1. This appeal is filed challenging the order dated 29.09.2018 passed by the Employees State Insurance Court at Bengaluru (‘ESI Court’ for short) rejecting the application filed by the appellant under Section 75 of the Employees State Insurance Act, 1948 (ESI Act’ for short) to set aside the order dated 22.01.2016 passed under Section 45-A of the ESI Act.

2. The factual matrix of the case of the appellant herein is that it is engaged in power conditioning/enterprise Communication/IP-Video, Surveillance/Audio Video Conferencing and is covered under ESI Act and obtained the ESI Code number and the applicant is paying ESI contribution from time to time. It is stated that the applicant is carrying out its work at the sites, sub-contractors having individual ESI Code numbers are engaged by the applicant under Annual Maintenance Contract and all the labour charges done outside/sites, which are having individual Code number, there is no supervision by the applicant.

3. It is the case of the ESI Corporation that the appellant is running a company under the name and style M/s. Zener Systems Private Limited, a factory situated at Bengaluru covering under ESI Act and the employer is required to pay the contribution in accordance with Sections 39 and 40(1) of the ESI Act at the rate prescribed under Rule 51 of the ESI (Central) Rules, 1950, in the manner prescribed under Regulation 29 of the ESI (General) Regulations, 1950 with the time limit prescribed under Regulations 31 of the said Regulations. It is contended that the Social Security Officer, who verified the records of the factory observed that the employer had not paid contribution on wages involved in the items of expenditure i.e., Service Direct Cost in a sum of Rs.58,63,360/- for the period April 2010 to March 2011 and contribution is payable at the rate of interest at 6.5% i.e., Rs.3,81,118/-. Hence, the employer as instructed by the Social Security Officer vide his observation memo dated 03.07.2015 ordered to pay the contribution due on the above items of wages. However, the employer did not comply with the instructions and hence, notice was issued to the principal employer on 30.09.2015 directing him to show cause within 30 days as to why contribution on the prescribed rates on the wages above should not be recovered.

4. It is contended that though the notice was duly served on the employer for physical hearing on 19.01.2016, the employer did not attend the same and an opportunity was given to the employer on 15.03.2016 and accordingly, the representative of the employer has attended the physical hearing on 15.03.2016 and informed that they have already produced the relevant records vide their letter dated 23.07.2015. Accordingly, on the basis of records produced by the employer, assessment of actual contribution was made which has been stated in the order itself. On perusal of the vouchers produced to the extent of Rs.6,29,185/-, the ESI Corporation comes to the conclusion that the employer produced voucher to the extent of Rs.6,29,185/- which does not attract contribution. Hence, contribution claimed on the remaining amount of Rs.52,34,175/- at the rate of 6.5% and re-calculated the same as Rs.3,40,221/- and passed an order under Section 45-A of the ESI Act. The same is challenged before the ESI Court invoking Section 75 of the ESI Act and the same is numbered as E.S.I. Application No.84/2016. The ESI Court, having considered the grounds urged in the application, rejected the same and confirmed the order passed under Section 45-A of the ESI Act. Hence, the present appeal is filed before this Court.

5. The main contention of the learned counsel for the appellant before this Court is that the order passed by the ESI Court is illegal, contrary to law and in a mechanical manner, without going into the evidence on record, passed such an order. It is contended that, as per proviso to Section 45-A of the ESI Act, respondents have no authority to determine the contributions in respect of the period beyond five years from the date on which the contributions shall become payable with effect from April 2010, while the order was passed on 20.06.2016. Therefore, the determination of contributions by the respondents is totally time barred. It is the other contention of the learned counsel for the appellant that the ESI Court ought to have held that the respondents have no jurisdiction to determine the contribution in respect of the Service Direct Cost, since employees who render services are covered under ESI Act as individual contractors under their separate ESI Codes and therefore, the question of payment of ESI contribution in respect of those employees does not arise.

6. It is further contended that during the enquiry, it is informed to the respondents that Direct Service Cost refers to outsourcing Annual Maintenance Contract to various persons and the contractors who render Annual Maintenance Contract are covered under the provisions of ESI Act separately. Hence, the appellant is outside the purview of ESI Act in respect of assessed period of 2010 and 2011. It is contended that the action of the respondents tantamount to double payment of contributions and ESI Court miserably failed to consider the same. In the appeal, the appellant has also raised the substantial questions of law that the respondents have no authority in law to determine the ESI contributions beyond five years from the date of passing the order, whether the contractor employees, who are independently covered under the ESI Act are liable to be enrolled by the appellant since, the appellant has raised and collected Service Direct Cost , whether the order passed under Section 45-A of the ESI Act amounts to violation of principles of natural justice and whether the order passed by the ESI Act suffers from non- application of mind and violation of principles of natural justice.

