M/s. Meenakshi Metal Industries vs The Employees State Insurance Corporation

Govardhan, J.—This appeal is against the order passed by the E.S.I. Judge, Tiruchirapalli in E.S.I.O.P. No. 3/1975 '' filed u/s 75 of the

Employees Slate Insurance Act (hereinafter called as ''the Act''). The petitioner in his petition contends briefly as follows; The petitioner is a

partnership firm engaged in Sheet Metal hard-wares manufacturing from 1-4-1971. Prior to the partnership business, it was a Proprietary Concern

of one Jambunathan as a Proprietor. There are eight persons employed in the petition-mentioned Firm in the premises. The respondent filed an

application in E.S.I OP. No. 2/1967 for passing a decree against the petitioner for a sum of Rs. 2270/- as due from the petitioner towards

employer''s contribution for the period from 1-9-1963 to 25-3-1967. The Court found that there are more than 20 persons employed in the

factory and a direction was given to the Proprietorship Concern to pay a sum of Rs. 2270/-as employer''s contribution. During the pendency of the

said proceedings from 1967, from 1-4-1967 the workers in the-Proprietary Concern went away and the factory was closed from November,

1970. From 21-3-1967, there were only less than 20 employees and the maximum number of employees was 17. When the Partnership concern

was formed, the total number of employees employed was only 8 persons, The Authorities have held that the petitioner Concern is not a factory

within the meaning of the Factories Act. Since the petitioner Concern ceased to be a factory within the meaning of the Employees State Insurance

Act as well as the Factories Act, there is no liability on the part of the petitioner to make employer''s contribution or employees contribution. In

September 1975, the respondent has issued a notice stating that the sum of Rs. 21,642-70 with future interest is due from the petitioner concern,

Even while correspondence was pending between the petitioner and the respondent, final orders were passed in September, 1975. The petitioner

Concern is not liable to make any contribution for the period mentioned in the notice. The notice has made a claim even for the period covered in

the E.S.I.O.P. No. 2/1967. There were no arrears of any employer''s contribution. The respondent had issued a certificate to the Collector to

recover the amount under Revenue Recovery Act. When the petitioner is questioning the arrears of employers and employees contribution, the

respondent should have issued a show cause notice.. But, without issuing any such notice, on ad-hoc basis, it has come to the conclusion that the

petitioner is bound to pay the said amount. Hence the petition for declaration that the petitioner is not liable to pay any contribution under the Act

as claimed in the petition.

The respondent in their counter contends as follows: The petitioner industry is a partnership Firm. E.S.I. O.P. No. 2/1967 was filed for recovery

of Rs. 2,270/- towards the employer''s contribution for the period from 1-9-1963 to 25-3-1967. After the decree, the amount has been paid by

the petitioner. It is incorrect to state that there are only eight persons employed in the petitioner Firm from 1-4-1971. The petitioner has failed to

produce the records for the purpose of inspection and for assessing the amount due from them towards contribution. The respondent had to assess

the contribution payable by the petitioner in an ad hoc basis in consideration of the records available with them. It is false to state that there were

less than 20 employees from 21-3-1967 and when the Proprietorship became a Partnership Concern, there are only eight employees. From the

inspection report for the period 1-4-1967 to 17-6-1970, it is clear that during certain periods the number of employees were engaged for more

20, for certain periods, the employer did not give records to show the actual number of persons employed. The claim of the petitioner that it does

not come under the definition of the ""factory"" as per the definition in the employees'' State Insurance Act is not incorrect. The finding of the

Authorities under the Factories Act that the petitioner is not a factory under the said Act does not mean that the same is not a factory under the

E.S.I. Act. and they are absolved from paying contribution. It is false to say that notice demanding payment of Rs. 21,642-70 with interest was

issued in September, 1975 all of a sudden.. The notice was issued after necessary intimation. The allegation that period covered in the earlier E.S.I

O.P.2/1967 was also stated as a period for payment of contribution is not correct. A show cause notice was issued as contemplated under the

Act. Final notice was issued after complying with the provisions laid down for the same. The respondent had to demand the amount on ad-hoc

basis on account of the failure of the petitioner to produce the records. The order passed by the respondent is legal and the petition is not

maintainable.

