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2022 Supreme(Bom) 237
IN THE HIGH COURT OF BOMBAY
N.J. Jamadar, J.
Bombay Gymkhana Limited – Appellant
Versus
Regional Director, ESI Corporation – Respondent
First Appeal No.1149 OF 2015 With Civil Application No.3010 of 2016
Decided On : 08-02-2022
Advocate Appeared:
For the Appellant : Mr. S. C. Naidu a/w. Mr. Manoj Gujar, Mr. T. R. Yadav, Ms. Divya Yajurvedi and Mr. Pradeep Paswan i/b. C. R. Naidu & Co.
For the Respondent: Mr. Sujeet Kurupkar
The liability to pay interest on the unpaid contribution is of a continuing nature, and the concept of reasonable time in seeking recovery cannot be resorted to.
Headnote:
Employees’ State Insurance Act, 1948 - Interest on Unpaid Contribution - Section 82 - Club incorporated under the Indian Companies Act VII of 1913 challenged the demand of interest on unpaid contribution. The court discussed the justifiability of levy of interest over and above 6% on the unpaid contribution, the rate of interest, and the Corporation's entitlement to levy interest at varying rates. The court also considered the liability to pay interest on the unpaid contribution, the nature of the liability, and the concept of reasonable time in seeking recovery.
Fact of the Case:
The appellant, a 'Club' incorporated under the Indian Companies Act VII of 1913, challenged the demand of interest on the unpaid contribution. The Regional Director of the Corporation concluded that the appellant is a 'factory' within the meaning of Section 2(12) of the Act, 1948 and was liable to be provisionally covered w.e.f. 1st December, 1982. The appellant assailed the coverage and decided to voluntarily cover all its employees under the Act, 1948 w.e.f.1st April, 1989. The respondent raised a demand for the sum of Rs. 14,92,474.40/- towards the contribution for the period from 1st August 1972 to 31st January 1989. Interest at the rate of 6% p.a. was claimed for the delayed payment of contribution. The appellant without prejudice to its rights and contentions agreed to deposit the sum of Rs. 14,92,474.40/-. The respondent served another demand in Form C-18 dated 28th February 2011, to which a statement of computation was annexed. An aggregate demand of Rs.30,65,623/- was made. The appellant questioned the legality of the said demand and also pointed apparent errors in computation. The respondent resisted the application by filing a written statement. The learned Judge was persuaded to dismiss the application, recording that the demand of interest under the demand letter dated 23rd March 2011 was legal and valid and the appellant was not entitled to a declaration that the said demand of interest in excess of 6% per annum was bad in law.
Finding of the Court:
The court found that the Corporation was entitled to levy interest at varying rates on the unpaid contribution, and the liability to pay interest on the unpaid contribution is of a continuing nature. The court also held that the concept of reasonable time in seeking recovery cannot be resorted to in this case. The court dismissed the appeal but allowed the appellant to point out errors in the computation of the amount of interest at the governing rates for the varying periods.
Issues: The pivotal issue revolved around the justifiability of levy of interest over and above 6% on the unpaid contribution, the rate of interest, and the Corporation's entitlement to levy interest at varying rates. Another issue was whether the Corporation could claim interest at a higher rate after the appellant paid the contribution as demanded.
Ratio Decidendi: The liability to pay interest on the unpaid contribution is of a continuing nature, and the concept of reasonable time in seeking recovery cannot be resorted to. The court also clarified that the appellant was entitled to point out errors in the computation of the amount of interest at the governing rates for the varying periods.
Final Decision: The appeal was dismissed, but the appellant was allowed to point out errors in the computation of the amount of interest at the governing rates for the varying periods. The court also directed the appellant to pay the balance amount of interest within a period of six weeks from the date of the judgment.
JUDGMENT :
1. This appeal under Section 82 of the Employees’ State Insurance Act, 1948 (the Act, 1948) is directed against the judgment and award dated 20th August 2015 passed by the learned Judge, Employees Insurance Court, Mumbai in Application (ESI) No. 11 of 2011 whereby the application preferred by the appellant/applicant under Section 75 of the Act, 1948 assailing the demand of interest on the unpaid contribution, came to be dismissed.
2. The background facts leading to this appeal can be stated in brief as under:
a] The appellant is a ‘Club’ incorporated and registered under the Indian Companies Act VII of 1913 with the object to promote or manage or assist in promotion or management of all forms of athletic sports, pass time and recreation. The Regional Director of the Corporation/the respondent came to the conclusion that the applicant/club is a ‘factory’ within the meaning of Section 2(12) of the Act, 1948 and was liable to be provisionally covered w.e.f. 1st December, 1982. The appellant was allotted Code No. 31-14345-09. Subsequently, the coverage was preponed to 1st August 1972.
b] The appellant assailed the coverage on the premise that it was not covered by the definition of ‘factory’ under Section 2(12) of the Act, 1948 by filing Application (ESI) No. 88 of 1983. By a judgment and order dated 29th May 1987, the challenge was negatived by ESI Court. The appellant carried the matter in appeal, being First Appeal No. 479 of 1989, to this Court. In the said First Appeal, initially, by the interim order, stay was granted to the recovery of the contribution as claimed by the Corporation. The respondent challenged the interim order in Letters Patent Appeal No. 6 of 1991. During the pendency of the proceeding, wherein the coverage was assailed, the appellant decided to voluntarily cover all its employees under the Act, 1948 w.e.f.1st April, 1989.
c] On 15th March 1989, the respondent raised a demand for the sum of Rs. 14,92,474.40/- towards the contribution for the period from 1st August 1972 to 31st January 1989. Interest at the rate of 6% p.a. was claimed for the delayed payment of contribution. Eventually, on 30th August 2000, the appellant without prejudice to its rights and contentions agreed to deposit the sum of Rs. 14,92,474.40/-. Accordingly, the said sum of Rs.14,92,474.40/- was deposited with the S.B.I., Main Branch, Mumbai.
d] On 5th March 2011, the respondent served another demand in Form C-18 dated 28th February 2011, to which a statement of computation was annexed. The respondent levied interest on the contributions payable for the period from 1st August 1972 to 31st March 1989, at varying rates as under:-
T-A-B-L-E
| Period of unpaid contribution | Rate of Interest |
| 21-09-1972 to 19-10-1989 | 6% p.a. |
| 19-10-1989 to 31-08-1994 | 12% p.a. |
| 31-08-1994 to 30-08-2000 | 15% p.a. |
e] An aggregate demand of Rs.30,65,623/- was made. In response, the appellant questioned the legality of the said demand and also pointed apparent errors in computation. Thereupon the respondent revised the demand of interest to Rs.29,17,104.27/- vide communication dated 23rd March 2011. The appellant assailed the demand of interest on the delayed payment of contribution for the period from 1st August 1972 to 31st March 1989 by preferring Application (ESI) No. 11 of 2011.
f] The respondent resisted the application by filing written statement. The respondent endeavored to justify the claim for interest at varying rates by placing reliance on the provisions contained in Section 39(5) of the Act, 1948 and Regulation 31A of the E.S.I. (General) Regulations, 1950 (the Regulations, 1950).
g] The learned Judge recorded the evidence of Sharad Chemburkar (AW.1). After appraisal of the evidence and the documents tendered for his perusal, the learned Judge was persuaded to dismiss the application. It was, inter alia, recorded that the deman
