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Judgment
Mr. Alladi Kuppuswami, J.—These appeals are preferred by the Employees'' State Insurance Corporation (referred to hereinafter as the Corporation) against the orders of the Employees'' Insurance Court at Hyderabad allowing the application filed by the respondent in each of these appeals for a declaration that the order passed by the Regional Director of the Corporation levying damages under Sec. 85-B of the Employees'' State Insurance Act (referred to herein as the Act) for delayed payment of the amount of contributions by the employee. Though the respondents in these appeals are different, as a common quest ion arises for consideration, they have been heard together and disposed of by this common judgment. In order to appreciate the contentions raised in these appeals it is sufficient to set out the facts in one of them, namely. C. M. A. 653/77.
The respondent herein is covered under the provisions of the Employees'' State Insurance Act, 1948. Under the said Act the principal employer has to pay in respect of every employee both the Employer''s contribution and the employees'' contribution. These contributions are to be paid at the rates specified in the first Schedule. One week is the unit in respect of which all contributions shall be payable and the contributions payable in respect of each week shall ordinarily fall due on the last day of the week. Under the Regulations framed in pursuance of Sec. 43 of the Act, the employer has to pay the contribution within 21 days after the termination of the contribution period in respect of every employee, the contribution period being defined in Sec. 2 (5) of the Act as a period being not less then 25 but not exceeding 27 consecutive weeks or six consecutive months as may be specified in the Regulation. Regulation 4 specifies the contribution period. Under regulation 31 (c) the employer is obliged to pay contribution within certain specified periods and regulation 29 lays down that every contribution shall be paid by affixing contribution stamps on the contribution card of the employees which is issued in respect of an insured person for the purpose of affixing contribution stamps. Regulation 25 prescribes the time limit within which the contribution cards should be sent to the appropriate office of the Corporation. Under Sec. 85-B of the Act, which came into force on 1-9-1975, it is provided that where an employer fails to pay the amount due in respect of any contribution, the Corporation may recover from him such damages not exceeding the amount of arrears as it may think fit to impose provided that before recovering the said damages the employer shall be given a reasonable opportunity of being heard. Under Sec. 18 of the Act it is provided that a Standing Committee shall administer the affairs of the Corporation and may exercise any of the powers and perform any of the functions of the Corporation subject to the general superintendence and control of the Corporation. In exercise of this power the Standing Committee passed a resolution on 20-12-1975 to the effect that the Director General or any other officer authorised by him may levy and recover damages according to a table provided for levying damages in a sliding scale, the rates varying with reference to the number of defaults and the period of default.
The Regional Director issued a notice to the respondent herein stating that they had failed to pay the contributions as they committed default in making payment of the contributions within the stipulated time as provided under the Regulations as per the details furnished in the enclosed Statement. The enclosed statement contained a list of the contribution periods, date of the submission of the contribution cards the due date of submission and the extent of delay in submitting the cards. The damages were worked out according to the percentage of amount of contribution as prescribed in the table, which as has already been noted, depends upon the number of times the default has been committed and the extern of delay. It was stated in the notice that the total damages so worked out would be Rs. 5, 527/-. The respondent was asked to show cause why damages proposed should not be recovered. After giving an opportunity to the respondents to make a representation, the Regional Director passed an order arriving at the damages at Rs. 4,734/- as he held that the employer had purchased stamps for a particular contribution period in time and there was no delay. He stated that there were no valid grounds for waiving damages for the period for which there was delay in payment of contribution.
The respondent herein made an application Under Sec. 75 of the Act challenging the above order. The main contention that was raised was that the petitioner had made the payment of contribution by depositing the required amount and purchased stamps and had also affixed the stamps on the contribution cards. The submission of contribution cards was only a formality and the delay in submitting the cards cannot constitute failure to pay the contribution amount within the meaning of Sec. 85-B of the Act. It was further contended that under Sec. 85-B the authority was entitled only to recover damages from the employer for failure to pay the contribution. The expression ''damages'' pre-supposes loss or injury to the corporation by reason of the delay in payment. As no such loss or injury was proved to have been caused, the order levying damage was illegal.
The Employees Insurance Court held that delay in affixture or the delay in submission of cards will not constitute failure to pay contribution within the meaning of Sec. 85-B of the Act. In this case as the Stamps were affixed though after some delay and the cards were submitted after the prescribed period, it cannot be said that there was failure to pay the contribution amount so as to attract the penal consequences provided under Sec. 85-B of the Act. It further held that Sec.85-B authorises only recovery of damages and the liability to pay damages arises only when a party suffers some loss or sustains injury and without a person incurring such loss or sustaining injury it is not possible to recover damages. As the order passed by the Regional Director does not at all state what loss was suffered or what injury was sustained by the Corporation on account of the delay in affixing the stamps to the cards or submitting the cards to the appropriate officer, the Corporation cannot recover damages. The Insurance Court held that the impugned order is illegal for this reason also.
