the question as to whether demands were raised within a reasonable period of time or not after considering the question of prejudice, if any, for the delayed action taken by the Corporation.

       (4) The approach of the E.S.I. Court and the Authorities should be that of a watch dog and not of a blood hound, even though the legislation is a beneficial one.(Para 39)

       (ii) WORDS AND PHRASES—Words ‘Reasonable Time’—Meaning—No empirical formula to determine that question—It would depend upon the factual circumstances of the case concerned—Expression as defined by Courts.(Paras 36 and 37)