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CASE NO.: Appeal (civil)  1271 of 2008

PETITIONER: Bharat Heavy Electricals Ltd.

RESPONDENT: ESI Corporation

DATE OF JUDGMENT: 14/02/2008

BENCH: S.B. Sinha & V.S. Sirpurkar

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No.2082 of 2007)

S.B. Sinha, J.

1.      Leave granted. Background facts : 2.      Appellant herein is a Public Sector Undertaking.  It used to engage  contractors for various purposes.  It received a notice on or about 3.9.1992  purported to have been issued under Section 45A of the Employees\022 State  Insurance Act, 1948 (for short \023the Act\024) on the premise that they had not  deposited the Employees\022 State Insurance contribution for the period  19.7.1981 to 30.9.1991. 3.      In its show cause, in response to the notice issued by the respondents,  the appellant stated that the workmen concerned had been engaged by the  contractors who would be in possession of the relevant records to show as to  whether or not any contribution was payable or whether the Act was  applicable in respect of the concerned workmen.  A list of contractors along  with their addresses who were involved during the period in question was  annexed to the said show-cause.  A prayer was made before the Authority to  implead the said contractors as parties in the said proceedings under Section  45A of the Act as immediate employers. 4.      By a letter dated 8.3.1993 the said prayer was rejected by the  competent authority of the respondent, stating : \023With reference to the above, I have to invite your  kind attention on the above subject and inform you  that engaging the contractors for BHEL works is  an internal affair of the factory and our  Corporation is not preventing you in any manner in  bringing along with you those contractors to  explain the nature of expenditure incurred by you  through the contractors.  You are not denied any  opportunity to represent your case properly.  You  may recover the ESI contribution along with  employers share from your contractors (i.e.  immediate employer) under Section 40 and 41 of  the ESI Act.  As per Section 41(1) of the ESI Act,  the principal employer can recover the  contributions from the immediate employer even  as deduction from any amount payable by them  under any contract or even as a debt payable by the  contractors.  So, it is not necessary for the  Employees State Insurance Corporation to implead  the contractors to enable you (principal employer)  to invoke your right of recovery.  I am therefore, to  intimate you that your request as communicated in  the affidavit cannot be acceded to.\024

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Proceedings :

5.      A Writ Petition was preferred thereagainst before the Madras High  Court wherein a decision of the said court in Madras Gymkhana (represented  by its Honourary Secretary), Madras v. Employees\022 State Insurance  Corporation (represented by its Regional Director), Madras [1990 (2)  Labour Law Notes 777] was relied upon.  By an order dated 11.4.2000, a  learned Single Judge, doubting the correctness of the said decision, referred  the matter to a Division Bench opining : \023In view of the judgment of the Hon\022ble Supreme  Court of India referred to above, namely, AIR  1993 SC pg.2655 and the other judgment namely,  JT 1989 (4) SC 380, I am of the respectful opinion  that the judgment of this Court reported in 1990-2  L.L.N pg.777 does not appear to have decided the  issue correctly and, therefore, it definitely calls for  a reconsideration by a larger Bench.  The Registry  is, therefore, directed to place this order of  reference, my judgment containing reasons and the  material papers before My Lord the Hon\022ble Chief  Justice for referring the issue involved in this case  for consideration by a larger Bench.\024

6.      By reason of the impugned judgment, a Division Bench of the Madras  High Court, while overruling the said decision in Madras Gymkhana (supra)  held :

\023The scheme of the ESI Act does not envisage  separate and independent determination of  contribution payable by the principal employer and  the immediate employer in respect of employees  directly employed by the principal employer and  the contract employees respectively.  When once  the authority is satisfied that persons were  employed by or through an immediate on the  premises of the factory or establishment or under  the supervision of the principal employer and if for  any reason the principal employer fails to submit,  furnish or maintain the records and registers in  accordance with the provisions of Sec.44, the  Corporation is within their powers to determine the  contribution payable in respect of contract  employees against the principal employer without  looking for the immediate employer.  As already  stated, in an enquiry under Section 45-A of the ESI  Act all that is required is the authority must give a  reasonable opportunity of being heard to the  employer concerned.  That has been complied with  by the respondent in the present case by issuing the  show cause notice dated 3.9.1991, wherein the  Corporation has also afforded a personal hearing to  the petitioner.  The decisions relied on by the  petitioner, viz. Food Corporation of India, Ashok  Leyland Limited and Chennai Petroleum  Corporation Ltd., cited supra, are of no assistance  to them.\024

Contentions :

