The main legal point established in the judgment is that 'damages' under S.85-B of the Employees' State Insurance Act are in the nature of a penalty for non-compliance with the statute, not compensation for actual loss.

1. S.85-B of the Employees' State Insurance Act, 1948 empowers the Employees' State Insurance Corporation to recover from the employer such damages not exceeding the amount of arrears as it may think fit to impose. Is the damages that could be so imposed conceived as compensation for the actual loss caused to the Corporation? That is the question that is posed before us by learned counsel for the Corporation, Sri. Sankaran Nair.

2. Four orders of imposition of damages under S.45B were challenged by the respondent before the Insurance Court, Alleppey and the court has chosen to accept the challenge on the only ground that the Corporation "has not adduced an iota of evidence in order to prove that inconvenience was caused either to the Corporation or to the beneficiaries because of the delay committed by the applicant in paying the amounts due to the Corporation." At the moment we are not at the question of quantum. There is no doubt a contention that the question whether quantum has been properly determined calls for consideration. In case we agree with the appellant's counsel that the court was wrong in holding that damages would be due only on account of actual loss we may have to remit the matter back to consider whether the quantum fixed is appropriate or it calls for interference by the court.

3. In the Law of Contracts the term "damages" is related to the loss incurred by reason of default of either party to the contract. Loss so occasioned by the conduct of the offending party is relevant in the determination of damages in the law of torts too. If this concept is applied in the context of S.85B as evidently the Employees' Insurance court has done proof of loss may be necessary to sustain a claim for damages.

4. The Employees' State Insurance Act is intended to provide certain benefits to employees in case of sickness, maternity and employment injury and to make provision for certain other matters relating to benefit to the employees. The scheme cannot be worked out without making effective provisions for levying contributions under the Act. The employer as well as the employee contributes which contribution is ploughed back for the benefit of the employees by working out various schemes intended to serve the employees covered by the Act. The time within which contributions are to be made is provided by the Act read with the Regulations made thereunder. S.84 of the Act enables prosecution for false representations or false statements made with a view to avoid payment under the Act. Defaults to pay contribution under the Act or failure to furnish return under the Act and similar matters which would necessarily hamper the proper implementation of the Act are made punishable by S.85 of the Act. Provision for enhanced punishment in cases of previous conviction is made under S.85A of the Act. It is in that context that S.85B appears in the Act and that provides for recovery of 'damages' where the employer defaults to pay contribution payable under the Act. But the Section provides that the recovery of such 'damages' shall not be in excess of the arrears and the amount of such damages is to be such as the Corporation may think fit to impose. Sub-section (2) of S.85B enables recovery of such damages as an arrear of land revenue. It may also be pertinent to note that despite the provision for imposition of damages, there is an independent provision under S.97 (2) (iii-a) of the Act enabling regulations to be made in regard to levy of interest at a rate not exceeding 6 per cent per annum on contributions due, but not paid. That such Regulations have been made enabling interest to be levied at 6 per cent is admitted. The levy of interest at 6 per cent on the defaulted amount is therefore not as damages but as interest recoverable pursuant to the said Regulation. The power to impose damages is conferred on the Corporation notwithstanding the right to levy interest independently and evidently therefore 'damages' for delayed