Mandatory determination of contributions under Section 45-A of the ESI Act is required before recovery proceedings, ensuring compliance with principles of natural justice.

JUDGMENT :

(K. Vinod Chandran, CJ.)

The short question that arises in the appeal is as to whether determination of amounts due as contributions under the Act, as per Section 45-A of the Employees State Insurance Act, 1948 (hereinafter referred to ‘ESI Act’), would be required mandatorily, in circumstances where the Social Security Officer had conducted an inspection in the premises of the assessee/the employer and proceeded on the basis of the admitted records maintained by the assessee.

2. The learned Single Judge decried the proceedings for recovery taken, without such a determination of contribution under Section 45-A; which admittedly was not preceded by any opportunity of hearing to the appellant.

3. The learned Senior Counsel Sri S. D. Sanjay appearing for the appellants contended that the demand was made specifically on the basis of the details of the personnel supplied to the principal employer; as maintained in the records of the Institution, which was inspected by the Social Security Officer. The demand having been made, as disclosed in the records of the assesee, it is deemed to have been admitted, which requires no separate determination. It is also contended that the appellant-Corporation is statutorily constituted to pursue a welfare measure, and when contributions are demanded from the employer, it inures to the benefit of the employee. The employer cannot be permitted to hold back contributions, which they are statutorily obliged to make over to the appellant-Corporation. Reliance is placed on a Division Bench judgment of the High Court of Judicature at Madras in Deputy Director v. The Management of SRTC Tech Solutions dated 20.09.2023 (Writ Appeal No. 2171/2023).

4. Sri Alok Kumar Sinha, learned Counsel appearing for the respondent–employer points out that the petitioner was engaged in the supply of personnel to BELTRON, the second respondent herein. The appellant had paid up the amounts as directed by the BELTRON, in connection with the employment of the personnel supplied by it. There is no question of admitted amounts being recovered under Section 45-A, especially since the notice at Annexure-3 of the writ petition, having alleged non-filing of returns, which clearly makes applicable Section 45-A. In fact, no prejudice is caused to the appellant–Corporation since the appellant–Corporation has merely been directed to issue notice against the writ petitioner; the immediate employer and the principal employer so as to determine the amounts due. Substantial amounts are remaining with the appellant–Corporation. The appeal has been pending before this Court from 2017. Necessarily, the amounts would have to be refunded with interest since any default in payment would result in interest at the rate of 12% per annum under Section 39(5)(a) or at higher rates as may be specified in the Regulations.

5. The learned Single Judge has elaborately considered the issue referring obviously to the provisions of the ESI Act of 1948, which was extracted in the impugned judgment. From the definition of immediate employer and principal employer, the learned Single Judge has found that the first respondent is the immediate employer while the second respondent is the principal employer. The specific case of the first respondent was that during the period between 01.12.2010 to 31.03.2012, the principal employer; BELTRON, had disbursed an amount of ?21,00,900 towards ESI contribution for the man-power supplied by the appellant, which was deposited with the Corporation. An inspection was conducted by the Social Security Officer under Section 45-B of the ESI Act. Based on the inspection conducted, Annexure-3 produced in the writ petition was issued. Annexure-3 notices the first respondent and its partner, about the provisions of the ESI ACT, which obliges the principal employer of a factory or establishment to pay both the employer and employee contributions; the latter deducted from the wages of the employee, at the rate specified in the ru