7. Learned counsel for the appellant in the argument also reiterated the grounds urged in the appeal and would vehemently contend that the appellant is not liable to pay any contribution, since they are not their employees and they are the employees of the Socomon Company and hence, the appellant is not liable to pay the contribution. It is also contended that the document i.e., Ex.A4 is clear that the appellant paid the amount only on raising the bill and when they are not the employees, the question of contribution does not arise. The counsel also would vehemently contend that the contractors have their own separate ESI Code under the ESI Court and they have their own individual code. Hence, the appellant is not liable to pay any contribution for the employees of the contractors.

8. The learned counsel for the appellant, in support of her argument relied upon the judgment of the Madras High Court in ESI CORPORATION REP. BY ITS REPRESENTATIVE VS. BETHALL ENGINEERING COMPANY dated 24.07.2007 reported in (2007) 4 MLJ 1273. The counsel also brought to notice of this Court Para No.2, wherein the facts of the said case are narrated and also brought to notice of this Court Para Nos.7 and 8, wherein an observation is made that from the dicta of the Supreme Court that where the job and work is entrusted to a third party contractor and such third party contractor has engaged independent workers, the fact that the principal employer has power to reject the end product manufactured by the contractors, does not constitute of an element of supervision within the meaning of Section 2(9) of the Act. It is also observed that the judgment of the Division Bench in POONAM EASWARDAS, PROPRIETRIX, KALEEL CORPORATION VS. EMPLOYEES’ STATE INSURANCE CORPORATION (supra)  relied upon by the appellant Corporation is concerned with the direct employees of the establishment and has no application to the facts of the instant case which is about the contract employees. The counsel also brought to notice of this Court Para No.8, wherein also a discussion is made concerning the liability to pay the ESI charges in respect of contractor/employees and held that the contractor employees cannot be said to be the employee within the meaning of Section 2(9) of the Act merely because the supervisory controls were exercised by the manufacturers over the contractors for quality reasons.

9. The learned counsel for the respondents would vehemently contend that, it is not in dispute that Social Security Officer visited and inspected the records and came to know about the fact that the appellant had paid the wages i.e., Service Direct Cost in a sum of Rs.58,63,360/- and notice was issued with regard to the payment of contribution at the rate of 6.5%. The counsel also brought to notice of this Court that when they produced vouchers to the extent of Rs.6,29,185/-, the same was excluded and claimed contribution in respect of remaining amount of Rs.52,34,175/-. The counsel would vehemently contend that when the appellant-company failed to produce the document for having paid the contribution, the calculation is made based on the wages paid to the employees and the very contention that they are not liable to pay ESI contribution to the contractors/employees cannot be accepted. It is further contended that when the appellant-company has raised the vouchers to the tune of Rs.52,34,175/-, they are bound to pay the contribution and the same has not been paid. Hence, the order has been passed by the ESI Court under Section 45-A of the ESI Act is in accordance with law.

10. Learned counsel for the respondents in support of his argument, relied upon the judgment of the Apex Court in ESI CORPN VS. C.C. SANTHAKUMAR reported in (2007) 1 SCC 584 and referring Para No.15 of the said judgment, the counsel would contend that an order has been passed under Section 45-A of the ESI Act and the same is questioned before the ESI Court and the ESI Court in detail discussed the same in Para Nos.10 and 12 to 16 and passed a detailed order and the ESI Court has not committed any error in dismissing the application.

11. In reply to the arguments of the learned counsel for the respondents, learned counsel for the appellant also produced additional documents, which are part of the ESI application. The counsel would vehemently contend that the employees who render service under individual contractors are covered under ESI Code and when the contractors engage their own employees, they have their independent ESI Code and they are not the employees of the appellant and they are not bound to pay any contribution. Hence, the order impugned is not sustainable in the eye of law.