7.      Mr. Milon K. Banerjee, learned Attorney General for India appearing  for the appellant, submitted that the High Court committed a serious error in  passing the impugned judgment in so far as it failed to construe the  provisions of the Act in their proper perspective.  Learned Attorney General

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has placed strong reliance upon a decision of P. Sathasivam, J., (as His  Lordship then was) in Ashok Leyland Limited v. Employees\022 State  Insurance Corporation [(2000) 2 LLJ 593]. 8.      Mr. Francis, learned counsel appearing on behalf of the respondent  would, however, support the impugned judgment. The Act : 9.      The Act was enacted to provide for certain benefits to the employees  in cases of sickness, maternity and employment injury and to make  provisions for certain other matters in relation thereto.        The term \021employee\022 has been given a wide definition.  In terms of  sub-section (9) of Section 2 of the Act, it includes a person employed  directly by the principal employer or by or through an immediate employer.        \021Immediate employer\022 has been defined in Section 2(13) to mean : \0232(13) \021immediate employer\022, in relation to  employees employed by or through him, means a  person who has undertaken the execution, on the  premises of a factory or an establishment to which  this Act applies or under the supervision of the  principal employer or his agent, of the whole or  any part of any work which is ordinarily part of the  work of the factory or establishment of the  principal employer or is preliminary to the work  carried on in, or incidental to the purpose of, any  such factory or establishment, and includes a  person by whom the services of an employee who  has entered into a contract of service with him are  temporarily lent or let on hire to the principal  employer and includes a contractor;\024

       Section 2(17) defines \021principal employer\022 in the following terms : \0232(17) \021principal employer\022 mens\027 (i)     in a factory, the owner or occupier of the  factory and includes the managing agent of  such owner or occupier, and where a person  has been named as the manager of the  factory under the Factories Act, 1948 (63 of  1948), the person so named; (ii)    in any establishment under the control of  any department of any Government in India,  the authority appointed by such Government  in this behalf or where no authority is so  appointed, the head of the Department; (iii)   in any other establishment, any person  responsible for the supervision and control  of the establishment;\024

       Chapter IV of the Act provides for mandatory insurance of all the  employees in the manner provided for therein.  Section 39 provides for  payment of contribution.  Section 40 provides for the principal employer to  pay contribution in the first instance, whereas an enabling provision has  been enacted for recovery of the contribution from the employee directly if  he is employed by the principal employer directly.  Section 41 empowers the  principal employer to recover the amount of the contribution so paid from  the immediate employer either by deduction from any amount payble to him  by the principal employer under any contract or as a debt payable by the  immediate employer.  Sub-section (1A) of Section 41 mandates that the  immediate employer shall maintain a register of employees employed by or  through him as provided for in the regulations and submit the same to the  principal employer before the settlement of any amount payable under sub- section (1).        We may, however, notice that the said provision was introduced by  Act No.29 of 1989 w.e.f 1.2.1991.  Section 45A lays down the manner in  which the contributions payable in certain cases shall be determined, sub-

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section (1) whereof reads, thus : \02345A(1) Where in respect of a factory or  establishment no returns, particulars, registers or  records are submitted, furnished  or maintained in  accordance with the provisions of Section 44 or  any Inspector or other official of the Corporation  referred to in sub-section (2) of Section 45 is  prevented in any manner by the principal or  immediate employer or any other person, in  exercising his functions or discharging his duties  under Section 45, the Corporation may, on the  basis of information available to it, by order,  determine the amount of contributions payable in  respect of the employees of that factory or  establishment.         Provided that no such order shall be passed  by the Corporation unless the principal or  immediate employer or the person in charge of the  factory or establishment has been given a  reasonable opportunity of being heard.\024

Application of the Act : 10.     The period in question is 19.7.1981 to 30.9.1991.  No return of  contribution is also said to have been filed for the said period.       Clause (4) of the show-cause notice dated 3.9.1992 reads as under : \023And whereas it is proposed to determine and  recover the amount of contribution payable in  respect of the employees of your factory  establishment under Section 45A of the Act, as  under :

S. No. Nature of  Dues Period Amount of  contribution payable Basis for  calculation

From To

1 2 3a 3b 4 5

Contribution  due on the  wages paid  through  immediate  employer  (contractors) July 1981 Sept. 1991 Rs.3,32,45,042.95 As shown in

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the appendices And whereas, it is proposed to afford M/s. an  opportunity as required under Section 45A(1)(b) to  show cause against the said determination and  recovery.          Please show cause within 15 days here of as  to why assessment should not be made as proposed  above.  In case you have any objections you are  hereby given an opportunity to explain the same  and or to file a statement giving full particulars of  the contributions actually due as per your records  for the above said period within the time specified  above.  In case you desire to represent your case  personally you may appear before the undersigned  in person or through an authorized representative  on 24.09.1992 at 10.00 am with necessary  document to explain your case.\024

