JUDGMENT
S.B. Majage, J.
1. These appeals, filed under Section 82(2) of the ESI Act (hereinafter referred as the “Act”) and directed against two separate orders dated 7-3-2001, passed in ESI application Nos. 17 and 19 of 2000 by the ESI Court at Hubli, are taken together for consideration, since the parties are common in both the appeals with same question of law for consideration.
2. Facts, which gave rise to the present appeals, are:
The respondent is, admittedly, a covered industry under the Act. On account of facing severe financial crisis, it, has closed its other units and it was also declared as Sick Unit by the BIFR on 31-7-1998 under the Sick Industrial Companies Act. Wages of its employees have not been paid from April 1998 onwards and the respondent did not pay any contribution required to be paid under the Act. So, an industrial dispute has been raised by the Employees Union of the respondent before the Assistant Labour Conciliation at Hubli for conciliation and thus, according to the respondent, there is a bona fide dispute regarding wages to be paid to the employees by it. When things stood so, the Corporation issued notices to the respondent on 21-9-1999 and 19-1-2000 to pay contribution due for the period from April 1998 to March 1999 and also from April 1999 to September 1999 respectively. The respondent’s representative appeared before the Corporation for personal hearing and appraised the said factual position. Still the Corporation passed an order under Section 45A of the Act, demanding contribution along with interest, as mentioned is separate orders passed for said two different periods. Hence, the respondent filed applications under Section 75 of the Act, challenging the said orders. The ESI Court allowed those applications and set aside the orders passed under Section 45A of the Act by the Corporation. So, the appellant-Corporation is before this Court by way of these appeals under Section 82 of the Act.
3. In these appeals, following substantial question of law, arises for consideration:
“Whether in the facts and circumstances of the case, on the ground that the respondent-company has been declared as Sick Unit by BIFR due to financial crisis, the ESI Court was right in setting aside the orders passed under Section 45A of the Act?”
4. Admittedly, the respondent-Company, though covered under the Act and liable to pay contributions under the Act on account of its financial condition, had not paid contributions for the period from April 1998 to March 1999 and also from April 1999 to September 1999. The respondent-Company has been declared as Sick Unit on 31-7-1998. In view of said admitted facts, it is vehemently argued for the respondent-Company that, when the company was and is not in a position to pay wages to its employees and in fact not paid wages during the periods referred to above, there was no question of any deduction to be made in such wages towards contributions under the Act for the said periods and hence, the ESI Court has rightly set aside the impugned orders. On the other hand, placing reliance on various provisions of the Act, it is submitted by the learned Counsel for the Corporation that irrespective of the payment or otherwise of wages and declaration of the respondent-Company as Sick Unit, contributions were required to be made under the Act and as such, setting aside of order on the ground that the Company is declared as sick unit was not proper and correct. Perused the records carefully.
5. “Contribution” means the sum of money payable to the Corporation by the Principal Employer in respect of employee and includes any amount payable by or on behalf of the employee in accordance with the provisions of the Act. Further, Section 1(6) of the ESI Act, which deals with the applicability of the Act, reads as under:
“Section 1(6).–A factory or an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under this Act or the manufacturing process therein ceases to be carried on with the aid of power”.
(emphasis supplied)
6. In the case of Employees’ State Insurance Corporation v. Har-rison Malayalam Private Limited, the Supreme Court has observed that the Act envisages automatic obligation to pay the contribution once the factory or establishment is covered by the Act and the obligation commences from the date of application of the Act to such industry or establishment. So, a factory or establishment, which is covered by the Act, continues to be governed by the Act even if the number of employees employed by it falls below the limit specified or, manufacturing process ceases to be carried on with the aid of power.
7. Now, reference can be had to Section 39(1) and (4) of the Act, which are as under:
” “Section 39. Contributions.–(1) The contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer’s contribution) and contribution payable by the employee (hereinafter referred to as employee’s contribution) and shall be paid to the Corporation.
(2)……
(3)……
(4) The contributions payable in respect of each wage period shall ordinarily fall due on the last day of the wage period, and where an employee is employed for part of the wage period, or is employed under two or more employers during the same wage period, the contributions Khali fall due on such days as may be specified in the regulations”.
(5)(a) If any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has become due, he shall be liable to pay simple interest at the rate of twelve per cent per annum or at such higher rate as may be specified in the regulations till the date of its actual payment”.
(emphasis supplied)
8. That apart, following provisions contained in Section 40(1) and (2) of the Act have importance in the matter to note:
“Section 40. Principal employer to pay contributions 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.
