Cannot Apply 1989 Amendment Retrospectively And Issue Demand Notices Under ESI Act: P&H HC
Punjab and Haryana High Court: A single judge bench of Justice Pankaj Jain dismissed appeals filed by the Employees State Insurance Corporation (ESIC). It upheld the order by the ESI court exempting the Punjab State Electricity Board (PSEB) from paying ESI contributions for its Phagwara sub-station. It held that Section 1(6) was introduced in 1989 and could not be applied retrospectively to cover earlier periods. Consequently, the court noted that the sub-station did not fall under the Employees' State Insurance Act, 1948 (ESI Act), since it had less than 20 employees during the relevant period prior to the amendment.
Background
Recovery proceedings were initiated by ESIC for alleged unpaid contributions from the PSEB's Sub-Station in Phagwara. The demand was based on an ad hoc assessment conducted without a detailed survey. The ESIC issued a recovery certificate and initiated attachment proceedings to recover the amount. PSEB contended that since the Phagwara sub-station was working with fewer than 20 workers during the relevant period (April 1983 to April 1984), it was not covered by the ESI Act. It further stated that support staff such as gardeners and sweepers were under the administrative control of the Executive Engineer (XEN) and not the sub-station, thus reducing the workforce even further. The ESI Court accepted these contentions and quashed the recovery proceedings, holding that the sub-station did not qualify as a factory under the ESI Act.
Arguments
Counsel for ESIC, Mr. Adarsh Malik, argued that all employees working at the Phagwara sub-station were under the control and payroll of PSEB, making them eligible under the ESI Act. He submitted that the recovery was valid as the area had already been notified for coverage under the Act. Citing Section 1(6), he argued that establishments covered under the Act continue to remain so, even if the number of employees subsequently falls below the statutory minimum.
Mr. Kunal Mulwani, counsel for PSEB, countered that the workforce at the sub-station never exceeded 15. This was below the statutory minimum of 20 required under Section 2(12) of the Act, as it stood during the relevant period. He also argued that Section 1(6) was introduced much after by the 1989 amendment, and could not be applied retrospectively. Consequently, the demand raised by ESIC for a period predating the amendment was unsustainable.
Court's Reasoning
The court first discussed the employee strength at the sub-station. It noted that the sanctioned workforce was found to be 15 employees, including auxiliary staff. This was consistent with a prior report that established the sanctioned strength of the sub-station as 15 employees. However, the court clarified that a minimum of 20 employees in the relevant period were required to apply the ESI Act.
The court then examined the ESI Act prior to the 1989 amendment. Section 2(12) defined a factory as an establishment employing 20 or more workers, with or without the aid of power. The court rejected ESIC's reliance on Section 1(6), holding that the provision applied only to factories already covered by the Act before 1989. As the amendment came into effect on October 20, 1989, it cannot be retrospectively applied to demands raised for periods prior to the amendment.
Lastly, the court noted that in ESIC v. Radhika Theatre, AIR 2023 SC 673, the Supreme Court has already clarified that Section 1(6) of the ESI Act applies prospectively from October 20, 1989, covering all establishments under the Act regardless of workforce size. It cannot be applied retrospectively to demand notices for periods before its insertion. Thus, the court dismissed the appeals and upheld the order by the ESI court.
Decided on: 6 Nov 2024
Citation: 2024:PHHC:145543, Employees State Insurance Corporation v. Punjab State Electricity Board
Counsel for the Appellant (ESIC): Mr. Adarsh Malik
Counsel for the Respondent (PSEB): Mr. Kunal Mulwani