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BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
J. NISHA BANU, J.
The Joint Director, ESI Corporation Office, Sub Regional Office, K.K. Nagar, Madurai - Appellant
Vs.
Srivilliputhur Co-operative Spinning Mills Limited - Respondent
C.M.A. (MD). No. 853 of 2011 and CROS. OBJ (MD). No. 26 of 2011
Decided On : 09-08-2018
ESI General Regulations Act, 1950 – Sections 14, 39, 40, 41, 45 and 85-B - File Returns of Contribution Within Time Stipulated Employer is Liable to Pay Interest and Damages - Failed to Pay Contributions - Brief facts of case is that Co-operative spinning is covered code and were required to pay contributions in accordance with of said act within time limit prescribed under act - regulation of framed under act stipulates that an employer is liable to pay contributions in respect of employee within of last of calendar month in which contributions fall due and to file returns of contribution within time stipulated employer is liable to pay interest and damages for any failure to pay contributions in terms of had failed to pay contributions in time and a show cause notice was issued proposing to impose damages amounting to for period pointing out delay ranging from - Another notice was issued proposing to impose a penalty for period pointing out delay for respective months - In reply had submitted that unit is closed and that they were waiting for money from state government to pay dues – Held, In view of above settled position of law regarding applicability of I have no hesitation to hold that penalty imposed in instant case is bad in law and liable to be set aside - It goes without saying that mere allegation that there is inordinate delay in paying contributions as required under statutes and that there is no valid reason adduced for delay in paying contributions is not sufficient reason to impose penalty - In instance case absence of mensrea or actusreus in itself is a ground to set aside penalty imposed - Initiation of penalty proceedings after substantial delay and after closure of mill after full settlement of employees cause serious prejudice that it failed test of reasonability for delay and on this count alone again penalty is liable to be set aside - Even in cases attracting penalty waiver of same is contemplated to sick units - Therefore levy of penalty on a unit accorded relief undertaking status under relief undertaking is also a case of overreaching authority - fact that mill is a co-operative institution relying on monetary support from state and carry a co-operative objective and faced closure is itself a ground to desist imposing penalty – Order Accordingly.
The brief facts of the case is that M/s Srivilliputhur Co-operative Spinning Mills Ltd, (SCSML for brevity), Srivilliputhur, is covered under the Employees State Insurance Corporation Act, 1948 under code No 57-7545-11 and were required to pay the contributions in accordance with Section 40 of the said Act within the time limit prescribed under the Act. Regulation 31 of the ESI (General) Regulations, 1950 framed under the Act stipulates that an employer is liable to pay the contributions in respect of the employee within 21 days of the last day of the calendar month in which the contributions fall due and to file the returns of contribution within the time stipulated under Regulations 26. The employer is liable to pay interest and damages for any failure to pay the contributions in terms of Regulations 31-A and 31-C of the ESI (General) Regulations 1950, read with Section 39, 40, 41 and 85-B of the ESI Act, 1948.
2. M/s SCSML had failed to pay the contributions in time and a show cause notice dated 06.11.2003 was issued proposing to impose damages amounting to Rs.22,80,493/- for the period 04/1992 to 03/1998 pointing out delay ranging from 93 days to 1623 days. Another notice dated 07.06.2005 was issued proposing to impose a penalty of Rs. 2,09,520/- for the period 11/98 to 04/2003 pointing out delay of 2115 days and 645 days for the respective months. In reply, M/s. SCSML had submitted that the Unit is closed and that they were waiting for the money from the State Government to pay the dues.
3. Subsequently, an order dated 08.07.2005 was passed by the Joint Director under Section 85-B of the ESI Act, 1948. The Joint Director had observed substantial delay in payment of contributions for the wage period 11/98 up to 2003 and that the employer had no valid reasons for the delay. Therefore it was concluded in the order that the delay alleged in the notices is established. Thereafter, the Joint Director had invoked the provisions of Regulations 31-C of the ESI (General) Regulations, 1950 read with Section 85-B of the ESI Act, 1948 and proceeded to determine the damages. The Joint Director had determined an amount of Rs.21,65,278/- in damages against the Show cause Notice dated 06.11.2003 and confirmed the entire amount of Rs.2,09,520/- in second Show cause Notice dated 07-06-2005. By the order dated 08.07.2005,the Joint Director had ordered SCSML to pay an amount of Rs.23,74,798/- within 15 days and directed them to intimate the details of payment failing which, the amount will be recovered under Section 45-C and 45-I of the ESI Act, 1948.
4. Aggrieved by the above Order, SCSML preferred ESIOP.No.101/2008 before the ESI Court, Madurai. It was submitted that the Mill was closed on 30.06.2003 owing to the losses suffered as a result of the general slump in the textile business. It was also submitted that all the employees were settled in full and there was no employee left in the roll as on 30.06.2003. The mill had struggled to pay the electricity dues. It was also submitted that the Government of Tamil Nadu by Notfn. G.O.(MS) 101 dated 16.09.2002 and G.O.(MS) 58 dated 07.04.2005 had accorded relief undertaking status to the Mill till completion of disinvestment process and declared the mill as Sick Mill Relief Undertaking Industry in terms of the Tamil Nadu Relief undertaking (Special Provisions Act), 1969.
5. It was submitted that the delay was not deliberate and that the default occurred for reasons beyond their control. It was also submitted that the Handloom Officer had attended Personal Hearing dated 29.06.2005 and had explained the closure of the Mill and the proceedings under Tamil Nadu Relief undertaking (Special Provisions Act), 1969 vide Government of Tamil Nadu G.O.(MS) 101 dated 16.09.2002 and G.O.(MS) 58 dated 07.04.2005 in that regard.
6. It was contended that the default was not wilful and that the Joint Director had failed to appreciate that there was no punitive circumstances justifying imposing penalties and
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