A further contention was also raised before the Insurance Court that Sec. 85-B of the Act was ultra vires as the power conferred under that Section to recover damages was uncanalised and uncontrolled as no criteria or standards are formulated and that conferment of such unguided power enables them to indulge in arbitrary and capricious exercise of the powers and hence Sec. 85-B was violative of Art. 14 of the Constitution. The court observed that it was unnecessary to go into that question as it is possible to dispose of the case even on the hypothesis that Sec. 85-B of the Act is a valid provision and does not offend any of the provisions contained in the Constitution.
In the result the Insurance Court allowed the petition of the respondent herein and set aside the order of the Regional Director levying damages under Sec. 85-B of the Act.
This appeal has been preferred by the Corporation against the said order under Sec.82 of the Act which provides for an appeal to the High Court from an order of the Insurance Court if it involves a substantial question of law.
The learned Counsel for the Corporation-appellant submitted that the Insurance Court was wrong in holding the delay in affixing the stamps or in submitting the Contribution cards did not amount to failure to pay within the meaning of Sec. 85-B of the Act, He also submitted that the Insurance Court erred in holding that the Corporation cannot recover damages without proving loss or injury on the part of the corporation. The counsel for the respondents while supporting the reasoning and conclusion of the insurance Court submitted as follows:-
1) Sec. 85-B of the Act is ultravires the Constitution and, hence the Corporation is not entitled to recover any damages under that section;
2) Sec. 85-B of the Act authorises the Corporation to recover damages only if the employer fails to pay the contribution amount. The ''failure'' referred to in the Section means only the total failure to pay the amount and the Corporation is not entitled to recover damages merely on the ground that there was delay in payment of the amount.
3) Even assuming that delay in payment of the amount constitutes failure to pay the amount within the meaning of Sec. 85-B there is no delay in paying the amount in this case. Once the employer pays the amount and purchases the contribution stamps there is payment of the contribution. The delay in affixing the stamps or submitting the contribution cards cannot amount to delay in payment. As the Regional Director proceeded through out on the footing that the delay in submitting the contributions cards amounts to delay in payment which is equivalent to failure of payment the impugned order is ill, and
4) Under Sec. 85-B of the Act, the Corporation is entitled to recover damages. The expression ''damages'' pre-supposes loss or injury to the Corporation. In the absence of any finding that the Corporation has suffered any loss or injury, the Regional Director erred in holding that the corporation was entitled to recover damages.
In order to appreciate the contentions on both sides, it is necessary to set out the relevant provisions of the Act and the Regulations. As stated in the preamble, the object of the Act is to provide benefits to employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto. Under Sec. 2 of the Act all contributions paid under the Act and all other moneys received on behalf of the Corporation shall be paid into a fund called the Employees State Insurance Fund which shall be held and administered by the Corporation for the purpose of the Act. Sec. 26 (3) provides that subject to the other provisions all moneys accruing or payable to the said Fund shall be paid into the Reserve Bank of India or such other bank as may be approved by the Central Government to the credit of an account styled "the account of Employees'' State Insurance Fund". The account shall be operated on by such officers as may be authorised by the Standing Committee with the approval of the Corporation. Section 28 provides that the fund shall be expended only for the purposes mentioned in that section and for such other purposes as may be authorised by the Corporation with the previous approval of the Central Government. Chapter IV deals with contributions. Sec. 38 provides that all employees in factories or establishments to which the Act applies shall be insured. Section 39 states that the Contribution payable in respect of an employee shall comprise contribution payable by the employee and contribution payable by the employer and these contributions shall, be paid at the rates specified in the First Schedule. A week shall be the unit in respect of which all contributions shall be payable under the Act. Sec. 39 (4) states the contributions payable in respect of each week shall ordinarily fall due on the last day of the week, and where an employee is employed for part of the week, or is employed under two or more employers during the same week, contributions shall fall due on such days as may be specified in the regulation. Sec.40 provides that the principal employer shall pay in respect of every employee, both the employer''s contribution and the employee''s contribution. He will be entitled to recover from the employee the employee''s contribution by deduction from his wages. Any sum deducted by the principal employer from wages under the Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted,. The principal employer has to bear the expenses of remitting the contributions to the corporation. Sec.42 (2) provides that both the employer''s contribution and the employee''s contribution shall be payable for each week in respect of the whole or part of which wages are payable to the employee and not otherwise.
Section 43 is as follows:-
"Subject to the provisions of the Act, the Corporation may make regulations for any matter relating or incidental to the payment and collections of contributions payable under this Act and without prejudice to the generality of the foregoing power regulations may provide for- -
(a) the manner and time of payment of contributions;
(b) the payment of contributions means of adhessive or other stamps affixed to or impressed upon books or cards or otherwise and regulating the manner, and conditions in, at and under which, such stamps are to be affixed or impressed.
