IN THE HIGH COURT OF KERALA AT ERNAKULAM
Ins.APP.No. 38 of 2006(A)
1. ROOFS ENGINEERS & CONTRACTORS,
... Petitioner
Vs
1. THE MATHRUBHUMI PRINTING & PUBLISHING
... Respondent
2. THE EMPLOYEES STATE INSURANCE CORPN.,
3. ASSOCIATED BUILDERS,
4. KAP CONSTRUCTIONS,
For Petitioner :SRI.A.M.SHAFFIQUE (SR.)
For Respondent :SRI.U.K.RAMAKRISHNAN (SR.)
The Hon'ble MR. Justice K.M.JOSEPH
The Hon'ble MRS. Justice M.C.HARI RANI
Dated :05/10/2010
O R D E R
K.M. JOSEPH &
M. C. HARI RANI, JJ.
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INS. APPEAL NOS. 38 & 45 OF 2006
------------------------------------------
Dated this the 5th October, 2010.
JUDGMENT
K.M. Joseph, J.
Both these Appeals raise the following substantial questions
of law:
“i) Whether the Court below is correct in
directing the appellant to pay the ESI contribution
directly to the Corporation instead of directing the 1st
respondent who was the primary liability in terms of
Section 40 of the Act.
ii) Whether the Court below is correct in
directing the appellant to pay ESI contribution when
such claims for adjudication was raised against the
app.
iii) Whether the Court below is legally correct in
directing the immediate employer to pay ESI
contribution at the first instance only on the ground
INS.APPEALS 38 & 45/2006 2
that the immediate employer is wrongly made as a
party to the case.
iv) Whether the immediate employer is a
necessary party in an Insurance Case filed by the
principal employer challenging the demand for
contribution made by the ESI contribution.
v) Whether the Court below is correct in
deciding a claim under Section 75(2)(b) in a claim
under Section 75(2)(a) when each claim in the
aforesaid sections are independent claim for which
independent proceedings are required.
vi) Since the Act is not applicable to the
appellant and no such code has been allotted whether
the court below is correct in directing the appellant to
pay the contribution.”
2. The first respondent in both these Appeals entrusted
certain construction works to the appellant in both these cases in its
in its premises. The first respondent is a covered establishment
under the Employees’ State Insurance Act, 1948 (hereinafter
referred to as the Act). Proceedings were taken under Section 45A
INS.APPEALS 38 & 45/2006 3
in respect of the liability of the first respondent towards the
employees of the appellants. Against the said proceedings, the
first respondent filed E.I.C. No.5/2000 before the Employees
Insurance Court under Section 75 read with Section 77 of the Act.
In the said proceedings, the appellants in these cases were also
impleaded as respondents. Allegations were raised against the
appellants that they are liable on the ground that they are principal
employers for the reason that they are employing more than twenty
employees. Thereafter, an amendment was permitted by the court
by which the first respondent claimed that the appellants be
directed to remit the amount as they the are immediate employers.
3. The court did not accept the case of the first respondent
that the appellants are liable as principal employers. However,
acting on notions of justice, the court proceeded to, inter alia,
dispose of the matter by directing the appellants in both these cases
to remit the amounts due. It reasoned that the appellants are the
immediate employers and under the Act, while the responsibility is
INS.APPEALS 38 & 45/2006 4
to pay the amounts is cast on the principal employer, the principal
employer has a legal right to recover the same from the immediate
employer. In the circumstances of the case, the court took the view
that it is justified in directing the appellants to remit the amount. In
fixing the wage element, the court did not accept the version of the
first respondent and instead, fixed the wage element as twentyfive
per cent of the total contractual payment. It is feeling aggrieved by
the same that the appellants are before us.
4. We heard the learned counsel for the appellants, learned
senior counsel appearing on behalf of the first respondent and also
the learned counsel appearing on behalf of the second respondent
Corporation.
5. Learned counsel for the appellants in both these cases
would submit that the order is in the teeth of the statutory scheme
of the Act. He would draw our attention to Section 40 of the Act.
He would contend that under the Act, it is the obligation of the
principal employer to pay the contribution in respect of the
INS.APPEALS 38 & 45/2006 5
employees of the immediate employer. Upon payment being made,
the principal employer becomes entitled by virtue of the provisions
of the Act to recover the same under Section 41 from the
immediate employer. He would submit that actually the appellants
would have been entitled to the benefit of the exemption granted
under the Act, but for the fact that they are carrying on the work in
the factory premises. Learned counsel for the appellants would
also point out that the fixation of the wage element at twentyfive
per cent in the case of a construction in question, which is a new
building, is not sustainable, while twentyfive per cent could have
been taken as the norm in respect of contract of repairs and
maintenance, which is not the case in these matters. Per contra, the
learned senior counsel for the first respondent would address the
following contentions before us:
He would submit that this is a peculiar case where the
appellants/immediate employers did not furnish the first
respondent with the necessary details about the wages being paid
INS.APPEALS 38 & 45/2006 6
to its workers. He would further point out that under the Act, it is
not open to the principal employer to make any deduction of the
wages of the employees of the immediate employer, as deduction
of wages is permissible only with respect to the employees of the
principal employer. He would also contend that this is a case
where, even though it may be true that the appellants were not
parties to the proceedings under Section 45A, they were none-the-
less made parties before the court and they ought to have utilised
the opportunity so afforded to place any data they wished in
support of their contentions. He would submit that, at any rate, the
ultimate responsibility is fixed under the Act on the immediate
employer in respect of employees of the immediate employer and
in the peculiar circumstances of the case, the decision of the court
in so far as it relates to the recovery of the amounts directly from
the appellants may not be disturbed. Learned counsel appearing on
behalf of the Corporation also would submit that the ultimate
responsibility is cast on the immediate employer.
