The E.S.I. Corporation vs R.S. Pathy and Co.

The Employees State Insurance Corporation, hereinafter referred to as the Corporation'', has filed this appeal against the order of the

Employees State Insurance Court holding that the Corporation is not entitled to claim interest from the present Respondent No. 1.

The facts giving rise to the present appeal are as follows :-

The Corporation passed an order on 16.11.1978 indicating that the employer (Respondent No. 1 in the present appeal) is covered under the

Employees'' State Insurance Act (hereinafter referred to as the E.S.I Act) with effect from 16.11.1978 and thereafter the employer went on paying

the contribution. Subsequently, however, on 14.7.1987 a further notice was issued by the Corporation indicating that the employer was liable to

pay contribution for the period from 16.1.1977 to 15.11.1978. It appears that after being served with such notice, the employer paid the amount

claimed, namely, Rs. 8822.50 on 15.2.1988, without any demur. Subsequently, however, two notices dated 20.1.1989 were issued, indicating

that the employer is liable to pay Rs. 5,328/- as interest for the belated payment of the contribution for the period from 16.1.1977 to 15.11.1978

and Rs. 8922/- as damages. Subsequently, after going through the explanation of the employer, the Corporation by order dated 19.5.1989,

reduced the amount payable towards damages. Such reduced amount was also paid. However, on 12.12.1990 the Corporation issued a further

notice stating that the employer is liable to pay Rs. 5328/- towards interest and on the basis of such proceedings, the Tahsildar initiated revenue

recovery proceedings by notice dated 24.12.1990. Thereafter, the employer initiated proceedings u/s 78(1) of the E.S.I Act challenging the liability

to pay interest.

The employer mainly raised two contentions, first one relating to limitation and the second one on the basis that since the Corporation itself had

passed an order stating that the employer was covered with effect from 16.11.1978, it cannot be said that any ""default"" had been made by the

employer, and therefore, there was no liability to pay interest.

The court below appears to have accepted both the contentions and held that the Corporation is not entitled to claim interest.

Narration of the factual aspects clearly indicates that it is the Corporation which had decided that the present Respondent No. 1 was coming

within the scope of the E.S.I. Act with effect from 16.11.1978. There is no dispute that soon thereafter, the employer went on making contribution

as required and there is no dispute regarding any default after 16.11.1978. However, about nine years after such intimation by the Corporation

regarding coverage of the employer, a further notice was issued claiming that the employer was liable to pay contribution for the period between

16.1.1977 and 15.11.1978. Such amount was admittedly paid on 15.2.1988. At that stage also the Corporation never demanded that the

employer was liable to pay any interest on the contribution amount payable for the period between 16.1.1977 to 15.11.1978. Subsequently, on

20.1.1989 further notices were issued claiming payment of damages as well as interest. After some correspondence, an amount of Rs. 2,384/-

claimed towards damages had been paid and the only dispute which remained was relating to payment of interest.

Learned counsel appearing for the appellant has placed reliance upon the provisions contained in Regulation 31-A of the Employees'' State

Insurance Regulations and submitted that since the amount had not been paid within 21 days of the day on which it fell due, the employer is liable

to pay interest.

Regulation 31-A is to the following effect :-

31A. Interest on contribution due, but not paid in time.- An employer who fails to pay contribution within the periods specified in Regulation 31

shall be liable to pay interest at the rate of 6 per cent per annum in respect of each day of default or delay in payment of contribution.

In the peculiar facts and circumstances of the present case, we do not think that the appellant is justified in claiming interest. It has to be

remembered that the appellant Corporation itself had passed order on 16.11.1978 indicating that the company (employer) was covered only with

effect from 16.11.1978. Long thereafter, the Corporation (Appellant) claimed that the employer is also liable to pay contribution for the period

prior to 16.11.1978, i.e., for the period from 16.1.1977 to 15.11.1978, which was also paid by the employer. Regulation 31-A indicates that

interest is payable from the date of default. In the peculiar circumstances of the case, it cannot be said that there was any default earlier and default

if any can be said to have arisen only after specific notice was served on 14.7.1987, inasmuch as the Corporation before the said date had never

specifically passed an order holding that the employer was covered with effect from 16.1.1977.

In the above connection, the decision of a learned single Judge of this Court reported in 2003 II CLR 251 (Fenner (India) Ltd., v. Joint

Regional Director, Employees'' State Insurance Corporation) is applicable to some extent. In the said decision, the contribution in question has not

been made on account of stay order passed by the High Court in a proceeding started by the employees. However, the learned single Judge has

observed that the employer was not at fault as he was precluded from making any contribution by virtue of the order of the Court, and therefore,

he was not liable to pay interest.

Another decision of a learned single Judge reported in 1999 (4) L.L.N. 504 (Employees'' State Insurance Corporation v. P.N.P.

Padmanabhan) is to the effect that when the employer was not at fault for not paying the contribution, prosecution should not be initiated. The logic

of the said decision can also be extended to the present case.

11.The principle and logic of above decisions can also be extended to the present case as it cannot be said that the employer was at fault. Rather it

is evident that it is the Corporation which was at fault and not the employer. It has to be remembered that the interest claimed by the Corporation

is not for the direct benefit of the employees. When the Corporation itself was at fault, the claim for interest cannot be justified.

In such circumstances, the claim of the appellant claiming interest by calculating such interest for the period from 16.1.1977 to 15.11.1978 is

not justified.

So far as the question of limitation is concerned, it appears that there are two Division Bench decisions of Madras High Court reported in

2000 (1) LLN 437 (Regional Director, Employees'' State Insurance Corporation v. Henry Wolsey and Company (Proprietor S. Murugesan

Family Trust by Trustee Executor), Salem) and Standard Literature Co. (P) Ltd. Vs. Employees'' State Insurance Corporation Ltd. and Another, ,

which are prima facie in support of the contention raised by the appellant Corporation and against the contentions raised by the employer. In the

latter decision Standard Literature Co. (P) Ltd. Vs. Employees'' State Insurance Corporation Ltd. and Another, reliance has been on a Bench

decision of Kerala High Court reported in Vijayan Pillai Vs. E.S.I. Corporation, . However, it appears that subsequently the said Division Bench

decision has been overruled by a Full Bench decision of Kerala High Court reported in 2003 (3) L.L.N. 1142 (Employees'' State Insurance

Corporation v. Excekl Glasses Ltd.).

Inspite of the fact that the Division Bench decision of the Kerala High Court, upon which reliance was placed by the Division Bench of this

Court, had been subsequently overruled by Full Bench decision of Kerala High Court, the precedent value of the Division Bench decision of this

Court continue to hold good, unless and until the Division Bench decision of this Court is otherwise overruled by a higher Bench or by the

Appellate Court. Therefore, in normal course, we would be obliged to follow the ratio of the Division Bench decision of this Court. In the present

case, however, in our opinion, the conclusion of the E.S.I. Court is otherwise sustainable, and therefore, it is not necessary for us to delve into the

question of limitation.

For the aforesaid reasons, the appeal is dismissed. No costs.