(bb) the date by which evidence of contributions have to be paid is to be received by the Corporation;
(c) the entry in or upon books or cards of particulars of contributions paid and benefits distributed in the case of the insured persons to whom such books or cards relate; and
(d) the issue, sale, custody, production, inspection and delivery of books or cards and the replacement of books or cards which have been lost, destroyed, or defaced".
Chapter V deals with the benefits to which the insured person are entitled. Chapter VII deals with penalties. Sec 85 provides for punishment for failure to pay contributions which any person is liable to pay under the Act by way of imprisonment which may extend to three months or with fine which may extend to five hundred rupees or with both. Sec. 85 was amended by Act 38 of 75 by increasing the maximum period of punishment to six months and the maximum fine to Rs. 2,000/-. The amending Act also introduced Sec. 85 A and 85-B which as are follows:-
85-A Whoever, having been convicted by a Court of an offence punishable under this Act, commits the offence shall, for every such subsequent offence be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to two thousand rupees, or with both;
Provided that where such subsequent offence is for failure by the employer to pay any contribution which under this Act he is liable to pay, he shall, for every such subsequent offence, be punishable with imprisonment for a term which may extend to one year but which shall not be less than three months and shall also be liable to fine which may extend to four thousand rupees,
85-B. (1) Where an employer fails to pay the amount due in respect of any contribution or any other amount payable under this Act, the Corporation may recover from the employer such damages not exceeding the amount of arrears as it may think fit to impose; Provided that before recovering such damages, the employer shall be given a reasonable opportunity of being heard.
(2) Any damages recoverable under Sub-sec. (1) of 85-B shall be recovered as an arrear of land revenue."-
Section 97 confers power on the Corporation to make regulations, for carrying into effect the purposes of the Act and other matters referred to in Sec. 97 (2). In particular regulations may be made with regard to the manner in which the contribution payable under the Act shall be assessed and collected and the levy of interest at a rate not exceeding six per cent per annum on contributions due but not paid. It has already been noticed that under Sec. 43 it is stated that regulation may provide for the manner and time of payment of contributions etc. In pursuance of this power Employees'' State Insurance (General) Regulations 1950, were made. Chapter II of the Regulations deals with the collection of contributions etc. Reg. 13 states that the employer shall prepare a contribution card in "Form 2" in respect of every employee in his employment. Reg. 19 states that the contribution card shall be current till the end of the contribution period in respect of the person to whom it relates, Under Reg. 21 the custody of the card should be with the employer. Reg. 26 provides that the employer shall send the contribution card by registered post together with a return in triplicate in Form 6 to the appropriate office within 42 days of the termination of the contribution period to which it relates. Reg. 26 (2) says that for purposes of Sec. 77 of the Act the due date by which the evidence of contributions having been paid must reach the Corporation on the last of the days respectively specified in clauses (a), (b), (c) and (d) of sub-regulation (1). Reg. 29 which is the most important regulation in connection with the questions arising in these appeals is to the following effect:
"29. Every contribution payable under the Act shall, except as otherwise provided herein, be paid by affixing contribution stamps on the contribution Card of the employee in the space indicated for that purpose upon the Card. The Contribution stamps shall be of such shape and design as the Corporation may from time to time determine, and shall be sold in such manner and at such agencies, the Corporation may notify from time to time:
Provided that in the case of an exempted employee in respect of whom contribution would have been payable if the provisions of Chapter V-A of the Act had not been in force, the fact that such contribution would have been so payable shall be indicated by affixing a token stamp on the contribution card of that employee in the space provided for the purpose:
Contribution stamps shall be purchased from any agency duly authorised by the Corporation and from no other source. Stamps once purchased from an authorised agency shall not be transferable thereafter. Contribution Stamps purchased otherwise than in accordance with the provisions of this regulation shall not be deemed to be contribution stamps for purposes of these regulations."
Reg. 30 directs the employer to keep a contribution stamp/franks book in which shall be entered all purchases/settings and utilisation of contribution stamp/franks as the case may be by the employer.
Reg. 31 is as follows:-
"An employer who is liable to pay contribution in respect of any employee shall pay those contributions within the following periods:
a) within 21 days of the last day of the wage period in which the contribution falls due;
b) within 14 days of the termination of employment, irrespective of whether the employment is terminated with or without notice;
c) within 21 days after the termination of the contribution period in respect of every employee;
whichever period is earlier;
Provided that, in the case of an exempted employee the token stamp in respect of any week shall be affixed within such time as the contribution in respect of that week would have been payable if the provisions of Chapter V-A of the Act has not been in force."
Reg. 31-A provides that if an employer fails to pay contributions within the period specified in Regulation 31 he shall be liable to pay also interest at the rate of 6 per cent per annum in respect of each day of default or delay in payment of contributions. Reg. 34 provides that an employer shall immediately after affixing a contribution stamp to any contribution card can stamp in the manner specified in the regulation. Reg. 43 states that where any person is in possession of a contribution stamp which has not been spoiled or rendered unfit or useless for the purpose intended, but for which he has not immediate use, the Corporation shall repay him the value of the contribution stamp in money, upon his delivering up the contribution stamp to be cancelled.
