The respondent is a Government of India undertaking and its unit at Hyderabad, was established in the year 1977. The Inspector of the appellant-Corporation delivered a notice on 07-12-1998, requiring the respondent to pay a sum of Rs.2,80,209/-, being arrears of contribution for the period 1977 and 1988, for certain categories of employees engaged by the respondent. This was followed by notices of hearing and ultimately an order under Section 45-A of the Employees’ State Insurance Act, 1948 (for short ‘the Act’) was passed on 25-02-1999, confirming the amount, referred to above.
The respondent filed E.I. Case.No.34 of 1999 before the Employees Insurance Court and Chairman, Industrial Tribunal-I, Hyderabad (for short ‘the Tribunal’). It denied the liability to pay the contribution, by raising several grounds. It was pleaded that the respondent is not covered under the Act, at all, and that the employees, in respect of whom the contribution was demanded, were supplied by Labour Contractors, and the contribution has already been paid by the said contractors. The case was opposed by the appellant. It was pleaded that the respondent is very much covered by the provisions of the Act, and it was only exempted by the Central Government as regards regular employees, and that no contribution was demanded for that category of employees. Through its order dated 31-12-2001, the Tribunal allowed the case before it. Hence, this appeal under Section 82 of the Act.
Sri B.G. Ravindra Reddy, learned Standing Counsel for the appellant submits that the Tribunal has committed a patent error in declaring that the respondent is not covered by the provisions of the Act, ignoring the fact that the Central Government issued notifications from time to time, up to the year 2000, exempting the respondent from the purview of the Act only in respect of regular employees. He contends that the mere fact that the respondent does not answer the description of a shop or establishment under the A.P. Shops and Establishments Act, 1966 (for short ‘the Shops Act’), does not have any bearing upon the liability of the respondent to make contribution. He submits that the respondent has not chosen to submit any explanation or furnish details, even after receipt of the notices. Learned counsel further submits that the view expressed by the Tribunal that the arrears of contribution, beyond a period of five years, cannot be recovered; is opposed to the judgment reported in E.S.I Corporation v. C.C. Santhakumar ((2007) 1 SCC (L&S) 413).
Sri C.R. Sridharan, learned counsel for the respondent, on the other hand, submits that the Government issued notification, exempting the respondent for certain period, in respect of some employees, does not by itself, bring it under the purview of the Act. He contends that there did not exist any order, specifically bringing the respondent under the purview of the Act, and the order under Section 45-A of the Act was passed, without undertaking such an exercise. He further submits that the order under Section 45-A
of the Act, which is challenged before the Tribunal did not contain any reasons, and that ground is sufficient to set aside the same. He places reliance upon the judgments of this Court in J. Sabestian v. Computer Maintenance Corporation Ltd., Hyderabad (1993-I-LLJ 374) and A.P. Handloom Weavers Co-operative Society Ltd. V. E.S.I. Corporation, Hyderabad (1988-I-LLJ 515). He submits that the appeal is not maintainable, since no substantial question of law arises for consideration.
The appellant initiated proceedings against the respondent for recovery of arrears of contribution. The grounds urged by the respondent included those, of
a) non-coverage under the Act;
b) order under Section 45-A of the Act, being devoid of reasons; and the one of limitation.
The appellant opposed the case. The Tribunal framed three issues for its consideration:
1. Whether the respondent is not liable to be covered under the ESI Act ?
2. Whether the respondent is not liable to pay contribution as demanded in the order dt.25-2-1999 by the ESI Corporation ?
3. Whether the claim made by the appellant is barred by limitation ?
On behalf of the respondent, PWs 1 and 2 were examined and Exs.P-1 to P-6 were filed. On behalf of the appellant, RWs 1 to 5 were examined, and Exs. R-1 to R-19 were filed. The Tribunal allowed the case, and its judgment is challenged in this appeal.
An objection is raised as to the maintainability of the appeal, on the ground that no substantial question of law arises for consideration. This Court is of the view that the objection is not tenable, and that the following substantial questions of law arise for consideration:
1) Whether an organization, which enjoys the benefit of exemption under the E.S.I. Act, can plead that it is not covered by the Act, at all ?
2) Whether a finding in the proceedings initiated under the A.P. Shops and Establishments Act, 1966, would have a bearing upon the coverage, or otherwise under the Act ? and
3) Whether there exists any bar as to limitation for recovery of arrears, through proceedings under Section 45-A of the E.S.I. Act ?
As to the questions 1 and 2, it was strongly urged by the respondent herein before the Tribunal that it is not covered by the provisions of Act, at all. It is a matter of record that there is no dispute that it engages hundreds of employees and undertakes manufacturing process. An attempt is made to impress this Court, that the activity undertaken by the respondent does not amount to manufacture, nor does it fit into description of a ‘factory’. The necessity to examine those aspects is obviated, on account of the fact that the respondent has admittedly enjoyed the benefit of exemption, granted by the Central Government,
in exercise of power under Section 85 of the Act, up to the year 2000. The very premise under which an industrial undertaking claims exemption, and the appropriate Government grants the same, is that, it is otherwise liable to be covered under the Act. The coverage under Section 87 or 88 can be absolute or partial.
