The main legal point established in the judgment is that the imposition of damages for delayed payment of contribution is penal in nature and can only be imposed if there is deliberate or contumacious conduct. The court also emphasized that financial difficulties alone are not a ground for waiving damages, but if there is no mens rea and the employer was unable to pay the amount due to circumstances beyond their control, damages can be totally waived.

J.B. Koshy, J.

This appeal is filed by the Employees State Insurance Corporation. The first respondent in the appeal is a Co-operative Society organized by the Government of Kerala for providing employment opportunities to unemployed Engineers and Technicians. Since the unit was facing acute financial crisis due to erosion of working capital from 1992 onwards it was closed finally in March, 1996 and therefore the contributions to the Corporation were not remitted from August, 1994 onwards. During these periods, even the salary of the employees was not paid due to non-availability of funds. The Government took initiative to revive the Society and agreed to contribute Rs.105 lakhs to the share capital of the Society for which the members of the Society who are employees have to take shares worth Rs.27 lakhs forgoing certain amount of their salary arrears. The E.S.I. contribution arrears were paid with interest. The Corporation imposed damages on the delayed payment of contribution. The non-payment of contribution in time was not deliberate and there is no moda-fide intention and it was beyond the control of the Society and therefore, the imposition of damages was set aside by the Employees Insurance Court and the appeal was filed by the Corporation.

2. When the appeal came up before the learned single Judge, the respondent cited the decisions of this Court in E.S.I. Corporation v. Premanandan (2007 (2) KLT 666), wherein it was held that imposition of damages is by way of penalty and such damages can be imposed only in accordance with the principles applicable for imposing penalty for failure to carry out a statutory obligation and damages cannot be imposed unless the party acted either deliberately or in defiance of law or they were guilty of contumacious or dishonest conduct. It was also held that Reg. 31C of the Employees State Insurance (General) referred to a Division Bench,

3. If there is delay in the payment of contribution, the contribution is to be paid with statutory interest and interest cannot be waived in view of financial difficulties. The financial difficulty is not a ground for not paying the defaulted installment with interest. But as far as the question of imposition of damage is concerned, since it is penal in nature, the factual situation has to be considered by the authorities. The facts of case clearly show that the Society was unable to pay even the wages to the employees. But the salary arrears were paid by converting it into shares. The Society was once dosed due to financial difficulties and lack of funds. The contribution was paid with interest after the Government provided farther working capital.

4. Considering the facts of this case, weak the view that the waiver of damages was correctly done by the Employees Insurance Court. In this connection, counsel for the respondent also referred to a recent decision of the Supreme Court in Employees State Insurance Corporation V. H.M.T. Ltd. & Anr. (AIR 2008 SC 1322) wherein, the supreme Court held as follows:

"It is well known principle of taw that a subordinate legislation must conform to the provisions of the Legislative Act S. 85B of the Act provides for an enabling provision. It does not envisage mandatory levy of damages. It does not contemplate computation of quantum of damages in the manner prescribed under the regulations.

13. The statutory liability of the employer is not in dispute. An employee being required to be compulsorily insured, the employer is bound to make his part of the contribution. An employee is also bound to make his contribution under the Act. But the same does not mean that levy of damages in all situations would be imperative.

14. S.85B of the Act uses the words ‘may recover’. Levy of damages thereunder is by way of penalty. The Legislature limited the jurisdiction of the authority to levy penalty, i.e., not exceeding the amount of arrears. Reg.31C of the Regulations, therefore, in our opinion, must be construed keeping