11.     Appellant herein affirmed an affidavit in support of its application in  implead the third parties/contractor, stating : \023For the period in question, third  parties/contractors are involved and only they  would be in possession of records relevant to  determine whether or not contributions at all are  payable or as to whether at all the Employees\022  State Insurance Act, 1948 is applicable in the first  place.         This Management viz., Bharat Heavy  Electricals Ltd., do not have details with regards to  the work of wages, if any, paid by the third  parties/contractors.  The relevant information,  materials and such like would be available only  with said third parties/contractors whose names  and addresses in so far as they are available at  present are enclosed as annexures to this petition.   The names and addresses of the rest of the third  parties/contractors who were involved for the  period in question would be furnished as and when  the same are available.\024

       A prayer was made to implead the contractors mentioned in the  annexures to the said affidavit as parties. Precedent : 12.     In Food Corporation of India v. Provident Fund Commissioner & Ors.  [(1990) 1 SCC 68], this Court while considering the provisions of Section  7A of the Employees\022 Provident Funds and Miscellaneous Provisions Act,  1952 held : \023It will be seen from the above provisions that the  Commissioner is authorised to enforce attendance  in person and also to examine any person on oath.  He has the power requiring the discovery and  production of documents. This power was given to  the Commissioner to decide not abstract questions  of law, but only to determine actual concrete  differences in payment of contribution and other  dues by identifying the workmen. The  Commissioner should exercise all his powers to  collect all evidence and collate all material before  coming to proper conclusion. That is the legal duty  of the Commissioner. It would be failure to  exercise the jurisdiction particularly when a party  to the proceedings requests for summoning  evidence from a particular person.\024

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       The Division Bench of the High Court distinguished the said decision  holding that the provisions of Section 7A of the Employees Provident Fund  and Miscellaneous Provisions Act, 1952 are not in pari materia with the  provisions of the Act stating : \023An inquiry under sub-section (1) of Section 7-A  can be initiated to decide the dispute regarding the  applicability of the Act to an establishment and to  determine the amount due from any employer  under any provisions of the Act, the Scheme or the  Pension Scheme or the Insurance Scheme, as the  case may be.  For the purposes of such inquiry, the  authorities under the Act are vested with the same  powers as are vested in a civil court for trying a  suit though such powers are restricted to certain  specified matters, viz. to enforce the attendance of  any person or examining him on oath, requiring  the discovery and production of documents,  receiving evidence on affidavit, issuing  commission for the examination of witnesses.  A  fiction is created under Section 7-A that an inquiry  thereunder is deemed to be a judicial proceeding.   The observance of principles of natural justice is  also mandated vide sub-section (3) which says that  no order under sub-section (1) shall be made  unless the employer concerned is given a  reasonable opportunity of representing his case.   Thus, it is obvious that such specific powers are  given to the authorities concerned to decide not  abstract question of law, but to determine actual  concrete differences in payment of contribution  and other dues by identifying the workmen and the  authorities should exercise all their powers to  collect all evidence and collate all material before  coming to proper conclusion and as such an  inquiry under Section 7-A is more or the less a trial  of a suit before a civil court and judicial in nature.   The powers so conferred on the authorities  concerned are being statutory powers, a legal duty  is cast on such authorities to exercise the same  when situation arises and failure to exercise the  jurisdiction, especially when a party to the  proceedings requests for such exercise, would lead  to nullification of the order passed in the inquiry.\024

Analysis : 12.     We, with respect to the learned Judges, fail to notice any significant  difference in the purport and object of both the provisions. The purport and  object of both the statutes, for all intent and purport, in our opinion, is the  same.  In the proceedings initiated under Section 45A of the Act, an  immediate employer or principal employer may also show that they are not  liable to deposit any contribution on behalf of the employees as the  establishment in question did not come within the purview thereof.  The  purpose of the proceedings, both under the Act as also the Employees  Provident Fund Act, is to determine the amount due from any employer in  respect of the employees under the statutory schemes.  Both the Acts  envisage compliance of principles of natural justice.  The proviso appended  to Section 45A of the Act provides for a statutory mandate of giving a  reasonable opportunity of being heard. 13.     The quantum of amount due has to be determined in respect of all  contract workers engaged by the contractors.   The principal employer would  be entitled to recover the contributions from the contractor; they being the  immediate employers.  Whereas under the Provident Fund Act, the principal  employer is statutorily liable in terms of the provisions of the Act to comply