Either way, it is for a specified period, and there cannot be any permanent exemption.
It is not in dispute that the respondent was granted exemption, under the Act, up to the year 2000, in respect of regular employees. The respondent itself filed one such notification, as Ex.P-2. The appellant filed a similar notification for a different period and it was marked as Ex.R-10. It is not as if that the respondent has undergone any fundamental change, that has the effect of removing it from the purview of the Act, after the exemption ceased. Despite the same, the Tribunal held that the respondent is not covered by the provisions of the Act. It rested its conclusion partly upon a judgment rendered by this Court, as to the application of the provisions of the Shops Act, to the appellant. The fact that there existed notifications in favour of the respondent, exempting it from the purview of the Act, for certain period, in respect of particular category of employees; is sufficient to establish that it is covered by the provisions of the Act.
The judgment of this Court in J. Sabestian v. Computer Maintenance Corporation Ltd., Hyderabad (2 supra) arose under the Shops Act. The respondent figured as a party therein. The objection raised by it, that it is not covered by the provisions of that enactment; was accepted by this Court. In other words, it was held to be not a shop or establishment, as defined under that Act. The conclusions arrived at in that case were pressed into service before the Tribunal, in these proceedings, and they were accepted.
The circumstances under which an agency or industrial undertaking is covered by the provisions of the Act, on the one hand, and the provisions of the Shops Act, on the other hand, are totally different from each other. The purposes underlying these enactments are substantially different. The mere fact that the respondent is held to be not a shop or establishment, does not have any relevance to, or impact upon the proceedings, that are initiated under the Act. At any rate, once the respondent has claimed exemption and enjoyed the benefit thereof, it is not open to it, to plead that it is not covered by the Act. Therefore, this question is also answered in favour of the appellant.
Coming to the third question, the respondent raised an objection as to the limitation, for the proceedings challenged before the Tribunal. The notice issued under Section 45-A of the Act covered the period between 1977 and 1998. By drawing analogy from the proceedings under Section 75, it was observed that the arrears for a period beyond five years from the date of notice, stand barred by limitation. However, the distinction between the proceedings initiated by Section 45-A of the Act, on the one hand, and Section 75 of the Act, on the other hand, was not noticed. In E.S.I. Corporation v. C.C. Santhakumar (1 supra), the Supreme Court held that no period of limitation exists for recovering arrears under Section 45-A of the Act. Paragraph 30 thereof reads as under:
Para 30: “The legislature has provided for a special remedy to deal with special cases. The determination of the claim is left to the Corporation, which is based on the information available to it. It shows whether information is sufficient or not or the Corporation is able to get information from the employer or not, on the available records, the Corporation could determine the arrears. So, the non-availability of the records after five years, as per the Regulations, would not debar the Corporation to determine the amount of arrears. Therefore, if the provisions of Section 435-A are read with Section 45-B of the Act, then, the determination made by the Corporation is concerned. It may not be final so far as the employer is concerned, if he chooses to challenge it by filing an application under Section 75 of the Act before the Court, then the determination under Section 45-A becomes final against the employer as well. As such, there is no hurdle for recovery of the amount determined under Section 45-B of the Act, by invoking the mode of recovery, as contemplated in Sections 45-C to 45-I”.
Therefore, the finding recorded by the Tribunal on this question also cannot be sustained in law.
It is no doubt true that in A.P. Handloom Weavers Co-operative Society’s case (3 supra), this Court held that an order passed under Section 45-A of the Act is similar to a best judgment assessment, and it must contain reasons. That, however, was a case where the order under Section 45-A of the Act was not preceded by a notice, at all. Taking note of the purport of the section, this Court held that, an order passed under Section 45-A of the Act must be preceded by a notice, and that it must contain reasons.
In the instant case, the order passed under Section 45-A of the Act, by the respondent, was preceded by notices. However, the respondent did not react. Obviously for that reason, a detailed order was not passed. It is not as if the respondent has no remedy, vis-à-vis such an order. Even before the Tribunal, it was open to it, to demonstrate as to how the demand is not legal or proper. In case any contribution, which was already paid, either by the respondent or any other agency; was not taken into account, the plea could have been raised, in which event, the Tribunal would have addressed it. No such effort was made. Even now, such facts, if any, can be brought to the notice of the appellant.
Hence, the C.M.A. is allowed, and the order passed by the Tribunal in E.I. Case No. 34 of 1999 is set aside. It is, however, left open to the respondent to put forward its contentions, as to the payment of contribution, if any, either by itself, or by the Contractors, who are said to have supplied the labour. The appellant shall take the same into account, before taking further steps for recovering the amount.
There shall be no order as to costs.