We now proceed to deal with the several points that arise for consideration in the appeals.
(1) Sec. 85-B- Whether Ultravires:
Sri P.R. Ramachandra Rao, learned counsel for the respondent in C.M.A. No. 60/78 argued that Sec. 85-B is ultravires the Constitution. He submitted that under Sec. 85-B the Corporation is entitled to recover from the employer such damages as it may think fit where the employer fails to pay the contribution amount or any other amount. Thus it confers unguided power on the Corporation to levy damages. No guide lines are fixed and hence it enables the Corporation to discriminate between the various employers. It is therefore violative of Art. 14 of Constitution.
Before considering this question we may point out that the Tribunal, namely, the Employees Insurance Court which is constituted under the Act for the purpose of deciding disputes arising under the Act has no jurisdiction to consider the validity or constitutionality of any provision of the Act. These appeals have been preferred against the decision of the Tribunal. It is well settled that the power of an appellate court are coextensive with those of the original court or tribunal. Hence, In our view it is not permissible for the petitioner to raise any contention regarding the vires of the Act or any provisions thereof in these appeals also,
Even on the merits, we do not see any substance in the contention that Sec. 85-B is ultrarires the Constitution on the grounds referred to above. Sec. 85-B no doubt provides that the Corporation may recover such damages "as it may think fit to impose". But there is sufficient safeguard in the section itself by providing that the damages should not exceed the amount of arrears. In other words, a maximum limit is fixed under the Act. Moreover in the view we are taking (vide our discussion in regard to contentions 3 and 4), the Corporation is entitled to levy damages only if it is satisfied that failure to pay the amount is without any reasonable cause and the amount of damages will have to be arrived at after consideration of the entire circumstances of the case,. In this connection it has also to be noticed that the Corporation is bound to give the employer a reasonable opportunity of being heard before recovering such damages. All these are sufficient safeguards against arbitrary and capricious exercise of the power to levy damages. We are therefore of the view that Sec. 85-B cannot be assailed on the ground of excessive delegation of the power to recover damages or that it is repugnant to Art. 14 of the Constitution.
Sri Srinivasamurthy, who appeared for respondents in some appeals raised a further contention that the contribution is in the nature of a fee as the purpose of levying contributions from the employers and the employees is to create a fund called "Employees State Insurance Fund" which will be utilised from time to time in awarding sickness, maternity or employment injury benefits to the various employees. He submitted that a fee from its very nature must be commensurate with the services rendered. On the other band the damages which are recovered for failure to pay the amounts have no relation at all to any benefit conferred on the employees or services rendered to them. In this connection be drew our attention to a decision of a Bench of this Court in Foods, Fats and Fertilisers Ltd. Tadepalligudem vs. the Regional Director of Employee''s State Insurance Corporation A.P. and Another 1972 A.P.H.C. Notes 112. In that case though the provisions of chapters. IV and V of the Employees State Insurance Act were not made applicable to the areas where the petitioner''s factory was located, yet it was required to pay under Sec. 77 of the Act the special contributions at certain percentages of the total wages of its employees. This court held that such a demand was not valid. It observed that the main feature of a fee is the service rendered in Quid Pro Quo of the fee. The services must be rendered to those who are made to pay the fee although some of them may not actually get the benefit. We do not see how this decision is of any assistance to the appellants. In this case there cannot be any doubt that the damages recovered also goes into the insurance fund and along with the contribution amounts they will be utilised for the benefit of the employees in all the factories.
The learned Counsel for the Corporation drew our attention to a decision in The Commissioner of Coal Mines Provident Fund, Dhanbad and Others Vs. J.P. Lalla and Sons, which affirmed the judgment of the Patna High Court in J.P. Lalal Sons vs. Commr. of Coal Mines P.F 41 F. J. R. P. 219 The decision relates to Coal Mines Provident Fund and Bonus Schemes Act, 1948. Sec. 10-F of the Act provides that where an employer makes default in the payment of any contribution the, Central Government may recover from him such damages not exceeding twenty five per cent of the amount of arrears, as it may think fit to impose. The Patna High Court held that it cannot he said that the Parliament has conferred uncontrolled powers on the Government or that the section suffers from the vice of excessive delegation. It is true that the Supreme Court concerned itself only with the question whether an opportunity should be given to the employer to represent his case and held that such an opportunity should be given before the damages are determined. But it has to be noticed that in paragraph 4 the Supreme Court observed that the High Court had given two reasons for quashing the demand notice, firstly that the computation of amount or damages should arise upon consideration of facts and circumstances and a mechanical computation of damages is not contemplated and secondly, the authorities should have given opportunity to the employer to represent the case. The Supreme Court also observed that the determination of damages is not an inflexible application of a rigid formula and that the words "as it may think fit to impose" show that the authorities are required to apply their mind to the facts and circumstances of the case. It is true that there was no contention before the Supreme Court that sec.10-F was ultravires and the Supreme Court did not address itself to the question. But the observation of the Supreme Court do lend support to the contention that there are sufficient guidelines and safeguards and hence the conferment of the power to levy damages cannot he held to be a conferment of arbitrary or capricious power enabling the Central Government to discriminate and thus violates Art.14 of the Constitution. Sec.85-B of the Employees'' State Insurance Act is practically in the same terms of Sec. 10-F of the Coal Mines Provident Fund Act. For the above reasons we reject the contention that sec.85-B is ultra vires the Constitution.
