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2024 Supreme(Online)(KER) 34614
HIGH COURT OF KERALA
N. NAGARESH, J
KERALA STATE ELECTRICITY BOARD LTD – Appellant
Versus
THE EMPLOYEES STATE INSURANCE CORPORATION – Respondent
WP(C) 18214/2023
SRI.C.JOSEPH ANTONY, SRI.RAJU JOSEPH, ADARSH KUMAR, ASHOK SHENOY, SHASHANK DEVAN, P.S.GIREESH, SALIH, P.A.THEJALAKSHMI, R.S.UMASANKER, U.U.
The immediate employer bears primary liability for ESI contributions, and the court directed a reconsideration of assessments after a proper inquiry into the employment relationship.
Headnote:(A) Employees State Insurance Act, 1948 – Sections 2(9), 40, 41, and 45A – Government Company engaged in electricity generation seeks to quash notices demanding contributions under ESI Act for contract workers – Petitioner argues employees exceed wage ceiling and are exempt from ESI – Court finds that immediate employer bears liability for contributions, directs reconsideration of assessments after hearing. (Paras 2, 4, 16, 17)
(B) Jurisdiction – The principal employer's liability is contingent upon the relationship with contract workers, which must be established through proper inquiry. (Paras 7, 16)
Facts of the case: The petitioner, a Government Company, contends that its employees earn above the ESI wage ceiling and are exempt from the ESI Act. Notices demanding contributions for contract workers were issued, which the petitioner argues are illegal.
Findings of Court: The court set aside the notices and directed the respondents to reconsider the assessments after a hearing.
Issues: The main issues were the applicability of the ESI Act to the petitioner and the jurisdiction of the respondents to demand contributions for contract workers.
Ratio Decidendi: The court ruled that the immediate employer is primarily liable for contributions, and the respondents must conduct a proper inquiry into the employment relationship.
Result: Writ petition disposed of, notices set aside.
J U D G M E N T
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The petitioner is a fully owned Government Company engaged in the business of electricity generation, transmission and distribution. The petitioner seeks to quash Exts.P4, P7, P9 and P10 and to direct the respondents not to initiate any steps to recover the amount covered by Exts.P4 and P7.
2. The petitioner states that the employees of the petitioner-KSEBL are in receipt of benefits substantially similar or superior to the benefits provided under the Employees State Insurance Act, 1948 and therefore they are not covered by the ESI Scheme. The salary of of the employees of the petitioner is more than ₹21,000/- per month and hence beyond the maximum limit prescribed under Section 2 (9) for being covered under the ESI Scheme.
3. The 3rd respondent launched Special Schemes for Promoting Registration of Employers and Employees (SPREE), as part of extending social security measures to the entire work force in the country. The Social Security Officer (Recovery) of the ESI visited the petitioner's office to conduct a survey. He informed the petitioner that a distinct code number is mandatory for the petitioner for availing exemption from ESI Scheme every year. The Chief Personal Officer of the petitioner therefore expressed willingness to join the SPREE Scheme subject to approval of the Board of Directors. The very next day, the petitioner was served with a notice stating that the factory of KSEBL falls within the purview of Section 2 (12) of the ESI Act.
The petitioner was required to register their employees.
4. As per Ext.P3 notice dated 25.10.2017, the 3rd respondent-Deputy Director, ESI informed the petitioner that under Section 40 read with Section 39 of the ESI Act, the principal employer is required to pay employers' contribution and employees' contribution at the rate specified in Rule 51 of the ESI Central Rules. As per the notice, the 3rd respondent proposed to determine and recover amount of contribution from the petitioner for the period from 30.03.2017 to 31.03.2017 and from 01.04.2017 to 30.09.2017 on the assumption that there were 2000 employees and the average wages of each employee is ₹11,550/-. As per Ext.P3 notice, ₹91,05,871/- was proposed as contribution.
5. To Ext.P3 notice, the petitioner replied that the petitioner was not engaging any contract workers. Petty contract works were awarded to petty contractors. The petitioner had no control or supervision over those workers during the execution of the work. However, the respondents issued Ext.P4 notice dated 29.03.2021 demanding an amount of ₹1,70,29,595/- from the petitioner. Subsequently, the 3rd respondent passed Ext.P7 order dated 29.04.2022 demanding a total amount of ₹16,40,12,977/-. In Ext.P7 order, the number of contract employees of the petitioner was shown as 4399 and the average monthly wages is shown as ₹14,766/-.
6. The petitioner was again served with Exts.P9 and P10 notices dated 17.04.2023. In Ext.P9, ₹2,87,05,415/- was demanded and in Ext.P10, ₹23,53,83,700/- was demanded. The petitioner states that Exts.P4, P7, P9 and P10 are highly illegal and arbitrary.
7. The petitioner argued that they are a Government Company and their employees are getting wages exceeding the ceiling limit of ₹21,000/- per month. Hence, they are exempted from the provisions of the ESI Act. The contributions demanded by the respondents are in respect of the workers engaged by petty contractors. The KSEB has no supervisory control over those workers and therefore KSEB cannot be considered as their principal employer. This issue goes into the very jurisdiction of the 3rd respondent to initiate proceedings against the petitioner.
8. The petitioner urged that the 3rd respondent ought to have considered the terms of the contract on the basis of which work contracts were awarded to petty contractors. No such attempt was made while issuing Exts.P4 and P7 orders. The ESI Corporation is empowered under Section 45 to conduct requisite enquiry in this re