12. Having heard the respective counsel and also on perusal of the grounds urged in the appeal as well as the substantial questions of law raised in the appeal, the points that would arise for consideration of this Court are:

"(1) Whether the contractor employees, who are independently covered under the ESI Act are liable to be enrolled by the appellant-company since the appellant has raised and collected Service Direct Cost

(2) Whether the respondents have authority in law to determine the ESI contributions and whether the claim is beyond five years as contended by the appellant-company

(3) Whether the order passed by the ESI Court suffers from non-application of mind and violation of principles of natural justice

(4) What order

Points Nos.(1) to (3):

13. Having heard the respective counsel and also on perusal of the material available on record, it is seen that notice is issued to the appellant stating that contribution is not paid for the period from April 2010 to March 2011. On perusal of the order at Annexure-C dated 20.06.2016, it is clear that Social Security Officer, vide his observation memo dated 03.07.2015 instructed the appellant-company to pay the contributions due on the wages and notice was also issued on 30.09.2015 itself directing to show cause within 30 days why contribution at the prescribed rates on the wages mentioned should not be recovered. The appellant-company was also afforded an opportunity of personal hearing on 19.01.2016 and 15.03.2016. The notice was also received by the employer on 30.09.2015 and the representative of the employer attended the physical hearing on 15.03.2015 and informed that on 23.07.2015 itself, documents are produced before the authority. Hence, it is clear that before the period of five years, an inspection was conducted and found that contribution was not paid and the Social Security Officer has also issued an observation memo on 03.07.2015 itself. Though an order was passed on 20.06.2016, the same was passed after giving an opportunity to the appellant-company herein and the authorities have complied with the principles of natural justice and only on production of vouchers, the authorities have re-calculated the same and assessed the contribution as Rs.3,40,221/- as against the earlier demand of Rs.3,81,118/-.

14. It is also important to note that, while passing an order under Section 45-A of the ESI Act, the Court has taken note of the fact that only Rs.52,34,175/- is due after deducting the amount of Rs.6,29,185/-, since they have produced vouchers to that extent but, not produced any document for having paid the contribution to the tune of Rs.52,34,175/-. The order has been passed by the ESI Court after giving an opportunity and hence, the very contention of the learned counsel for the appellant-company that the very order is in violation of principles of natural justice cannot be accepted and the order is also passed within a period of five years, since the contribution due is from April 2010 to March 2011 and the proceedings were also initiated for recovery of contribution in the year 2015 itself on the inspection of the factory by the Social Security Officer.

15. It is not in dispute that the appellant-company is engaged in power conditioning/enterprise communication/IP- Video, Surveillance/Audio Video Conferencing and the same is covered under ESI Act and obtained ESI Code and paying the ESI contribution. But, the very contention of the respondents in this appeal is that the appellant-company has not paid the contribution for the wages they have paid. However, the very contention of the learned counsel for the appellant-company is that, since the work is got executed through the contractors, they are not bound to pay any contribution to the wages paid to the employees of the contractors. It is also the contention that the very contractors are also having separate ESI Code and they are bound to pay the contribution and not the appellant- company. But, the fact is that, on 03.07.2015 itself, the Social Security Officer has visited the appellant-establishment and vide his observation memo dated 03.07.2015 informed that contribution is due from April 2010 to March 2011 under the head of account, Service Direct Cost in a sum of Rs.58,63,360/- is not in dispute but, the only contention of the appellant- company is that they are not bound to pay the same.

16. No doubt, the learned counsel for the appellant- company relied upon the judgment of the Madras High Court, the Court, taking note of the factual aspects of the matter, in Para Nos.7 and 8 observed that where the job work is entrusted to a third party contractor and such third party contractor has engaged independent workers, the fact that the principal employer has power to reject the end product manufactured by the contractor, does not constitute an element of supervision within the meaning of Section 2(9) of the Act. The said principle is not applicable to the facts of the case on hand, since the appellant-company is not engaged in manufacturing a product and here is a case of providing service, wherein the appellant- company executes the work through contractors i.e., maintenance to the equipments supplied by the appellant and services are rendered under Annual Maintenance Contract which is done outside the company through the contractor employees and total supervision of work is by the employer and even though they are the contractor employees, the service rendered for the equipments supplied by the appellant is subject to the satisfaction of the appellant and only if the appellant-company is satisfied with the service rendered, they will raise the bill for payment and when the payment is made by the appellant to the contractors, even though they are having their own separate ESI Code, they ought to have produced the voucher for having paid the contribution.

17. There is no dispute with regard to the payment of Rs.6,29,185/- and vouchers are also produced to that extent but, the appellant-company has not produced any vouchers for having made the payment of Rs.52,34,175/-. When the appellant-company has not produced any document for having paid the contribution, though a notice was given and an opportunity was given before passing the order under Section 45-A of the ESI Act, the very contention of the appellant- company that independent contractors have to pay the contribution cannot be accepted since, the appellant-company makes the payment in favour of the contractors. It is the contention of the appellant-company that the independent contractors under their own individual ESI Code make ESI contribution for the amount which they receive and there cannot be any double payment. In order to prove the said fact also, no document is produced before the Court that independent contractors have paid the contribution for the amount which they have received and mere defence that the contractors are bound to pay the contribution cannot be accepted when the principal employer had disbursed the amount for the work got executed through the contractors.