2) Failure to pay - meaning of:
The contention of the respondents which has found favour with the Insurance Court is that the Corporation is entitled to recover damages only where there is a total failure to pay and not where there is a mere delay in payment. In this case even assuming that there was delay in buying the contribution stamps or affixing them to the contribution cards or sending the contribution cards to the appropriate authority, it cannot be said there was any failure to pay the contribution. Hence no damages could be levied. On the other hand it is contended by the learned counsel for the Corporation that the moment there is a failure to pay the contribution within the period prescribed by the Act, the employer must be said to have failed to pay the amount within the meaning of Sec 85-B. In other words, even delay in payment amounts to failure in payment. We are inclined to agree with this contention. The main object of Sec.85-B is to ape that the employer pays the contribution amount in time. If the employer does not pay the contribution amount in time it will lead to serious hardship to the employees who have to receive various benefits from out of the insurance fund. To accept the argument of the respondents would mean that whatever may be the extent of delay the employer cannot be penalised if ultimately he pays the contribution amount. In our view when the Act provides that the amount should be paid within a particular period and it is not so paid, immediately there is a failure to pay the amount. If failure is construed as total failure only, when does such total failure occur? Is it to be ascertained with reference to the date of the issue of the notice or when the final order levying damages is passed. Whenever the Corporation gives a notice as required under Sec.85-B to show cause why damages should not be levied, the employer can, immediately thereafter, before a final order recovering damages is passed, pay the contribution and argue that there is no failure to pay the contribution but there has been only a delay in paying the amount. Thus Sec. 85-B will be completely rendered otiose. Sri Jagannadha Rao, learned Counsel for the respondents drew out attention to Sec. 85-A which provides for punishment by way of imprisonment for failure to pay any contribution. He submitted that it could not have been the intention of the Act that for mere delay in payment of the amount it was intended that the person in default should undergo imprisonment. It will however be apparent from our discussion in connection with the contentions following, that the expression "failure" occuring both in sec. 85-A and 85-B has to be construed as ''failure without reasonable cause''. Hence, before a penalty is imposed under Sec. 85-A or damages arc recovered under Sec. 85-B it must be shown that the failure was without any justifiable cause. Therefore, there is no injustice caused to the employers if the expression ''failure'' in Sec. 85-B is also construed as including delay in payment as long as it is also noted that the failure must be a failure without reasonable or justifiable cause. In Murarka Paint and Varnish Work Ltd. and Another Vs. Union of India and Others, dealing with Sec. 14 of the Employees'' Provident Fund Act which provides that- where an employer makes default in the payment, the Central Provident Fund Commissioner can recover damages, it was held that a failure to make the payment within the time stipulated amounts to default of payment. It was held that there was nothing in the language used in the section which cuts down the meaning of the expression "default" and limits it only to the failure to pay. Failure to pay within the time stipulated would also be default in the payment of contribution to the fund. On the same reasoning, failure to pay within the time stipulated would be failure to pay within the meaning of Sec. 85-B of the Employees'' State Insurance Act. The Employees'' Insurance Court distinguished the decision of the Calcutta High Court stating that the expression used in Sec. 14 of the Employees Provident Fund Act as default in payment; whereas the expression used in sec. 85-B of the Employees State Insurance Act is ''failure to pay''. We do not see any distinction between the two phrases ''failure to pay'' or ''default in payment''. For all the above reasons we do not agree with the contention urged on behalf of the respondents that Sec. 85-B will not apply to cases of delay in payment, and that is confined only to cases where there is total failure to pay the contribution.
