1. Non-remittance of employee contributions deducted from wages to the ESIC — Prosecution and conviction of the alleged principal employer under Section 85(a), Employees' State Insurance Act, 1948. (Para 3 , 4 , 5 , 6 )
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2025 Supreme(SC) 646
SUPREME COURT OF INDIA
SUDHANSHU DHULIA, AHSANUDDIN AMANULLAH, JJ.
Ajay Raj Shetty – Appellant
Versus
Director And Anr. – Respondents
R1: Director
R2: M/s Electriex (I) Ltd.
Criminal Appeal No. 2036 of 2025 [@ Special Leave Petition (Criminal) No.3743 of 2024]
Decided On : 17-04-2025
Important Points
The court affirmed that under the Employees’ State Insurance Act, employers are strictly liable for non-remittance of deducted contributions, with the Appellant's designation as General Manager establishing his culpability.
Subject
Criminal Law - Economic Offences
Act Referred
Headnote
(A) Employees’ State Insurance Act, 1948 - Section 85 - Criminal liability for non-remittance of deducted contributions - Appellant convicted for failing to remit Rs.8,26,696/- deducted from employees’ wages - High Court upheld conviction, finding sufficient evidence of Appellant's role as General Manager and Principal Employer - The Act imposes strict liability on employers for non-payment of contributions. (Paras 4, 6, 19, 23)
(B) Criminal Procedure - Burden of proof - The prosecution must establish the accused's role in the offence, which was met in this case - The Appellant's designation as General Manager was supported by evidence, despite his claims to the contrary. (Paras 18, 19)
Facts of the case:
The Appellant, as General Manager of Respondent No.2, was convicted for failing to remit deducted ESI contributions. The conviction was based on evidence showing his designation and the non-remittance of Rs.8,26,696/- deducted from employees’ wages.
Findings of Court:
The Appellant was found liable under Section 85(i)(b) of the Act, with the conviction upheld by the High Court, affirming the lesser sentence imposed by the Trial Court.
Issues: The main issues included the Appellant's designation and liability under the Act, and whether the prosecution proved his role in the non-remittance of contributions.
Ratio Decidendi: The court held that the Appellant's designation as General Manager established his liability under the Act, and the evidence supported the conviction for non-remittance of deducted contributions.
Result: Appeal dismissed.
(B) Criminal Procedure - Burden of proof - The prosecution must establish the accused's role in the offence, which was met in this case - The Appellant's designation as General Manager was supported by evidence, despite his claims to the contrary. (Paras 18, 19)
Facts of the case:
The Appellant, as General Manager of Respondent No.2, was convicted for failing to remit deducted ESI contributions. The conviction was based on evidence showing his designation and the non-remittance of Rs.8,26,696/- deducted from employees’ wages.
Findings of Court:
The Appellant was found liable under Section 85(i)(b) of the Act, with the conviction upheld by the High Court, affirming the lesser sentence imposed by the Trial Court.
Issues: The main issues included the Appellant's designation and liability under the Act, and whether the prosecution proved his role in the non-remittance of contributions.
Ratio Decidendi: The court held that the Appellant's designation as General Manager established his liability under the Act, and the evidence supported the conviction for non-remittance of deducted contributions.
Result: Appeal dismissed.
Legal Category Hierarchy
- crime and sentencing
- labour and employment law
- practice and procedure
Advocates Appeared:
For the Petitioner(s): Mr. Shankar Divate, AOR.
For the Respondent(s): Mr. Manish Kumar Saran, AOR Mr. Vipin Kumar, AOR Mr. Bharat Lal Soni, Adv. Mr. Jitendra Kumar, Adv.
For the Petitioner(s): Mr. Shankar Divate, AOR.
For the Respondent(s): Mr. Manish Kumar Saran, AOR Mr. Vipin Kumar, AOR Mr. Bharat Lal Soni, Adv. Mr. Jitendra Kumar, Adv.
Table of Contents
2. Dispute over the status of the accused as principal employer — Contention that the Act criminalizes a civil wrong and the sentence should be minimal. (Para 7 , 8 , 9 , 10 , 11 , 12 )
3. Concurrent findings established the accused as the managing agent — Designation is immaterial if the person exercises supervision and control over the establishment. (Para 18 , 19 , 20 , 21 , 22 , 23 )
4. A person responsible for supervision and control of an establishment is a principal employer under Section 2(17), regardless of their official designation. (Para 19 , 20 )
5. Appeal dismissed — Conviction and sentence upheld — Accused directed to surrender and pay the fine. (Para 25 , 26 )
6. Who qualifies as a principal employer under the Employees' State Insurance Act, 1948?
A principal employer includes the owner, occupier, managing agent, or any person responsible for the supervision and control of the establishment. The official designation of a person is immaterial if they otherwise act as an agent of the owner or supervise and control the establishment. (Para 19 , 20 )
7. Does the declaration of a company as sick under the Sick Industrial Companies (Special Provisions) Act, 1986 bar criminal proceedings?