INS.APPEALS 38 & 45/2006 7
6. After having heard the learned counsel for the parties, we
are of the view that the directions issued as against the appellants
by the court may be difficult to sustain. Sub-section (1) of Section
40 reads as follows:
“40. Principal employer to pay contribution in
the first instance.- (1) The principal employer shall
pay in respect of every employee, whether directly
employed by him or by or through an immediate
employer, both the employer’s contribution and the
employee’s contribution.”
Section 41, thereafter provides for recovery of the contribution
from the immediate employer. It reads as follows:
“41. Recovery of contribution from immediate
employer.-
(1) A principal employer, who has paid contribution
in respect of an employee employed by or through an
immediate employer, shall be entitled to recover the
amount of the contribution so paid (that is to say the
INS.APPEALS 38 & 45/2006 8
employer’s contribution, as well as the employee’s
contribution, if any from the immediate employer,
either by deduction from any amount payable to him
by the principal employer under any contract, or as a
debt payable by the immediate employer.”
Sub-section (1A), no doubt, provides that the immediate employer
shall maintain a Register of employees employed by or through
him as provided in the Regulations and submit the same to the
principal employer before settlement of any amount payable under
Sub-section (1). It is open to the immediate employer to recover
the employees’ contribution from the employees or by through
deduction from wages. The conclusion is inevitable on a perusal
of Sections 40 and 41 that the legislature intended that it is
incumbent upon the principal employer to pay the contribution in
respect of an employee of the immediate employer also. But for
Section 41, there would have been no legal right with the principal
employer to even recover it from the immediate employer. Thus,
the Scheme is that the principal employer has to pay initially and
INS.APPEALS 38 & 45/2006 9
then it is open to him to recover the same from the immediate
employer.
7. In this case, as already noted, the first respondent was
called upon to remit contributions in respect of the employees of
the immediate employer. Proceedings were initiated under Section
45A. The appellants were not parties in the said proceedings. In
proceedings under Section 75 initiated by the principal employer,
the appellants were made parties. The principal allegation against
them was they would be liable to make contributions in their
capacity as principal employer. It is not in the region of any
dispute that the court did not accept the case of the first
respondent/principal employer that the immediate
employers/appellants could be treated as principal employers.
Once it was found by the court that the appellants were not liable
in their capacity as principal employer, we fail to see how the court
could have proceeded to direct the appellants to make the payment.
The court is a creature of the statute. Its powers are circumscribed
INS.APPEALS 38 & 45/2006 10
by the provisions under which it is created. We are not shown the
source for the court to exercise any residuary powers or in other
words, we cannot describe the court as a court of unlimited
jurisdiction. Certainly, the court cannot give a direction which is
opposite to the statutory scheme contained in Sections 40 and 41 of
the Act to which we have already adverted to. Yet, this is precisely
what the court on motions of justice proceeded to do. We must
also notice that this is a case where we should emphasis the fact
that the appellants were not even parties before the statutory
authority in proceedings under Section 45A.
8. Learned counsel for the appellants in both these cases
would submit that if proceedings are taken under Section 45A for
which there is power indeed under the proviso to Section 45A
against them and the amounts are quantified after giving an
opportunity to them and with the first respondent also participating
in the proceedings, the appellants will pay up. In such
circumstances, we are inclined to hold that the appellants could not
INS.APPEALS 38 & 45/2006 11
have been called upon to pay the contributions by the court without
calling upon the principal employer to pay the amount by the court
and that too, when the appellants were not being made parties to
the proceedings under Section 45A. The order dated 19.10.2005
which is appealed before us, to the extent they are against the
appellants in these cases, shall stand set aside. Proceedings will be
taken by the second respondent against the appellants under
Section 45A and concluded within a period of two months from the
date of receipt of a copy of this Judgment. The first respondent
can also be made a formal party in the proceedings.
Sd/=
K.M. JOSEPH,
JUDGE
Sd/=
M.C. HARI RANI,
JUDGE
kbk.
//True copy//
PS to Judge
INS.APPEALS 38 & 45/2006 12