(3) What amounts to payment:
The order of the Deputy Regional Director levying damages taken along with the statement contained in the show cause notice makes it clear that the failure to submit the contribution cards within the stipulated time has been regarded as failure to pay the contribution amount. The statement gives the due date of the submission of the contribution cards and the actual dates when they were submitted. The damage is worked out on ascertain percentage which varies according to the extent of delay and also with reference the number of occasions on which the delay has occured. The contention of the respondents is that even if the delay in payment is regarded as equivalent to failure to pay, the time of payment must be judged with reference to the time when the actual amount was paid into the Reserve Bank of India and the stamps purchased. It is argued that the moment the amount is paid into the Bank there has been a payment of contribution. The submission of contribution cards is only with a view to satisfy the authorities concerned that payment has been made. The learned counsel for the Corporation contended, firstly that it is only when the contribution cards are sent to the authority concerned that there can said to be a payment. Even if that position is not. accepted, he submitted that the time of payment has to be judged with reference to the affixing of the stamps on the contribution cards. We have already set out the relevant provisions of the Act and the Regulations We are of the view that the payment must be said to be made only when the stamps are affixed to the contribution cards. We are unable to accept the extreme contention urged on behalf of either side, namely, that submission of contribution cards alone has to be taken into consideration as contended by the Corporation, or the date when the amount is deposited into the Reserve Bank of India for the purchase of stamps should be the criterion as urged by the respondents.
As noticed earlier, sec. 43 provides that the corporation may make Regulations for any matter relating or incidental to the payment and collections of contributions and without prejudice to the generality of the foregoing regulations may provide for
a) the manner and time of payment of contributions;
b) the payment of contributions by means of adhesive or other stamps affixed to or impressed upon books or cards: and
c) the date by which evidence of contributions having been paid is to be received by the Corporation.
Under Regulation 29 it is expressly provided that every contribution shall be paid by affixing contribution stamps on the contribution cards. It is thus clear from this regulation that the mode of payment of contribution is by affixing the contribution stamps. In the face of this express provision, it is to beheld that the payment is made only when the stamps are affixed to the contribution cards. It was argued that it is difficult to fix the exact date when the stamps are affixed to the contribution cards as that would be within the knowledge only of the employer. This apprehension is unfounded as regulation 34 provides that an employer shall immediately after affixing a contribution stamp to any contribution card cancel the stamp by writing in ink across the face of the stamp, the date upon which it is affixed. In form IV for the receipt of the contribution cards the particulars of the value of the stamps affixed and date of cancellation are to be noted. Thus, there will be no difficulty in finding out the date when the stamps are affixed and cancelled. It may also be noticed that regulation 33 provides for the Director General approving of any arrangement including payment in cash whereby contributions are paid or in a manner other than those specified in the regulations. Regulation 33 is in the nature of an exception to the general rule contained in regulation 29 regarding payment of contribution by stamps. Except in cases covered by regulation 33 it follows that the normal payment of contribution is by affixture and cancellation of stamps. The submission of the card is only by way of evidence of the payment as the card will show when the stamps were affixed and cancelled or not. Reference was made by the learned counsel for the Corporation to regulation 26 (2) which says for purposes of Sec. 77 of the Act the due date by which the evidence of contributions having been paid must reach the Corporation, shall be the last of the days respectively specified in clauses (a), (b), (c) and (d) of sub-regulation (I), which prescribes the time within which the contribution cards must be sent to the appropriate office in different cases. We do not see how this regulation is of any assistance to the appellant. Sec. 77 deals with the period of limitation for commencing proceedings before the Employees Insurance Court and in Particular Sec. 77 (1) (b) prescribes when the cause of action in respect of a claim by the Corporation for recovering contributions arises and states that it shall not be deemed to arise till the date by which the evidence of contributions having been paid is to be submitted to the corporation. This does not throw any light on the question when the contribution is said to have been paid. The expression used is significant, namely, "the date by which the evidence of contributions having been paid". If it was intended that date of sending the contribution card should be deemed to be the date of payment, there was no difficulty in using the appropriate language. In this connection form VI also, namely statement of contribution cards may be considered. In that, there is a declaration that contributions shown on the cards have been actually paid in accordance with the provisions of the Act and the regulations relating to the payment of contribution and fixing of stamps. It is clear from this that affixture and cancellation of stamps is regarded as equivalent to payment.
The contention of the respondents is that the payment of amount into the Reserve Bank of India for the purchase of stamps is equivalent to payment of contribution. It is argued that the employer fulfills his obligation by paying the amount into bank. He is not to be held responsible if the stamps are not furnished to him, Immediately on such payment, the amount is credited into an account called "Employees State Insurance Account". All the contributions and other moneys are paid into this Employees Insurance fund and under Sec. 28 the fund shall be expended for the purpose of payment of benefits to various employees. It is therefore submitted that the moment the amount is paid into the bank and it is credited to the fund, the employer must be said to have paid the contribution. The affixture and cancellation of stamps is only for the purpose of providing evidence for such payment. This argument would have had considerable force had it not been for the express provision in Sec. 29 which says that the payment of contribution shall be by affixing contribution stamps. It is also to be noted that under regulation 43 if any person Is possessed of contribution stamps for which he has no immediate use, the Corporation is bound to repay the value of the stamps in money upon his delivering the contribution stamps: This would indicate that until and unless the stamp is affixed and cancelled there is no payment and the unused stamps can be returned and refund obtained. We are therefore of the view that payment must be said to have been made only when the stamps are affixed And cancelled. The same view was expressed in E.S.I.C, vs. Birla C.S. & W. Mills 1977-II LLJ. 420 As the Regional Director has proceeded throughout on the footing that the date of submission of the contribution cards is the material date, it follows that the order has to be set aside on this ground.
