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Judgment
Nainar Sundaram, J.—This writ petition is directed against the order of the respondent under S. 85B of the Employees'' State Insurance Act
34 of 1948, hereinafter referred to as ''the Act'', imposing on the petitioner a damage of Rs. 45,374/- for delayed payment of contribution under
this Act. Mr. N. Balasubramanian, learned counsel for the petitioner would submit that the respondent while passing the impugned order, has either
committed to consider and adjudicate upon the reasons given by the petitioner or brushed aside the same on perverse and totally untenable
grounds. It is a well settled proposition that the proceedings of the present nature are quasi judicial and a decision under S. 85B of the Act must be
rendered in a judicious manner and there ought to be proper advertence to and adjudication upon the contentions or the explanations offered by
the party to be affected by the ultimate order. There ought to be a proper application of mind on the part of the authority to the points raised by the
party to be affected. That there was such an application of mind must stand reflected in the ultimate order. The points raised by the party should
have been the subject matter of judicious consideration. The explanation offered by the party for what ever it is worth cannot be glossed over and
on the other hand, it has got to be the subject matter of judicious assessment. A Bench of the High Court of Karnataka in E.S.I. Corporation v.
Thungabadra Steel Products Ltd. 1980 57 F.J.R. 76, analysed and assessed the import and mandate of S. 85B of the Act in the following terms:-
Thus analysing the section, it is clear that before invoking the provisions of S. 85B of the Act, there must be (i) default in the payment of
contribution on the part of the employer, (ii) damages liable to be recovered shall not exceed the amount of arrears and (iii) in each case only such
damages shall be fixed as appear proper and fit for imposition.
Before levying any damages by way of punishment, the Employees'' State Insurance Corporation shall give a reasonable opportunity to the
employer of being heard.
These ingredients would clearly establish that the proceeding is a quasi judicial-proceeding and the Employees'' State Insurance Corporation
should follow the principles of natural justice in imposing the penalty. It means that the employer should be given an opportunity to show cause for
the default and against the levy of penalty. It further means that the said Corporation shall consider in a judicious manner the explanation offered by
the employer, if any, to find out whether it provides for a reasonable excuse for the delay or the default. Further, the Corporation must consider the
gravity of the situation in each case and shall levy the damages as found proper and fit on the facts of the case. The desert shall be just and not
excessive. It is needless to point out that the authorised officer of the Corporation shall pass a speaking order giving reasons for the levy of
damages and for accepting or not accepting the explanation offered by the employer.
In E.S.I. Corporation v. Meecos Ltd. 1980 K.L.T. 179, a Bench of the High Court of Kerala summed up the position as follows:
The imposition of damages is a matter of judicial exercise. To put it in other words that damages is not related to actual loss does not mean that it
could be arbitrarily imposed. If it be a compensation for loss the question, such a question for the defaulter may be able to show for non-
compliance, may be not relevant. But where damages does not actually depend on the loss suffered by the defaulting party and it is in the nature of
a deterrent imposed to enable proper enforcement made of the Act, the circumstances of the default will have relevance. The justification that a
party may be able to urge for failure to pay may have to be taken into account in determining the quantum, To lay down any rule as to
determination of quantum would be to add to the provisions of the Act and to circumscribe or limit the discretion of the Corporation in determining
the quantum of damages. We need only indicate here that being in the nature of penalty the considerations that may weigh in the determination of
the quantum will be different from the considerations that may weigh in the determination of the quantum of damages in the event of a breach of
contract or the tortious conduct of a person.
In M/s Toshiba Anand v. E.S.I. Corporation""1980 Lab. 1.C. 907, the very same Bench of the High Court of Kerala, which decided the case in
E.S.I. Corporation v. Meecos Ltd. 1980 K.L.T. 179 observed as follows with regard to the determination of charges under S. 85B of the Act:
The determination of quantum of damages is not to be a subjective determination. There must be an objective approach taking into account all the
matters which are relevant thereto. Such objective exercise must be reflected in the order. It must be possible to understand from the order the
reasons for determining the quantum at the figure mentioned in the order. That is evidently not possible in this case. It is not possible to lay down
any hard and fast rules as to what are the matters that would have relevance in fixing the quantum of damages under S. 85B. To lay down any
formula in regard to such quantum would be to trespass upon the powers of the Corporation which is to make its independent exercise in
determining the quantum under S. 85B. Even so it would be of benefit to state here that the quantum must necessarily be related to the gravity of
the Penal element in the default on the part of a party. That in turn must depend upon the validity of the explanation the party may give for default.
Other matters which may have relevance in determining how far the party has been indifferent or callous in meeting the obligations under the Act
may also call for consideration. If a party is able to satisfy the Regional Director that though default has been committed by him it was due to
circumstances beyond his control or that despite his best efforts he could not make the contributions in time that would certainly be a mitigating
circumstance which would serve to soften the rigour of the penalty that may be imposed under the Section.
In the instant case, one of the reasons advanced by the petitioner for the delay was that there was a bona fide impression entertained that the
contribution should be paid within twenty one days from the date of payment of wages to the employees. This reason has neither been accepted
nor rejected by the respondent in the impugned order by giving any reasons therefore. There is a possibility that on an over all assessment of the
facts of the case, this reason may be accepted as a relevant one to show that the petitioner had not been indifferent or callous in meeting the
obligations under the Act. Yet another reason advanced by the petitioner for the delay was non-availability of (sic)stationery form at the local
office. The respondent adverts to this reason, but would say that the stationery forms could have been secured from the Regional Office. If the
petitioner should normally secure the stationery forms from the local office only, should the failure on the part of the petitioner to obtain the forms
when not available in the local office, from the Regional Office be viewed with strict rigour is a question not properly adverted to and answered by
the respondent. It could be argued that this was a bona fide circumstance beyond the control of the petitioner. I am not expressing any final opinion
on any of these features since I am remitting the matter back to the respondent for fresh consideration and I am only touching upon these features
to show that there has been lack of proper application of mind on the part of the respondent. It must be remembered that the proceedings are
deterrent and penal in nature and every reason offered for delay as stated above, must be adverted to and adjudicated upon in a proper and
judicious manner. This has not been done with regard to the reasons advanced by the petitioner. It is true that the respondent has considered
certain other factors and has chosen to reduce the damages earlier notified in the show cause by 50% for some periods. But as to how far the
petitioner should stand exonerated even with regard to the imposition of 50% damages if the above explanations are considered and adjudicated
upon in a judicious manner, this Court need not dwell upon, at this juncture. In my view, there has not been a proper exercise of mind on the part
of the respondent in respect of the explanations offered by the petitioner for the delay and this features obliges me to interfere in writ powers setting
aside the order passed by the respondent and remitting the matter to him for fresh consideration. The respondent shall consider all the points and
explanations offered by the petitioner and adjudicate upon them in a judicious manner. The respondent shall also afford sufficient opportunity to the
petitioner to substantiate its case on the points and explanations offered by it. The respondent need not necessarily confine the fresh enquiry only to
the points discussed above but shall reassess all the points raised by the petitioner so as to result in a comprehensive decision of the matter even
though I have here discussed only some of the infirmities in the order of respondent pointed out before me. This writ petition is allowed in the
above terms. No costs.