On the above pleadings the learned E.S.I. Judge has held that the respondent has fixed the contribution payable by the petitioner from the report

of the Inspector and from the information gathered otherwise and it cannot be stated that it is incorrect and that the Employees'' State Insurance

Act is applicable to the petitioner Concern and dismissed the petition.

Aggrieved over the same, the petitioner has come forward with this appeal.

This petition u/s 75 of the Act has been filed by the petitioner contending that the petitioner is a partnership concern and the respondent-

Corporation had issued a certificate to the Collector of Tiruchi to recover certain amount viz., Rs. 21,642-45 with further interest as arrears of

contribution payable by the petitioner without taking into consideration that the petitioner concern ceased to be a factory within the meaning of

Employees State Insurance Act and the petitioner Concern is not liable to make any contribution for the period mentioned in the notice issued to

them and therefore a decree for declaration that the petitioner Concern is not liable to make any contribution as claimed by the respondent should

be granted. The respondent resisted the same by contending that from the inspection report of the Inspector, for the period from 1-4-1967 to 17-

6-1970, it is clear that for certain period, the number of employees engaged under the petitioner were more than 20 and for certain other periods,

the employer did not produce the records to show the actual number of persons employed and from the available records, it was found out that the

number of persons employed were more than 20 and the petitioners claim that their Concern is not a factory under the Employees State Insurance

Act is not tenable and the amount demanded being the contribution payable by the petitioner during the relevant period, the order passed by the

respondent demanding the amount is legal. The learned District Judge who held an enquiry in his impugned order has given a specific finding that

the petitioner Concern comes under the definition of the word ""factory"" and from the inspection report of the inspector it is clear that the petitioner

is liable to make the contribution as demanded by the respondent and dismissed the petition. It is against the order the present appeal has been

filed by the petitioner.

The learned counsel appearing for the appellant challenges the order on several grounds They are: There is no evidence that the appellant

employed 20 or more persons to bring it under the definition of the word ""factory""; No personal hearing was given and no final order was passed

u/s 45-A of the Act, no valid delegation of the powers to demand contribution issued to the inspector and the claim is barred by time. The entire

proceeding has been initiated in pursuance of the order passed u/s 45-A of the Act which is based on the report of the inspector who has been

examined as R.W.1. Since the appellant challenges the powers of the inspector, to have an inspection and submit a report and contends that there

is no proper delegation of powers in order to enable the respondent to pass the order u/s 45-A, we have to see it at the first instance. The

respondent has filed the resolution of the Employees State Insurance Corporation dated 10-4-1981 which empowers the Director General, the

Regional Director, Deputy Regional Director and Assistant Regional Director in respect of the factory or establishment within the area in his charge

and in his Region to determine by ordering the amount of contribution payable by the factory or establishment. The inspection was done by the

Inspector of the area, in which, the petition mentioned establishment is situated and he has submitted a report for the inspection carried on by him

on 16th and 17th June 1970. In pursuance of this inspection report, the Regional Director has passed the order u/s 45-A of the Act. Therefore, it

cannot be stated that there is no delegation of power for the Regional Director to pass the impugned order. The learned counsel appearing for the

appellant has argued that an order u/s 45-A should be in writing and signed by the Authority concerned and in the present case, no such order has

been passed, but this argument is not a tenable one since the Regional Director has sent a notice dated 22nd October, 1974 to the petitioner-

establishment specifically calling upon the petitioner to pay the contribution on receipt of the said letter and in any case not after 7 days thereof,

failing which the Office will be obliged to determine the contribution u/s 45-A of the Act and it has also enclosed a draft copy of the order. This

draft order has been signed by the Regional Director. The learned counsel appearing for the appellant would argue that demand has been made for

contribution for the same period for which an E.S.I.OP., has already been filed and it is pending before the District Court. But, this argument of the

learned counsel is not tenable since the notice dated 22nd October, 1974 in which contribution towards employer''s special contribution has been

demanded separately and in a separate notice dated 22-10-1974 contribution towards employees contribution has been demanded separately.