(4) Whether failure to pay should be for a reasonable or justifiable cause?
It is further contended by the respondents that liability for damages Will not arise unless there is a failure to pay without reasonable or justifiable cause. Though Sec. 85-B merely states that when an employer Tails to pay the amount due, the Corporation may recover damages it is implied that such failure must be without any reasonable or justifiable cause. We are inclined to agree with this submission also. In this connection it is to be noticed that not only is the Corporation entitled to recover damages in the case of failure to pay, but under Sec. 85-A failure to pay will in some cases, attract punishment by way of imprisonment or with fine. It could not have been intended that the employer should be penalised for failure to pay in the manner provided under Sec. 85-A or Sec. 85-B even though such failure was for a reasonable or justifiable cause. Many situations can be imagined when the employer is unable to pay inspite of best efforts on his part. It may be that the stamps are not available or as alleged in some cases the franking machine might have gone out of order; with the result the employer is not able to affix and cancel the stamps. There may be other justifiable reasons for failure to affix and cancel the stamps within the time. It has already been seen that sec. 85-B provides for a reasonable opportunity being given to the employer of being heard before damages are levied. If, irrespective of any conduct on the part of the employer, failure to pay is said to occur when the stamps are not cancelled or affixed within the time there is no purpose in giving an opportunity to the employer of being heard. In our View the provision for an opportunity is made only because it is implied that the failure must be without reasonable or justifiable cause and the employer is given the opportunity to show that there was reasonable or justifiable cause for such failure. We therefore agree with the submission that the failure to pay enabling the Corporation to levy damages should be failure without reasonable or justifiable cause. In this case, admittedly the Regional Director did not consider the representations of the employers as to the reasons for their failure to pay and whether there was any justifiable or reasonable cause for non-payment. He proceeded on the footing that when there is delay in payment automatically there is liability to pay damages. We are of the view that on this ground also, the decision of the Regional Director levying damages in all cases has to be set aside.
(4) Damages-nature of;
The last contention is that under sec. 85-B the Corporation is entitled to recover damages not exceeding the amount of arrears as it may think fit to impose. The expression ''damages'' means ''pecuniary compensation recoverable in law by a person who has sustained some injury or loss by act or default of another.'' Hence, unless the Corporation proves that it has suffered loss or injury it is not entitled to claim damages. Even then the extent of damages must be co-related to compensation for the loss or injury suffered. In this case by mere delay in payment the Corporation has not suffered any loss or injury and it is not therefore entitled to claim damages. In any event the Regional Director has not arrived at the amount due to the Corporation with reference to any loss or injury caused to the Corporation, but has fixed the damages according to the scale prescribed by the Committee. The Standing Committee of the Corporation approved and recommended the resolution of the Corporation that for the purpose of levy of damages under Sec. 85-B the Director General or any other officer authorised by him "may levy and recover damages, not exceeding the rates indicated in the following table. The table provides for damages on a certain percentage of the contribution varying according to the delay in payment ranging from 2% where the delay is for one month or less to 100% where it is over 12 months. These rates are applicable in the case of first default. In the case of second and subsequent defaults, upto 12th default the rate i.e. 55 per cent for delay of one month or less and 100 per cent for delay over 12 months. Thus, it is seen that the damages are leviable at a fixed rate depending upon the extent of delay and the number of defaults made. No doubt the officer is directed to levy damages not exceeding the above rates. In other words these rates represent the maximum damages that can be levied. But in this particular case the officer has adopted through-out the maximum rates mentioned in the table.
In The Commissioner of Coal Mines Provident Fund, Dhanbad and Others Vs. J.P. Lalla and Sons, dealing with a similar provision in the Mines Provident Fund and Bonus Scheme Act, the Supreme Court observed the words "such damages not exceeding 25 per cent'' in that the determination of damages is not an inflexible application of a rigid formula.'''' Farther the words "as it may think fit to impose" show that the authorities are required to apply their mind to the facts and circumstances of the case. In that case in the absence of a provision for an opportunity the Supreme Court held that an opportunity should have been given to the employer to be heard before the damages are determined. In the present case, there is an express provision for giving an opportunity. Taking all these things into consideration it would follow that the rigid formula fixing the rates on the basis of a prescribed table cannot be applied and the authorities have to apply their mind and come to a conclusion as to the quantum of damages in each case. The order of the Regional Director fixing the rates on the basis of the table cannot be sustained. The same view was expressed in connection with a similar provision of the Employees Provident Fund Act by this court in W P. No. 7072/73 dated 9-3-1976 Following the decision of the Supreme Court referred to above it was held that G.O.Ms. 76 d/7-1-1964 providing for assessment of damages at different rates depending on the period of default and the number of times the default had occurred was illegal and was quashed. The same view was taken in W.P. No. 5703/77 d/18-9-1978. In R. Fernandes vs State AIR 1969 MYS. P. 196 it was held that under sec. 14-B of the Employees'' Provident Fund Act there should be an application of the mind in each case and where the State Government evolves a rigid and inflexible formula for the computation of damages the demand made by the Regional Provident Funds Commissioner on that basis is illegal.
