Establishments Under Fold Of ESI Act Obliged To Make Contributions Even If Number Of Employees Fall Below Specified Limit: Jharkhand High Court

The Division Bench of Justices Sujit Narayan Prasad and Navneet Kumar emphasized, “The basic intent and object of the Act, 1948 is to introduce a health insurance for industrial worker for the purpose of providing certain benefit in the event of sickness, maternity and employment injury to all factories, including factories belonging to the Government other than seasonal factories. It was decided that there will be insurance fund which will be mainly derived from the contribution from employers and workmen. The contributions payable in respect of each employees will be based on the average wages which shall be in first instance payable by the employer.”

“The employer will be entitled to recover the workman share from the wages of the workman concerned. The workmen whose earnings do not exceed ten annas a day will be totally exempted from payment of any share of contribution, the entire contribution on account of such workman being made by employer. The insured workmen have been held to be entitled following benefits:

a. Sickness cash benefits; b. Maternity benefits; c. disablement and dependent benefits,” the Court added.

The above ruling came in a Letters Patent Appeal challenging a decision made by a Single Judge. In the initial judgment, the writ petition had been disposed of without interfering with the Regional Director's order from the Employees' State Insurance Corporation (ESIC) in Namkum.

The Regional Director had rejected the petitioner's representation, affirming the applicability of the E.S.I Act, 1948 to the petitioner's establishment. The ESIC had issued a demand notice for the recovery of its contributions for the period between 01.09.2000 and 31.03.2007, amounting to Rs. 17,35,556/-. This demand notice was upheld as legal and valid.

However, in the interest of justice, the petitioner club was directed to fulfill this liability by making 12 equal monthly installments, starting from 15.03.2023.

Facts

The appellant-writ petitioner, Beldih Club Jamshedpur, claimed to be a society registered under the Societies Registration Act, 1860. An initial notice was issued by the ESI Inspector, instructing the petitioner to provide records for the period between October 1, 1996, and August 2001. The petitioner responded, asserting that all its employees and their families received medical services at Tata Main Hospital (TMH).

Subsequently, another notice was served, specifying that the petitioner fell under Section 2(12) of the ESI Act. According to this, all workers/employees earning below the stipulated limits were included under the ESI Act. Merely stating the provision of medical benefits at TMH did not exempt the petitioner-club from ESI coverage.

The petitioner was then directed to furnish the necessary records. A follow-up letter from the Deputy Director, ESIC, stated that the petitioner-club had been covered under the ESI Act since September 1, 2000. The petitioner-club, however, had not been making ESI contributions and was not providing the required records. This was a violation of Sections 40 and 26 of the ESI Act. In response, the petitioner reiterated, through a letter dated November 24, 2001, that it did not qualify as an establishment and therefore was not subject to coverage under the ESI Act.

Issues

The following issues were framed by the single bench:

I. Whether the petitioner was entitled for any direction to apply this judgment prospectively i.e giving coverage under Employees’ State Insurance Corporation Act with effect from the date of passing of this judgment, on account of the so-called balancing of equities between the parties;

II. Whether the respondent authority was justified in extending the coverage of the aforesaid Act upon the petitioner from an earlier date i.e 01.10.1996 instead of coverage from 01.09.2000 (the date from which assessment was made);

III. Whether the petitioner was entitled for any relief on the point of interest on the payable amount;

IV. Whether the petitioner was entitled for fixation of installments in making the payment of dues.

Verdict

The Court underscored that the appellant's counsel argued that the medical benefits provided to the employees through Tata Main Hospital discharged the appellant's liability, making further action by the ESI authority unnecessary.

However, the Court pointed out that the Single Judge had already rejected this argument, stating that the 1948 Act was designed to benefit industrial workers, aligning with previous Supreme Court rulings on the matter. Therefore, the Court found no fault in the Single Judge's decision.

The Court reasoned that the 1948 Act was a progressive piece of legislation meant to provide specific benefits to the workers it covered. Interpreting its provisions narrowly or technically would contradict its social welfare purpose.

Furthermore, the Court noted that once the Supreme Court had laid down a legal principle, it applied retroactively from the Act's enactment date, as the clarification merely affirmed an existing understanding.

Consequently, the Court dismissed the appellant's claim of the Act's prospective application, asserting that the Act, enacted on April 19, 1948, encompassed all establishments, including clubs. Therefore, it was the appellant-club's responsibility to contribute to the ESI fund to fulfill the Act's objective of providing support for sickness, maternity, employment injury, and related matters.

The Court carefully considered the first issue, noting that the Single Judge had based their decision on the fundamental purpose of the Act. The Act, designed as a beneficial legislation, aimed to provide support in cases of sickness, maternity, employment injury, and related matters. The Court examined the judgments cited by the Single Judge and concluded that the petitioner could not seek application of these judgments, citing a supposed balance of equities between the parties.

Furthermore, the Court ruled that the petitioner-club was not eligible for any leniency regarding the payment of interest; they were obligated to fulfill their duties as outlined by the Act. Consequently, the Court determined that both issue (i) and issue (ii) were resolved against the petitioner and in favor of the respondents. This decision was made without any errors.

In addressing the third issue, the Court noted the Single Judge's decision that the appellant-club had avoided making payments as required by the Act. This failure, the Court observed, frustrated the purpose of the Act, as the intended benefits could not be realized due to the non-deposit of funds into the ESI fund.

The Court emphasized that the Single Judge's conclusion, holding the writ petitioner club liable for interest, was justified given the circumstances. The Court pointed out that the amount meant for the ESI fund, which the appellant-club retained for its own use, had caused both the fund and the beneficiaries to suffer. The Court reasoned that the appellant-club's utilization of these funds for its own benefit constituted a clear liability to pay interest.

Regarding the fourth issue, the Court stated that it was not in question as it was disclosed in court that 6 out of the 12 monthly installments had been paid by the appellant-club.

After considering all the facts, the Court firmly concluded that the Single Judge's order was free from error. Consequently, the Court deemed it unnecessary to intervene and dismissed the intra-court appeal.

Counsel/s For the Appellant : Mr. Indrajit Sinha, Advocate

Counsel/s For the Res-ESIC : Mr. Ashutosh Anand, Advocate

Counsel/s For the Res-State Mr. Suresh Kumar, SC (L&C)-II Mr. Rajesh Kumar Singh, AC to SC (L&C)-II

LL Citation: 2023 LiveLaw (Jha) 69

Case Title: Beldih Club Jamshedpur vs. The State of Jharkhand and Others

Case No.: L.P.A. No. 187 of 2023