Therefore the contention of the learned counsel appearing for the appellant that for the period covered in the earlier E.S.I.O.P., this demand has

been made and it is a defect, is not a tenable one. The draft order having been signed by the Regional Director, the contention of the learned

counsel appearing for the appellant that the order is not in writing and it has not been signed by the proper person and therefore there is no proper

delegation is not a tenable one.

The contention of the learned counsel appearing for the appellant that the demand is time barred is not tenable since the limitation provided u/s

11-A of the Act is only for filing a petition u/s 75 of the, Employees State Insurance Act before the E.S.I. Judge and this limitation is not for the

demand being made by the Corporation. The liability to pay contribution is not a liability under the General Law. It is one created under the statute

viz., the Employees State Insurance Act to the first time. This Act provides for amenities and benefits to be provided to the Workman for the

contributions payable under the Act. There is no alternative mode of recovery of any liability created under the General Law.. The Act has not

provided any period of limitation for exercising the power u/s 45-A of the Act, because, the employers who fail to submit returns, or obstruct the

respondent from obtaining necessary information, by carrying out inspection through its Officials should not be allowed to avoid contribution

payable by them and thereby get benefited on the basis of their own unlawful act. It is only to enforce the recovery and fulfill the object of

enactment, the limitation is prescribed u/s 45-A of Act. The argument of the learned counsel appearing for the appellant that the demand is barred

by limitation is therefore not acceptable.

The learned counsel appearing for the appellant has argued that under the Factories Act, it has been declared that the petitioner establishment is

not a factory and therefore they are not liable to pay any contribution. Declaration by Authorities under the Factories Act that the petitioner-

institution is not a ""factory"" cannot remove the petitioner''s institution from the definition of the word ""factory"" as defined under the Employees State

Insurance Act. During the relevant period, the definition was like this, ""Factory"" means any premises including the precincts thereof wherein 20 or

more persons are employed or work as employees for wages on any day of the preceding twelve months and in any part of which, a manufacturing

process is being carried on with the aid of power or is ordinarily so carried on but does not include a mine subject to the operations of the (Mines

Act 1952) or a railway running shed. The Inspector''s report consists of two parts viz., the Form part and enquiry part. In the enquiry part, the

inspector has noted that as per the Weekly Wage Role, seven persons were found working on 1-4-1967 and eight persons were found working

on monthly wage basis. The ""name of the persons who work for weekly wages and name of the persons who work for daily, and monthly wages

were also given by the inspector. In addition, the report further states that there were 13 workers who were working on different wages and it was

found out by the Inspector from the payment vouchers. The name of the person, the wages given to them, were also noted by the Inspector in his

report. The report further shows that during 1968-69 and 1969-70, as per the Ledger entries, 16 persons were working besides two casual

workers who have been paid by vouchers, that apart as per the report, some casual workers were engaged in polishing Section, welding Section

through contractors and the details of the payment were not available since it was not produced to him. The report is also to the effect that the

employer constantly engages casual workers at piece rate basis in the polishing section, welding section and handmade section, and proper Wage

Records and Attendance Registers were not made available for his inspection. The inspector has also noted that there are equipment''s in polishing,

handmade and welding Sections available within the factory premises and the statement of the employer that polishing, handmade and welding

work are done through contractors outside the factory is not believed by him. From the report of the inspector, it is clear that the respondent

establishment was engaging workers on weekly payment wages, monthly payment wages, casual payment basis and through contractors. The

learned counsel appearing for the appellant has argued that the Inspector has not recorded the statement of these workers said to have been

employed under the employer and therefore his report cannot be accepted. But R.W.1, the Inspector has not been cross-examined to the effect

that the particulars given by him in his report are incorrect, and that he had not examined any of the employees whose names are mentioned by him

in his report. The petitioner who contends that there are not 20 persons employed during the relevant period has not even given evidence to that

effect. The petitioner having failed to give either oral or documentary evidence in support of his contention that there are less than 20 persons

during the relevant period, cannot argue that the particulars given by the Inspector in his report is not correct.