18. It is also important to note that the appellant- company has not produced any document before the Court with regard to agreement, if any between the appellant-company and the independent contractors as to who has to pay the contribution and if any such separate agreement is entered into between the parties that the contractors have to make ESI contribution, then the ESI contribution has to be paid by the contractors and no such document is placed before the Court. It is not in dispute that the contractors are also liable to pay ESI contribution under the Act and also no dispute with regard to the fact that the ESI contribution ought to have been paid. When no such document of agreement is produced before the Court that the contractors are bound to pay the ESI contribution for the amount which they receive, the very contention of the learned counsel for the appellant-company that the independent contractors under their own individual ESI Code make ESI contribution for the amount which they receive and there cannot be double payment cannot be accepted. Hence, I do not find any error committed by the ESI Court in rejecting the application filed by the appellant-company.

19. The ESI Court also in detail discussed the material available on record by formulating the points whether the applicant proves that it is not coverable under the provision of ESI Act and whether the applicant proves that the order passed by the respondent-Corporation under Section 45-A of the ESI Act is not sustainable and liable to be set aside and reasoning is also given in detail as contended by the learned counsel for the respondents while answering point No.1 as ‘negative’. With regard to point No.2 is concerned, the ESI Court has taken note of the material on record and though the ESI Corporation not examined any witness, the appellant has examined one witness as A.W.1. Though the appellant has raised all the issues by filing an affidavit, but in the cross-examination, the witness categorically admits that ESI Corporation has given C-18 Adhoc notice dated 30.09.2015 as per Ex.R1 stating that they have not paid the contribution and also admitted that their representative one Mr. Diwakar produced some documents and also admits that in terms of Ex.R3, they have demanded a sum of Rs.3,40,221/- after perusing the documents produced by them. It is suggested that, as per the order passed in terms of Ex.R3, the appellant- company is only liable to pay the demanded amount and the same was denied. However, he categorically admits that the work entrusted to the agencies is part of their main activity. When he categorically admits that the work entrusted is part of their main activity, the appellant-company cannot contend that they are not liable to pay the ESI contribution.

20. It is also elicited that they used to sell the UPS product to the customers with a warranty period of one year and in turn, the customers have to execute Annual Maintenance Contract that only the appellant-company has to service the product purchased. It is also further admitted that the customers execute Annual Maintenance Contract knowing fully well that the appellant-company will provide maintenance through their agencies. The witness A.W.1 also categorically admits that the products will be serviced at the instance of the appellant- company and Annual Maintenance Contract is not produced before the Court. The appellant-company has not produced any document before the Court to evidence the fact that there is an agreement to pay contribution by the contractor and if any agreement entered into between the appellant-company and the independent contractors as to who is liable to pay the ESI contribution is produced, then the very contention of the appellant could have been accepted and there is no such agreement before the Court.

21. It is also very clear that the appellant-company will provide service to the customers in terms of Annual Maintenance Contract for maintenance of the equipments and work is got executed through agency and wages is paid. Hence, the very contention of the learned counsel for the appellant-company that the independent contractors having their individual ESI Code make ESI contribution for the amount which they receive cannot be accepted and not produced any document for having paid by

the contractor. The counsel appearing for the respondent also brought to notice of this Court Section 40 of the ESI Act, wherein it is specific that the principal employer to pay contribution in the first instance in respect of every employee, whether directly employed by him or by or through an immediate employer, the principal employer shall be entitle to recover the amount of the contribution paid from the immediate employer as per Section 42 of the Act. The immediate employer shall maintain a register of employees employed and submit the same to the principal employer, before settlement of any amount payable under sub- section (1). Under Order 31 of ESI Regulations 1950, time is stipulate to pay contribution under the Act in respect of any employer and shall pay these contributions within the stipulated time and hence, the contention of the learned counsel for the appellant-company cannot be accepted. Therefore, I do not find any error committed by the ESI Court in dismissing the application filed by the appellant-company. Accordingly, I answer point Nos.(1) to (3) framed by this Court as ‘negative’.

Point No.(4):

22. In view of the discussions made above, I pass the following:

ORDER

The appeal is dismissed.