When establishment is transferred in whole or in part, present employer is jointly and severally liable to discharge arrears of contribution due from previous owner of factory.

1. This is an Appeal filed under Section 82 of the Employees' State Insurance Act, 1948 against the order of the learned Principal District Judge (E.S.I. Court), Tirunelveli, dated 24.12.1998 passed in E.S.I.O.P. No.7 of 1996.

2. The petitioner in the said E.S.I.O.P. is the appellant herein. The Appeal has arisen under the following circumstances: .

(i) M/s. Shanmuga Metals, is a proprietary concern running a Metal Rolling Mill at No.368, Mangalakudieruppu Street, Thatchanallur, Tirunelveli District. Brass sheets are manufactured in the above said rolling mill. The said rolling mill was originally run by a Private Limited Company called "Nellai Metal Rolling Mill Private Limited". Subsequently, the said rolling mill was purchased by three persons, S. Velayutha Nadar, Shanmuga Nadar and Ponniah Nadar in the year 1975. Thereafter, from 11.4.1988 the said rolling mill was run in the name of Murugan Metal Rolling Mills. On 28.10.1989 the said concern was purchased by Sri Shanmugavel and started running the rolling mill as a proprietary concern in the name of M/s. Shanmuga Metals.

(ii) The above said rolling mill was inspected by the E.S.I. Inspector on 30.10.1984. At the time of inspection, he noticed that the employer had engaged 10 or more employees and that the wage-registers were not maintained properly. He prepared the inspection reports (Exs.R.2 & R.3) on the basis of the entries found in the ledgers, calculated the arrears of contribution on adhoc basis at 7%. A sum of Rs.6363/- was arrived at representing the arrears of contribution for the period 14.5.1978 to 30.9.1984. Thereafter, a show cause notice in form C.18 was issued to the employer under Ex.R.4 demanding payment of the above said amount. Even though an opportunity was provided to the employer by fixing 18.12.1995 to be the hearing date for personal hearing, the employer did not appear. Thereafter, another show cause notice dated 17.10.1986 was issued under Ex.R.8. But this time too the employer after receiving the said notice failed to either said a reply or appear in person. Thereafter, the first respondent passed two orders on 12.2.1987 under Section 45-A of the E.S.I. Act for recovery of arrears of contribution for two different periods. Pursuant to the above said orders passed under Section 45-A of the E.S.I. Act recovery orders were also issued for the recovery of the said arrears under Revenue Recovery Act. Therefore, three recovery notices came to be issued by the second respondent herein to the appellant/petitioner, the particulars of which are as under:

Proceedings No.& Date

Relevant Period

Contribution sought to be required

57/RRC/5525/234/96 dated 2.7.1996

1.1.1986 to 30.9.1990

Rs.41/-

57/RRC/5525/235/96 dated 2.7.1996

1.10.1984 to 31.8.1996

Rs.10,490/-

57/RRC/5525/236/96 dated 2.7.96

14.5.1978 to 30.9.1984

Rs.10,634

3. All the three notices were challenged by the appellant before the E.S.I. Court in the above said E.S.I.O.P. No.7 of 1996 in which the appellant herein/petitioner in the E.S.I.O.P. had raised the following contentions:

(1) The appellant could not be mulcted with liability for payment of arrears of contribution payable by the previous owner of the factory and that too for the periods prior to his purchase;

(2) The Metal Rolling Mill could not be termed a factory as at no point of time more than 5 persons were employed;

(3) Contributions for the persons employed in the said concern had been regularly paid without fail;

(4) As the claim relates to the period 14.5.1978 to 30.9.1990 whereas the recovery notices were issued only on 2.7.1996, the same are barred by limitation under Section 77(1-A) of the E.S.I. Act — According to the said Section, recovery proceedings initiated after a lapse of five years from the date on which the cause of action arose were barred by limitation; and

(5) The determination of contribution, amount under Section 45-A of the E.S.I. Act should have been made within 3 years from the date on which the cause of action arose, bu