IN THE HIGH COURT OF KERALA AT ERNAKULAM
Ins.APP.No. 11 of 2004()
1. THE REGIONAL DIRECTOR,
... Petitioner
2. THE RECOVERY OFFICER,
Vs
1. THE MANAGING DIRECTOR,
... Respondent
For Petitioner :SRI.T.V.AJAYAKUMAR
For Respondent :SRI.PIRAPPANCODE V.SREEDHARAN NAIR
The Hon'ble MR. Justice J.B.KOSHY
The Hon'ble MR. Justice P.N.RAVINDRAN
Dated :22/05/2008
O R D E R
K. PADMANABHAN NAIR, J.
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INS. APPEAL NO.11 OF 2004
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Dated this the 12th day of March, 2008
R E F E R E N C E O R D E R
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Appeal is filed by the Employees’ State Insurance
Corporation, Thrissur challenging the order passed by the
Employees’ Insurance Court, Kollam, in I.C. No.16 of 2001 by
which the respondent, a Co-operative Society, fully owned by
the Government, was exonerated from payment of damages.
Respondent-Society was constituted to provide employment
opportunities to unemployed Engineers and Technicians.
Appellants demanded contribution to the extent of
Rs.1,14,396/-. Subsequently, appellants demanded
Rs.1,84,994/- as damages on account of delayed payment.
Challenging that order, respondent filed I.C. No.16 of 2001
before the EI Court, Kollam.
2. The main contention raised was that though the
Society is fully owned by the State Government and State
Government have promised to make available necessary
working capital, the same was not done and on account of
INS. APPEAL NO.11 OF 2004
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that fact delay in remitting the contribution occurred. The
period for which contribution was claimed was from 4/1992 to
7/1994. The EI Court took a view that the respondent was in
financial crisis and it was allowed to pay the contribution in
instalments and as such it was not liable to pay damages. In
Chandrasenan v. Regional Director, E.S.I.
Corporation (1996 (1) KLT 243) a Division Bench of this
Court held that the fact that employer was allowed to pay the
contribution in instalments is not a ground to exempt it from
paying the damages.
3. Learned counsel appearing for the respondent has
placed reliance on a decision reported in E.S.I.
Corporation v. Premanandan (2007 (2) KLT 666) in
which it was held that if imposition of damages is by way of
penalty, then such damages can be imposed only in
accordance with the principles applicable for imposing penalty
for failure to carry out a statutory obligation. It was further
held that damages cannot be imposed unless the party acted
either deliberately or in defiance of law or was guilty of
INS. APPEAL NO.11 OF 2004
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contumacious or dishonest conduct. The Division Bench also
considered Regulation 31C of Employees State Insurance
(General) Regulations, 1950 and held that Regulation 31C
would only be guidelines in the matter of imposition of
damages and percentage fixed is not absolute. Shri
T.V.Ajayakumar, learned counsel appearing for the appellants,
argued that in M/s. Prestolite of India Ltd. v.
Regional Director (AIR 1994 SC 521) the Apex Court held
that while adjudicating damages, the adjudicating authority
can take mitigating circumstance into consideration, but
should not act mechanically in applying upper most limit of
damages. It is argued that in Sovin Knit Works v. E.S.I.
Corpn. (AIR 1997 SC 1771) the Apex Court had taken a view
that in the case of non-compliance of the provisions of the
Act by the employer, the demand is valid. In M/s.
Hindustan Times Ltd. v. Union of India (AIR 1998 SC
688) it was held that financial difficulties of the employer is
not a ground to exempt it from payment of damages. Learned
counsel also relied on an unreported decision of this Court in
INS. APPEAL NO.11 OF 2004
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R.P. No.732 of 2007 in Ins. Appeal No.25 of 2003
decided on 14.9.2003. In Ins.Appeal No.25 of 2003 a Division
Bench of this Court took a view that unless the employer is
guilty of contumacious or dishonest conduct or acted in
conscious disregard of its obligation, damage is not leviable.
Appellant in that appeal filed R.P. No.732 of 2003 and in the
R.P. the Division Bench has clarified that the legal principles
laid down by this Court in the present case shall not be treated
as having general application and it shall not be a precedent.
4. In Emp. State Insurance Corporation v.
H.M.T. Ltd. & Anr. (2008 (1) SCALE 341) the Apex Court
has held that the ESI Act was enacted to provide certain
benefits to the employees of an establishment in case of
sickness, maternity and employment injury and to make
provisions for certain other matters in relation thereto.
5. It was also held that existence of mens rea or actus
reus to contravene a statutory provision must also be held to
be a necessary ingredient for levy of damages and/or the
quantum thereof.
6. Regulation 31C was initially introduced in the
INS. APPEAL NO.11 OF 2004
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Regulations with effect from 1.1.1992. It reads as follows:
31-C. Damages or contribution
or any other amount due, but not paid
in time. – An employer who fails to pay
contributions within the periods specified
under Regulation 31 or any other amount
payable under the Act, shall be liable to
pay damages as under.
It is argued that Regulation 31C was amended with effect
from 27.3.2003. It was contended that before amendment in
2003 once the court finds that employer is liable to pay
damage it has no discretion at all, but damage is to be
imposed as provided in Regulation 31C of the Regulations
because of the mandatory provisions contained in that
Regulation. It is pointed out that Premanandan’s case
(supra) arose in the year 1999. So the provision contained in
amended Regulation 31C has no application to the facts of
that case and in this case. It is also pointed out that
challenging the decision in Premanandan’s case (supra)
appellant had filed SLP No.9899 of 2007 before the Apex
Court and the same is pending. Considering all aspects of
the matter, I am of the view that the principles laid down in
INS. APPEAL NO.11 OF 2004
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Premanandan’s case (supra) require reconsideration. For
that purpose the case is to be heard by a Division Bench.
In the result, the appeal is adjourned to be heard and
determined by a Bench of two Judges. The Registry is directed
to place the file before the Honourable the Chief Justice for
appropriate orders.
K. PADMANABHAN NAIR, JUDGE.
vsv
K. PADMANABHAN NAIR, J.
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M.F.A.
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J U D G M E N T
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TH MARCH, 2008