IN THE HIGH COURT OF KERALA AT ERNAKULAM
Ins.APP.No. 2 of 2008()
1. THE REGIONAL DIRECTOR,
... Petitioner
2. RECOVERY OFFICER, OFFICE OF THE
Vs
1. B.MOHANACHANDRAN NAIR,
... Respondent
For Petitioner :SMT.T.D.RAJALAKSHMY, SC, ESI CORPN.
For Respondent :SRI.SANTHAN V.NAIR
The Hon'ble MR. Justice V.RAMKUMAR
Dated :08/07/2009
O R D E R
V. RAMKUMAR, J.
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Ins. Appeal No. 2 of 2008
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Dated: 8th July 2009
JUDGMENT
“Whether the transferee including lessee
of a factory is liable for the arrears of
contribution due on the date of transfer from
the transferor and if so whether such liability
should subsist even on the date when steps for
recovery are taken ?
This is the question coming up for judicial resolution.
In this appeal filed under Sec. 82 (2) of the Employees
State Insurance Act, 1948 (hereinafter referred to as ” the Act”
for short), the appellants namely Regional Director, E.S.I.
Corporation, Thrissur and its recovery officer challenge the order
dated 30-5-2007 passed by the Employees’ Insurance Court,
Kollam (hereinafter referred to as “the E..I. Court” for short). As
per the impugned order the E..I. Court allowed the application
(I.C. No. 23 of 2003) filed by the respondent herein namely B.
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Mohanachandran Nair, Proprietor of M/s. Prasanthi Cashew
Company, Kollam seeking a declaration that Ext.P8 garnishee
order dated 28-5-2003 issued by the E.S.I. Corporation for the
recovery of a sum of Rs. 42,158/- was unsustainable. The Court
below further directed refund of Rs. 10,550/- deposited by the
respondent herein before the court below on 11-6-2003.
2. The facts leading to the impugned order are as
follows:-
M/s. Prasanthi Cashew Company at Mankadu, Kollam
carries on the business of processing and export of cashew. It
belongs to one Jamaludheen, Kanakavila Puthen Veedu, Beach
North Ward, Kollam . As per Ext.P1 lease agreement dated 12-
9-1997 the factory was leased by the said Jamaludheen to the
respondent Mohanachandran Nair from 12-09-1997 to 31-12-
2000. According to the respondent lessee he took possession of
the factory on 15-9-1997. For realisation of a sum of Rs.
Ins. Appeal No. 2 of 2008 -:3:-
42,158/- by way of contribution due from the factory for the
period from 12-3-1993 to 14-09-1997 the appellant E.S.I.
Corporation issued Ext.P8 garnishee order dated 28-5-2003
against the Manager, Vysiya Bank, Chinnakkada, Kollam for the
said amount standing to the credit of the respondent and calling
upon the Vysiya Bank to pay the said amount to the Corporation
by way of dues pending against the respondent. The respondent
herein, thereupon, filed I.C. 23 of 2003 before the E.S.I. Court
under Sec. 75 to 77 of the Act seeking the following relief:-
“to declare that the Corporation is not entitled to
collect the said amount from the
applicant/respondent by resort to Ext.P8 garnishee
proceedings”
The said application was opposed by the Corporation and the
court below as per the impugned order dated 30-6-2007 allowed
I.C. 23/2003 as mentioned above. Hence, this appeal by the
Corporation.
3. The following substantial question of law has been
formulated at page 3 of the memorandum of appeal:-
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“Whether the E.I. Court was right in concluding that
under Sec. 93 A the transferor is not liable to pay the
arrears pending while the applicant took over the
establishment ?
4. I heard Advocate Smt. T.D. Rajalekshmi, the learned
counsel appearing for the appellants and Adv. Sri. Santhan V.
Nair, the learned counsel appearing for the respondent.
5. The learned counsel appearing for the respondent made
the following submissions before me in support of the impugned
order:-
Eventhough the factory was taken on lease by the
respondent herein from 12-9-1997 to 31-12-2000 he had
surrendered the factory to the lessor, Jamaludheen on 30-11-
1999 and had intimated the said fact to the Corporation as per
Ext.P2 letter dated 14-1-2000. Admittedly, the contribution
period was from 12-3-1993 to 14-09-1997. Admittedly the
respondent has paid all dues during the lease period when he was
the occupier of the factory. The respondent lessee is proceeded
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against not for any arrears due from him during the period of
lease but for the period immediately before the lease in his favour.
On 28-5-2003 when the appellant Corporation issued Ext.P8
garnishee order to the respondent’s bank the respondent had
absolutely nothing to do with the factory. The liability to pay the
amount by virtue of Sec. 40 of the Act is on the principal
employer Jamaludheen. As per the statutory Scheme of the Act
the principal employer after paying the contribution can resort
to Sec. 41 of the Act to recover the dues from the immediate
employer. Since Jamaludheen, the owner of the factory was the
principal employer as defined under Section 2 (17) of the Act, the
Corporation was not entitled to issue Ext.P8 garnishee order. The
respondent relies on the decision of a Division Bench of the
Kerala High Court in Thomas K.C. v. Regional Director E.S.I.C –
1998 – II- LLJ 984.
