IMPORTANT POINT
Before an Act is made applicable, in the event, a dispute is raised, the authorities exercising statutory power must determine the jurisdictional fact.

Headnote:Employees’ State Insurance Act, 1948—Sections 2(22), 44, 45 and 85(g)—Act was made applicable in relation to rice mills w.e.f. 1-8-2000—Appellants were owners of rice mills in the State of Andhra Pradesh—Inspections were carried out and it was found that more than 10 employees were employed in mills and they were allegedly asked to comply provisions of the Act—Show cause issued on 20-10-2000 to prosecute appellants for non-compliance—Suits were filed challenging legality of show cause and Employees’ Insurance Court dismissed suits—Appeals filed before High Court were also dismissed—Appeal—Before an Act was made applicable, if a dispute was raised, authorities exercising statutory power must determine jurisdictional fact—Inspections had been made prior to coming in force of the Act—Any action taken prior to or in furtherance of a report made on such inspection would be ultra vires Section 45(2) of the Act—Notice was required to be issued in terms of Section 44(2) of the Act as a compliance of principles of natural justice—Appellants deserved to be given an opportunity of hearing and Authorities to hear them and determine the question whether a jurisdictional fact existed for application of the Act.
       Held : Admittedly, the rice mills are situated within the Narsimhapuram area. The appointed day therefor was 1st August, 2000. The factories of Appellants were inspected prior to that date. Prior to that date, therefore, Appellants were not bound to comply with the provisions of the Act. They could appoint employees at their own sweet will. But the period wherefor the provisions of the Act would be applicable is 12 months preceding the said date, viz., from 1st August, 1999 to 31st July, 2000. Compliance of the requirements of the statutes on the part of the employer, however, would begin from the appointed day, viz., 1st August, 2000.(Para 17)
       Before an Act is made applicable, in the event, a dispute is raised, the authorities exercising statutory power must determine the jurisdictional fact. Applicability of the Act would be a jurisdictional question. The Employer is entitled to raise such a question before the appropriate authority. Such a question can also be raised for the first time before a court exercising the power of judicial review although ordinarily the same should be raised before the concerned authority as a preliminary issue.(Para 18)
       The scheme of the Act does not suggest that all the employees would come within the purview of the said Act. Those employees who draw wages as is defined in Section 2(22) of the Act would be the employees who would be covered thereunder. As noticed hereinbefore, inspection of the factories was carried out prior to the date of coming into force of the Act. Such inspections, thus, could have been carried out only in terms of the provisions contained in Section 45 of the Act, which could mean that the Inspector would be appointed for the purpose of the Act. He is authorized under the Act to enquire into the correctness of any of the particulars stated in any return referred to in Section 44 or for the purpose of ascertaining whether any of the provisions has been complied with. It is, therefore, evident that any action taken prior to or in furtherance of a report made on an inspection, prior to coming into force of the Act, would be ultra vires Section 45(2) of the Act. Once the inspection is held to be illegal, Respondent could not have taken any statutory action for imposition of penalty.(Para 21)
       The question may be considered from another angle. Appellants could have been directed to file returns or make their contribution in terms of the Act. Had such a notice been served, they could have shown that they have appointed employees who do not draw wages within the meaning of the provisions of the said Act and, thus, they do not come within the purview thereof.(Para 22)
       Section 44 of the Act embraces within its fold the principles of natural justice. Sub-section (2) of Section 44 is explicit. A notice was required to be issued directly in terms of Sub-section (2) of Section 44. However, from a perusal of the notice dated 20th October, 2000, it is evident that Appellants were not directed to comply with the provisions of the Act but were asked as to why the criminal cases should not be instituted against them purported to be in terms of Section 85(g) of the Act.(Para 24)
       We have noticed hereinbefore the findings of the learned Employees’ Insurance Court. It has proceeded on the basis that the rice mill is a factory. We will also presume that it was not a seasonal factory. Even otherwise, when the provisions of the Act are extended by issuance of notification, re-course cannot be taken to sub-section (4) of Section 1 of the Act.(Para 34)
       We, therefore, are of the opinion that having regard to the facts and circumstances of this case the interest of justice would be subserved if Appellants are given an opportunity of hearing. Keeping in view the fact that Appellants now know the allegations made against them, no fresh notice need be served. Appellants may file their returns and also all other books of accounts before the authorities under the Act within six weeks from date. The authorities shall give an opportunity of hearing to them and determine the question as to whether a jurisdictional fact existed for application of the provisions of the Act in cases of the respective employers. In the event, it is found, upon perusal of all the documents whereupon the employers may rely upon and on the basis of such information as may be sought for or directed to be furnished by the authority to the employer and upon hearing them that the provisions of the Act apply, the authorities may proceed as against them as is permissible in law.(Para 35)

JUDGMENT

S.B. Sinha, J.—Leave granted.