Similarly, the learned counsel appearing for the appellant has argued that there is no evidence that power is used to hold that the respondent-

establishment comes under the definition ''''factory"". The learned counsel has relied upon the decision reported in M/s. Kalpana Kala Kendra,

Kanpur v. E.S.I. Corporation (1985 Labour and Industrial Cases 763) in support of his above contention. It was a case where there was no

evidence by corroboration that electric power was used for manufacturing process and there was evidence on behalf of the Firm that electric

power was used once in two or four months and in which the report of the Inspector has not stated that aid of power was not taken for

manufacturing process. It was under those circumstances, it was held in the above decision that the Firm cannot be considered as a factory. But, in

the present case, the report shows that there are equipments that there is power available, that the contention of the employer that polishing and

welding is done outside is not believable. Above all, the employer has not examined himself to speak that power was used in their manufacturing

process, There is no explanation as to why equipments and power which are available in the premises is not used by the employer to hold that it is

not a factor)'' Where there are equipments and power is also available for carrying on polishing and welding by the persons named, the

presumption is that manufacturing process was also carried on with the aid of power. There is not even a suggestion to R.W.1 that power was not

used. In these circumstances, the argument of the learned counsel appearing for the appellant that power was not used and there were less than 20

persons employed in the establishment and therefore the petitioner''s establishment cannot be considered as a factory is not a tenable one.

The learned counsel appearing for the appellant has argued that after the Proprietary Concern has become a partnership Concern from 1-4-

1967, many employees have left the employment and therefore the establishment cannot be considered as a factory during the relevant period In

the decision reported in Employees'' State Insurance Corpn. Vs. M/s. Harrison Malayalam Pvt. Ltd., ) it has been held that the obligation to make

contribution does not cease if employee ceasing to be employee after contribution period and benefit period expiring. In the present case, the

Proprietary Concern was covered under the Employees State Insurance Act is admitted by the petitioner. Therefore, even assuming that some of

the employees left the establishment after it has become a partnership Concern, the obligation to make the contribution cannot be said to have

ceased.

The learned counsel appearing for the appellant would argue that an order u/s 45-A of the Act cannot be clubbed to show cause notice and if

it is clubbed, it is not a valid one. The learned counsel has not pointed out any decision to that effect. But, this argument of the learned counsel is

contradictory, to his own argument that a show cause notice was not issued before passing the impugned order by the respondent-Corporation.

The same argument appears to have been advanced before the E.S.I. Judge also. The E.S.I. Judge has pointed out that the inspector has directed

the employer to produce the documents and Registers even at the time of the inspection in June, 1970. The respondent has issued notices under

Exs.A-4, A-5 and A-6 and the petitioner has not claimed that he has sent any reply for these notices. When the petitioner has been issued with

three notices by the respondent to show cause as to why contribution should not be demanded from the petitioner-establishment and the petitioner

has failed to give reply to any one of the three notices, the contention of the learned counsel appearing for the appellant that there was no show

cause notice issued prior to the passing of the impugned order is not tenable. As I have already observed this argument is self-contradictory to the

argument that show cause notice and order u/s 45-A of the Act cannot be clubbed together which leads to the inference that in the notice issued

finally, enclosing a draft order, the petitioner has been asked to show cause as to why the final order should not be passed.