No, an order declaring a company sick under the Sick Industrial Companies (Special Provisions) Act, 1986 does not prohibit criminal proceedings against such company or its officers. (Para 14 )
8. Can a court reduce the mandatory minimum fine for offences under Section 85 of the ESI Act?
No, the legislature fixed a minimum fine of five thousand rupees to create deterrence against economic offences. The court's discretion to reduce the sentence under the proviso is limited to the term of imprisonment and does not extend to the fine. (Para 24 )
JUDGMENT :
AHSANUDDIN AMANULLAH, J.
Leave granted.
2. This appeal has been preferred by the Appellant against the Final Judgment and Order dated 08.12.2023 (hereinafter referred to as the ‘Impugned Order’) passed by the High Court of Karnataka at Bengaluru (hereinafter referred to as the ‘High Court’), by which Criminal Revision Petition No.164 of 2015 filed by the Appellant and Respondent No.2 has been dismissed.
BRIEF FACTS:
3. M/s Electriex (India) Limited (hereinafter referred to as ‘Respondent No.2’ or ‘Company’) was declared as a sick industry by the Board for Industrial and Financial Reconstruction (hereinafter referred to as the ‘BIFR’) on 31.10.2001 in Case No.49/2000. On 24.09.2002, the BIFR ordered for a change in the management of Respondent No.2. Aggrieved by this Order, Respondent No.2 preferred Appeal No.340/2002 before the Appellate Authority for Industrial and Financial Reconstruction (hereinafter to referred to as the ‘AAIFR’). Such appeal was dismissed vide AAIFR’s Order dated 15.01.2003. Following this, Respondent No.2 filed Writ Petition No.20033/2003 before the High Court and it is relevant to note that the Employees’ State Insurance Corporation (hereinafter referred to as ‘ESIC’) was also a party to the said writ petition, wherein the High Court on 03.03.2008 remanded the matter back to the BIFR to consider the matter expeditiously keeping in view the interest of all the parties concerned and quashed the Orders of BIFR and AAIFR dated 24.09.2002 and 15.01.2003, respectively.
4. On 01.07.2010, BIFR directed the Company to negotiate with the secured creditors for settlement of their dues. On 01.02.2011, ESIC officials visited the factory premises of Respondent No.2 to ascertain and verify about its deductions towards the Employees' State Insurance (hereinafter to referred to as ‘ESI’) contribution for the period from 01.02.2010 to 31.12.2010. Pursuant thereto, a Report was prepared which disclosed that even though deductions of Rs.8,26,696/- (Rupees Eight Lakhs Twenty-Six Thousand Six Hundred and Ninety-Six) from the wages of Respondent No.2’s employees were made for the above-mentioned period, the same was not deposited with the ESIC. In the Report, the authorized signatory of Respondent No.2 had mentioned the Appellant’s name as the ‘General Manager’ and ‘Principal Employer’ of the Company. On the basis of the Report, a private complaint was filed by the Respondent No.1 for offence(s) under Section 85(a),1[‘85. Punishment for failure to pay contributions, etc.—If any person—
(a) fails to pay any contribution which under this Act he is liable to pay, or
(b) xxx
(c) xxx
(d) xxx
(e) xxx
(f) xxx
(g) xxx
he shall be punishable—
(i) where he commits an offence under clause (a), with imprisonment for a term which may extend to three years but—
(a) which shall not be less than one year, in case of failure to pay the employee's contribution which has been deducted by him from the employee's wages and shall also be liable to fine of ten thousand rupees;
(b) which shall not be less than six months, in any other case and shall also be liable to fine of five thousand rupees:
Provided that the Court may, for any adequate and special reasons to be recorded in the judgment, impose a sentence of imprisonment for a lesser term;
(ii) where he commits an offence under any of the clauses (b) to (g) (both inclusive), with imprisonment for a term which may extend to one year or with fine which may extend to four thousand rupees, or with both.’] of the Employees’ State Insurance Act, 1948 (hereinafter to referred to as the ‘Act’) against the Appellant and Respondent No.2 before the Special Court for Economic Offences, Bangalore (hereinafter referred to as the “Trial Court”) namely, CC No.326/2011 on 11.10.2011.
5. The Trial Court on 28.09.2013 convicted the Appellant under Section 85(i)(b) of the Act and sentenced him to undergo imprisonment for six months along with a fine of Rs.5000/- (Rupees Five Thousand). Aggrieved, the Appellant and Responde