2. Applicability of the provisions of the Employees’ State Insurance Act, 1948 (for short “the Act”) to the rice mills situate in the State of Andhra Pradesh arises for question in these matters. Appellants are owners of various rice mills situate in the State of Andhra Pradesh. The operation in these rice mills is said to be seasonal. The Act admittedly was made applicable in relation to the rice mills with effect from 1.8.2000. Prior to coming into force of the Act, inspections were carried out and allegedly it was found that in the mills more than 10 employees were employed. They were allegedly asked to comply with the provisions of the Act. Without, however, giving an opportunity to explain as to why they have not made any contribution towards insurance, by a notice dated 20th October, 2000, they were asked to show cause stating:

“I therefore call upon to explain the reasons if any as to why you should not be prosecuted, within a week of receipt of this letter. If no reply is received within stipulated time it will be presumed that you have no valid reasons to explain and further action will be taken accordingly without any further notice.”

3. Suits were filed before the Employees’ Insurance Court under Section 75(1)(g) of the Act. The question which inter alia was raised therein was as to whether the aforementioned notice was legal. By reason of a judgment and order dated 30.6.2003, the learned Employees’ Insurance Court dismissed the applications. Aggrieved thereby and dissatisfied therewith, appeals were preferred before the High Court purported to be in terms of Section 82 of the Act. The said appeals, by reason of the impugned order, have been dismissed.

4. Mr. C. Mukund, learned counsel appearing on behalf of Appellants would raise three contentions in support of these appeals, viz.,

(i)Having regard to the definitions of “employees” and “wages” as also the applicability of the Act in relation to the factories, it was obligatory on the part of the authorities under the Act to determine the question as to whether the establishments are covered under the Act or not.

(ii)The principles of natural justice, as are required in terms of Sections 44 and 45 of the Act, having not been complied with, the impugned notice proposing criminal action against them is void ab initio.

(iii)Having regard to the provisions contained in Regulation 10B of the Employees’ State Insurance (General) Regulations, 1950 (for short “the Regulations”) framed under the Act, it was obligatory on the part of the Inspector to disclose the details of the employees as also the wages drawn by them and the said mandatory provisions having not been complied with, the impugned notice was liable to be set aside.

5. Mr. C.S. Rajan, learned senior counsel appearing on behalf of Respondent, on the other hand, submitted:

(i)The provisions of the Act as contained in Sections 38 to 45 of the Act lay down a scheme in terms whereof statutory obligations are on the employer not only to pay the amount of insurance but also to furnish the details and as the said statutory obligations have not been carried out, the impugned notice issued by the Employees’ State Insurance Corporation (for short “the Corporation”) must be held to be legal.

(ii)Keeping in view the statutory obligations on the part of the employer, it is idle to contend that the authorities under the Act while issuing notice must disclose the details as regards the employees as also the wages drawn by them.

(iii)The Employees’ Insurance Court as also the High Court has rightly arrived at a finding that the rice mills run by Appellants are factories within the meaning of Section 2(12) of the Act and, thus, it is covered.

6. Before we embark upon the rival contentions raised by the learned counsel for the parties, we may notice certain provisions of the Act.

7. The Act was enacted to provide for certain benefits to employees in case of sickness, maternity and employment injury a

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2006 Supreme(SC) 1094

IMPORTANT POINTBefore an Act is made applicable, in the event, a dispute is raised, the authorities exercising statutory power must determine the jurisdictional fact.

Cases Referred (5)

IMPORTANT POINT
Before an Act is made applicable, in the event, a dispute is raised, the authorities exercising statutory power must determine the jurisdictional fact.