The court ruled that damages for delayed ESI contributions must be calculated from the correct demand date, emphasizing the need for authorities to consider mitigating circumstances in penalty assessments.

JUDGMENT :

(Mohit Kumar Shah, J.)

1. The present writ petition has been filed for quashing the order dated 22.05.2014, passed by the Regional Director, Employees State Insurance Corporation, Patna i.e. the respondent no.2 whereby and whereunder, in exercise of the power vested under Section 85-B of the Employees State Insurance Corporation Act, 1948 (hereinafter referred to as ‘the Act, 1948’), damages have been levied upon the petitioner to the tune of Rs.1,09,620/-, as also to direct the respondent no.2 to pass a fresh order of assessment of damages by taking into account the period of delay to have commenced from 02.06.2008 upto 24.08.2009.

2. The brief facts of the case, according to the petitioner, are that the petitioner company is having one of its plant and office, situated at Industrial Area, Patliputra, Patna and is covered under the Act, 1948, as also has been regularly depositing the Employees State Insurance contribution of all its employees in the said plant, nonetheless, all of a sudden in the month of February, 2006, the petitioner company was surprised to receive a letter dated 20.02.2006 from the Deputy Regional Director, Employees State Insurance Corporation, Regional Office, Bihar, Patna by which a demand of Rs.1,01,96,368/- was raised on the head of Employees State Insurance contribution, payable by the petitioner on certain escaped amount of wages for the period 2000 to 2003. The petitioner had contested the same leading to the respondents making fresh inspection of the records of the petitioner company on 05.12.2007, whereafter the respondent-authorities had realized their mistake, corrected the demand made earlier and raised a fresh demand for a sum of Rs.1,27,105/-, vide letter dated 02.06.2008, which was deposited by the petitioner on 24.08.2009, nonetheless, by the impugned order dated 22.05.2014, damages to the tune of Rs.1,09,620/-, has been saddled upon the petitioner company.

3. The learned counsel for the petitioner has submitted that the correct demand of Employees State Insurance contribution on certain escaped amount of wages for the period 2000 to 2003, amounting to a sum of Rs.1,27,105/-, was made for the first time only on 02.06.2008, which was promptly paid by the petitioner on 24.08.2009, hence there has been a delay of only 14 months and 23 days, thus the respondents ought to have calculated damages only for this period, after granting grace period of 21 days but instead the respondent no. 2 has passed the impugned order dated 22.05.2014, levying damages, by calculating the same by taking into account the delay period, after allowing a grace period of 21 days, to have started from 13.03.2006 up to 24.08.2009, which totals up to 3 years, 5 months and 11 days.

3. It is further submitted that no reason has been assigned in the impugned order dated 22.05.2014 for levying damages on the basis of the upper most slab, prescribed in the table provided under Regulation 31C of the Employees State Insurance (General) Regulations, 1950 (hereinafter referred to as ‘the Regulations, 1950’). Moreover, even the respondent no.2 has stated in the impugned order that as per the instruction issued by the headquarters, damages should be claimed from the date of issuance of the demand letter, after allowing a grace period of 21 days, hence damages should have been levied, by calculating the same by taking into account the delay period, after allowing a grace period of 21 days, to have started from 23.06.2008 up to 24.08.2009, which totals up to 14 months and 2 days.

4. The learned counsel for the petitioner has next contended that the respondents are empowered to recover damages under Section 85B of the Act, 1948, however, Section 85B of the Act, 1948 uses the word “may recover”, thus even if the regulations confer jurisdiction upon the adjudicating authority to levy penal damages, it cannot be contended that in no case, the mitigating circumstances can be taken into consideration by the adjudicating authority in