6. I am afraid that I cannot agree with the above
submissions made on behalf of the respondent herein. There is no
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dispute that the sum of Rs. 42,158/- was due for the period from
12-3-1993 to 14-09-1997. There is also no dispute that as per
Ext.P1 lease agreement dated 12-9-1997 the factory was leased
out to the respondent Mohanachandran Nair by Jamaludheen
the owner for the period from 12-9-1997 to 31-12-2000. Sec.
93 (A) of the Act reads as follows:-
“93 A. Liability in case of transfer of establishment :- Where an
employer, in relation to a factory or establishment, transfers that
factory or establishment in whole or in part, by sale, gift, lease or
license or in any other manner whatsoever, the employer and the
person to whom the factory or establishment is so transferred
shall jointly and severally be liable to pay the amount due in
respect of any contribution or any other amount payable under
this Act in respect of the periods up to the date of such transfer.
Provided that the liability of the transferee shall be limited to
the value of the assets obtained by him by such transfer”.
(emphasis supplied)
Thus, in a case where the factory or establishment has been
transferred by way of lease , both the employer in respect of the
factory or establishment as well as the lessee shall be jointly and
severally be liable to pay the amounts due in respect of any
Ins. Appeal No. 2 of 2008 -:7:-
contribution or any other amount under the Act in respect of the
periods up to the date of such transfer. Hence, with regard to the
amounts due for the period up to the date of transfer both the
employer as well as the transferee are jointly and severally liable
to pay the amount. The argument that from 12-9-1997 till the
termination of the lease period, since the respondent was not the
“principal employer” as defined under Sec. 2 (17) of the Act he
cannot be proceeded against for the dues accrued prior to the
lease period ignores the fact that Sec. 93 – A of the Act is a
special provision which makes the employer and the transferee
jointly and severally responsible for the contribution due prior to
the transfer. When the transferee is also expressly made liable
for the dues by this special provision, then it is unnecessary to
consider whether he is a “principal employer” as defined in
Section 2 (17) of the Act for the purpose of Section 40 of the Act.
Section 93 – A of the Act is an independent provision which
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has a separate existence de hors Section 40 of the Act. That
apart, the definition clause which defines various expressions
itself indicates that the meaning assigned to each expression will
hold good unless there is anything repugnant in the context.
Even otherwise, the definition of “principal employer” also takes
in the occupier of the factory. It is therefore futile for the
respondent to contend that he was not liable for the arrears of
contribution. The respondent cannot take up the plea that it
was Jamaludheen the owner of the factory who was the “principal
employer” and that he alone was solely liable for the
contribution.
7. The further contention of the respondent that the
amount could be recovered from him only when he continued to
be the occupier of the premises on the date of the garnishee order
namely 28-5-2003 is also equally untenable. If under Sec. 93-A
of the Act both the owner as well as the lessee are jointly and
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severally responsible for the dues payable in respect of the factory
up to the date of the lease, merely because the garnishee order is
issued long thereafter does not in any way affect the liability of
the lessee. The Corporation was thus fully justified in realising
the dues by issuing Ext.P8 garnishee order dated 28-5-2003.
The view taken by the E.I. Court that since the claim related to
the period from 12-3-1993 to 14-9-1997 during which period
the respondent was not the occupier of the factory and that he
had nothing to do with the factory on the date of issue of the
garnishee order, the respondent cannot be proceeded against for
the contribution is clearly unsustainable. He was certainly the
occupier of the cashew factory during the lease period
commencing from 12-9-1997. The respondent claims to have
come into possession of the factory on 15-9-1997. The
contribution period was from 12-3-1993 to 14-9-1997. So, he
will be deemed to be the occupier of the factory on the strength
Ins. Appeal No. 2 of 2008 -:10:-
of Ext.P1 agreement. In any view of the matter, he was liable for
the contribution under Sec. 93 – A of the Act. The law does not
insist that such lessee should continue to hold the status of a
transferee even on the date of initiation of proceedings for the
realisation of the dues. Reliance placed by the learned counsel on
the decision of the Division Bench of this Court in Thomas K.C. v.
Regional Director, E.S.I. Corporation (supra) is of no avail since
in that case the question was as to whether for the amounts
which fell due during the period of transfer, instead of the
transferee, the transferor could be proceeded against by the
Corporation. The Division Bench answered the question in the
negative and rightly so because Sec. 93 A of the Act would not
apply to such a situation.
The result of the foregoing discussion is that t the
substantial question of law based on Section 93-A of the Act is
liable to be answered in favour of the appellants and I do so.
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Consequently, the order passed by the E..I. Court is set aside.
Ext.P8 garnishee order is upheld. The refund ordered by the
Court below will also stand set aside. No costs.
Dated this the 8th day of July 2009.
V. RAMKUMAR,
(JUDGE)
ani.