The learned counsel appearing for the appellant would argue that when the establishment refuses to furnish returns Section 45-A cannot be

invoked. In the decision reported in E.I.D. Parry (India) Ltd v The Regional Director, Tamil Nadu E.S.I. Corporation (1995-1 M.L.J.261) it is

stated under what circumstances the order u/s 45-A should be passed and one circumstance is the non-cooperation on the part of the employer in

providing voluntary information and data required to be furnished on the basis on which the employer should have but failed to make the

contributions. It has been held in the above decision that the failure to submit returns in accordance with the provisions of Section 44 of the

Employees'' State Insurance Act is sufficient for invoking the powers u/s 4A of the Act. The conditions for invoking Section 45-A can be stated as

follows: ""(1) Establishment has not furnished the returns, Registers etc., in accordance with Section 44(2) The determination is based on

information available to the Corporation. (3) The determination must be by an order."" When we go through the Inspector''s report and the draft

order passed by the Regional Director, we are able to see that all these three conditions are satisfied. The learned counsel appearing for the

appellant would argue that the employer should have been heard before passing of the order. It is no doubt true that the Corporation being a

quasi-Judicial Authority, the principles of natural justice would apply to the proceeding u/s 45-A and it is obligatory on the part of the Corporation

to hear a defaulting employer who might be affected by the Corporation''s decision u/s 45-A of the Act. But, we have already seen that in spite of

three notices issued by the respondent-Corporation, the petitioner has not sent any reply and he has not co-operated with the Corporation.

Therefore it cannot be stated that there is a failure on the part of the respondent-Corporation to give a hearing to the employer before passing the

impugned order. In this connection, I would like to refer to the decision reported in A.P. Handloom Weavers Co-Op. Society Ltd. v. E.S.I.

Corporation, Hyderabad (1988 Lab I C 481) wherein it has been held as follows:

For the purpose of making a best judgment assessment under S. 45-A it is not necessary that the Corporation should give a prior show cause

notice to the employer. The earlier defaults made by the company either by not filing returns or not maintaining registers or in not co-operating with

the Corporation in holding the assessment are sufficient for taking action under S. 45-A. Before initiating proceedings under Sec 45-A, no notice

therefore, is contemplated by the Act. Once the conditions mentioned in the section for initiating proceedings under S. 45-A are in existence, it is

permissible for the Corporation to take action und

The learned counsel appearing for the appellant has argued that the E.S.I Corporation is under an obligation to hear an employer to determine a

contribution payable by him if there is any dispute regarding its liability and the determination of the same should be in conformity with the principles

of natural justice. As I have already observed it is not as if the respondent has not given any opportunity to the petitioner to be heard in person. In

spite of notices issued by the respondent, the petitioner who have failed to produce the relevant records, returns, Registers etc., has not even sent

any reply and the respondent has been compelled to pass the assessment order by adopting the best judgment method. In the above back-ground

it cannot be stated that the E.S.I. Corporation is under an obligation to hear the employer before determining the contribution and in this case, it

has not been done and therefore the order u/s 45A cannot be sustained. The principal employer has not only failed to make the Registers of

permanent employees available, but also has failed to give Registers of the Contract Labourers, casual labourers who are found in the factory by

the inspector at the time of the inspection and therefore the argument of the learned Counsel that the failure to produce the returns by the petitioner

cannot enable the E.S.I. Corporation to take it for granted that there is a factory is not convincing. The argument of the learned counsel appearing

for the appellant that the report of the Inspector on whose basis the impugned order has been passed is not specific in giving the particulars of the

employees is not a tenable one since the report would give the name of employee, the wages earned by him either weekly wise or monthly wise

and as a casual or under a Contractor. Therefore, it cannot be stated that the report of the Inspector cannot be the basis for determining the

contribution. The petitioner on whom the burden lies heavily to show that the petitioner-establishment does not come under the definition of the

word ""factory"" having failed to discharge the said burden, only wants to establish that the impugned order is not a proper order and the order

passed by the E.S.I Judge has therefore to be set aside. I am of opinion that the above contention of the appellant is not convincing and acceptable

to interfere with the order of the E.S.I, in the light of the material placed before the Court. In that view, I hold that the appeal is without merit. In

the result, the appeal is dismissed. No costs.