The learned counsel for the Corporation submitted that though the expression ''damages'' is used, in reality what is intended under sec. 85-B of the Act is to levy a penalty for failure to pay according to the provisions of the Act. It was therefore submitted that it is not correct to assume that the amount sought to be recovered should bear any relation to the loss sustained by the Corporation. The Corporation is entitled to levy penalty and as long as it is not exhorbitant and it is not levied in an arbitrary and capricious manner, the levy cannot be questioned. He submitted that the basis on which the amount is fixed, namely, the delay in payment and the number of defaults, is an extremely reasonable basis. This argument would have had considerable force if the amount which the Corporation entitled to recover is in the nature of a penalty. Any penalty which depends upon the extent of the delay and the number of times the default has occurred cannot be questioned as an unreasonable levy. But in this case the legislature has advisedly used the expression ''damages''. The distinction between ''damages'' and ''penalty'' has been the subject of innumerable decisions of the courts including the Supreme Court. It cannot therefore be imagined that the legislature did not know the difference between ''damages'' and ''penalty''. On the other hand there are other provisions of the Act which impose penalties for nonfulfilment of the conditions. We cannot therefore agree with the contention that the expression ''damages'' should be read as ''penalty'' in the section. In Bharat Plywood vs. Employees, Provident Fund Commission 1977-I LLJ. 379 the Kerala High Court observed, dealing with Sec. 14-B of the Provident Funds Act that the default, is liable to pay damages which represent the loss, but not anything more, as such recovery would amount to penalty and that is not permitted under the section. In S.I. Flour Mills vs. R P F. Commr 1978 Lab. I. Cases 1187 the Madras High Court also took the view that there was a clear distinction between the imposition of penalty and levy of damages and it was incumbent upon the authorities to find out how the beneficiaries of the provident fund contribution had been damnified by the belated payment of the contributions. The mere arithmetical computation or a rigid application of a formula is not proper.
The learned counsel for the respondents went to the extent of contending that no damages are sustained at all by delay in payment. We are unable to agree with this extreme contention. The entire scheme of Employees Insurance Act revolves round the payment of contribution. These contributions form a fund out of which various benefits are given to the employees unless and until the contri 6 utions are paid, and paid regularly it is impossible to work the provision of the Act and the employees will be put to consiberable hardship and suffering. Apart from this the Employees, Insurance Fund will be losing interest on the contribution amount. It is therefore clear that loss or is injury is caused to the corporation and the beneficiaries under the scheme by failure to pay the contribution amount either to, or in time. It was then argued that loss or injury is only the loss of interest on the contribution amount and hence damages should be limited to the interest which the corporation would have earned for the period in question at a reasonable rate prevailing in the market. We are not inclined to hold that loss should be limited only to this amount. As observed earlier the entire working of the Act will be thrown into confusion and there will be consequent suffering and hardship by the beneficiaries if the contributions are not paid regularly according to the provisions of the Act. This circumstance also has to be taken into consideration in assessing the damages. No doubt it is difficult to assess the damages caused to the beneficiaries on this score, but as it has been repeatedly pointed out the mere fact that the estimation of damages is difficult, is no ground for relieving the wrong doer from his obligation to pay damages and awarding only the nominal damages.
All these difficulties may perhaps be avoided by amending sec. 85-B by stating that in the event of delay in payment or failure to pay without any justifiable cause the employer is liable to penalty instead of damages.
Sri K. Srinivasamurty appearing for some of the respondents submitted that under sec. 85-B the authority concerned is asked only to recover damages. There is no provision for assessing and levying the damages. We are unable to accept this argument. Under Sec. 85-B the authorities may recover such damages not exceeding the amount of arrears as it may think fit to impose. This section therefore not only speaks of recovery but also the imposition of damages. On a fair interpretation of the section we are of the view that it provides firstly for the imposition of such damages as it may think fit and also for recovery of such damages. We see no merit in this contention. Having regard to our conclusions stated earlier we agree with giving the conclusion of the Insurance Court that the impugned orders are liable to be set aside. The authority concerned will consider the matter after fresh notices and after dealing with the representations of the respective petitioners and arrive at the damages in the light of the observations contained in the judgment. The appeals are allowed to the extent indicated above but in the circumstances we make no order as to costs.