(2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, made thereunder, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employee’s contribution by deduction from his wages and not otherwise”.
(emphasis supplied)
So also Section 41(1) of the Act reads as under:
“Section 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 employer’s contribution as well as 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”.
(emphasis supplied)
9. A combined reading of all the said provisions makes it clear that the payment of contribution is the responsibility of the principal employer after it becomes due and that responsibility does not start only after payment of wages to the employees. In other words, payment of contribution is not made dependant on the factum of payment of wages to the employees since deduction in the wages is after payment of contributions and not vice versa. It need not be said that deduction in the wages takes place only at the time of payment of wages and not earlier to that. Thus, under the scheme of the Act, payment of contributions under the Act is earlier to payment of wages to employees.
10. It is not that the employees have been retrenched or terminated from service or left employment or on their own/voluntarily stopped working in the Company or that they were not eligible or entitled to wages or any part of it. Further, liability to pay ‘wages’ to its employees is not disputed, though the quantum is pending adjudication because of financial condition and not for any other reason.
11. In fact, law provides that where a principal employer fails or neglects to pay contribution, in addition to the power given to the Corporation to recover damages, penalty is also provided, as is clear from Sections 68 and 85B of the Act. Of course, 2nd proviso to Section 85B of the Act shows that, in the case of a Sick Industrial Company in respect of which a scheme for rehabilitation has been sanctioned by BIFR established under Section 4 of Sick Industrial Companies Act, the Corporation is given discretion to reduce/waive the damages recovered under Section 85B of the Act and not that such an establishment is completely exonerated from payment of such contribution or the contribution fallen due is required to be waived in the case of Sick Industrial Unit. If the Legislature intended to exempt unit or waive payment of contribution in such a case, it could have provided for that. It is not that Legislature was unaware of the units becoming sick and applicability of, the Sick Industrial Companies Act to such units, otherwise said proviso would not have been in the statute book. On the other hand, said proviso shows that Legislature was aware of units becoming sick and action to be taken to revive such units, still it has not provided any such provision as found in Section 85B of the Act. So, omission is deliberate and not accidental.
12. Further, when seen the scheme of the Act, which is a beneficial piece of social security legislation, it cannot be said by any stretch of imagination that simply because an establishment having become a Sick Unit is declared so by BIFR under the Sick Industrial Companies Act, it is exempted from payment of contribution or, that it is not liable to pay the contribution fallen due under the Act. So also pendency of an industrial dispute for conciliation before the Assistant Labour Conciliation Officer, does not ipso facto prevents/prohibits the Corporation from passing an order under Section 45A of the Act, more so, when proceedings came to be initiated after order was passed under Sick Industrial Companies Act declaring the unit as sick unit.
13. Last but not least, it is pertinent to note that under the order dated 31-7-1998, the unit was directed to discuss the matter with workers and arrive at some mutually acceptable arrangement within four weeks’ time, which should have been conveyed to BIFR latest by 31-8-1998, which could have included some upfront payment to the workers and the balance to be paid over a mutually agreed period, to be provided for as a part of the rehabilitation scheme. Not only that, the unit was even directed to give its rehabilitation proposal to the DA after trying up the sources of funds and including agreed treatment for the dues of the workers latest by 30-9-1998. In spite of that, what was done by the unit and whether or not any payment was made to the workers towards their wages, was not made known though proceedings for Section 45A started much after the said dates and order. That also shows that the unit has not placed all its cards before the Corporation or Court, though it was for it to submit something about those things to substantiate its stand taken. This also cannot be ignored.
14. Further, it is not that the respondent is not a covered industry under the Act nor, it is the case of respondent that it was not due or not liable to pay contributions. So, capacity to pay the contributions has nothing to do with an order to be passed under Section 45A of the Act, more so, when the scheme of the Act is kept in mind with the purpose for which the Act has been enacted. In fact, in the case of Employees’ Stats Insurance Corporation v. Hotel Kalpaka International, the Supreme Court held that even if an industry is closed, it cannot be said that the liability to pay contribution ceases or, that the demand to enforce payment of contribution cannot be enforced against a closed business since, if such a stand is accepted, it cannot promote the scheme and avoid the mischief.
15. For the aforesaid reasons and discussion made, the impugned orders setting aside the order passed under Section 45A of the Act by the Corporation, cannot be sustained since the ESI Court proceeded on misconceived grounds in support of its orders.
In the result, the appeals are allowed setting aside the impugned
orders.