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with the provisions therein; in terms of the Act, the principal employer is  entitled to recover the amount of contribution payable by the immediate  employer for them.         Section 45A of the Act enables the appropriate authority to recover  such dues both from the principal as also the immediate employer.  It  provides for an opportunity of hearing to both of them.         Apart from Section 41(1A), Regulation 32 of the Employees\022 States  Insurance (General) Regulations, 1950 mandates an immediate employers to  maintain registers in the prescribed form(s).  An order passed under Section  45A of the Act has a serious civil and/or financial consequence as the  amount so determined is liable to be recovered as arrears of land revenue.   Section 44 of the Act, not only mandates the principal employer, but also the  immediate employer to file its reports and maintain registers. Under Sub- section (2) of Section 44, when such reports are not submitted either by the  principal employer or by the immediate employers, the Corporation may  require the person in charge of the factory or establishment to furnish such  particulars as it may consider necessary for the purpose of enabling the  Corporation to decide whether the factory or establishment is a factory or  establishment to which this Act applies.  Sub-section (3) of Section 44 of the  Act enjoins upon the principal as also the immediate employers to maintain  registers or records as may be required by regulations.  Section 45 also  empowers the Inspector of Corporation to require an immediate or principal  employer to furnish to him such information as he may consider necessary in  regard to the compliance of the provisions of the Act by them.  The Act,  therefore, recognizes the existence of an immediate employer. 14.     We may also notice that in terms of the provisions of the Contract  Labour (Regulation and Abolition) Act, 1970 and the Rules framed  thereunder, a contractor is required to maintain a register of the workmen  employed by him.  The contractor is also required to issue an employment  card to the said workers.  Muster rolls, wages registers and other records in  respect of each worker engaged by the contractor are also required to be  maintained.           Reliance has been placed by the Division Bench as also by Mr.  Francis on Employees\022 State Insurance Corporation v. Harrison Malayalam  Pvt. Ltd. [(1993) 4 SCC 361].  Unfortunately, therein attention of this Court  was not drawn to the case of Food Corporation of India (supra).  Even  otherwise, the said decision has no application to the fact of the present case.   The question therein which arose for consideration was as to whether the  employees of the contractor who were casual employees were identifiable or  not.  It is in that context, this Court opined : \023Under the Act, the scheme is more akin to group  insurance. The contribution paid entitles the  workman insured to the benefit under the Act.  However, he does not get any part of the  contribution back if during the benefit period, he  does not qualify for any of the benefits. The  contribution made by him and by his employer is  credited to the insurance fund created under the  Act and it becomes available for others or for  himself, during other benefit periods, if he  continues in employment. What is more, there is  no relation between contribution made and the  benefit availed of. The contribution is uniform for  all workmen and is a percentage of the wages  earned by them. It has no relation to the risks  against which the workman stands statutorily  insured. It is for this reason that the Act envisages  automatic obligation to pay the contribution once  the factory or the establishment is covered by the  Act, and the obligation to pay the contribution  commences from the date of the application of the  Act to such factory or establishment. The  obligation ceases only when the Act ceases to  apply to the factory/establishment. The obligation  to make contribution does not depend upon

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whether the particular employee or employees  cease to be employee/employees after the  contribution period and the benefit period expire.\024

15.     In that case, it was not disputed that the Act applied to casual  workmen.  Here, however, the applicability of the Act itself is in question.   In proceedings under Section 45A, not only the applicability of the Act but  also the quantum thereof which may be held to be payable may be the  subject matter of determination.   16.     Reliance has also been placed on a decision of this Court in  Employees\022 State Insurance Corporation v. Harrisons Malayalam Ltd. (2nd  case) [(1998) 9 SCC 74, wherein this Court referring to the first case opined  that the liability of the employer to contribute arose from the very first day  of employment.  There is no dispute with regard to the aforementioned  proposition of law but the dispute being both in regard to the applicability as  also the quantum, in our opinion, the respondent authority had the requisite  jurisdiction to implead the third party or summon them before it to produce  all relevant documents.         In Ashok Leyland, P. Sathasivam, J following the Food Corporation  (supra) and Madras Gymkhana (supra) held : \02313. \005 The respondent is also directed to implead  the contractors/sub-contractors if it (respondent)  feels that they are necessary and proper parties on  the basis of the information furnished by the  petitioner, for adjudication of the matter in  controversy and to proceed further.\024

Conclusion :     17.     Determination of the exact liability on the part of the contractors is  necessary keeping in view the fact that they or some of them may not be  under the control of the principal employer having regard to the fact that the  contract has come to an end.  It will bear repetition to state that the principal  employers have a statutory right to recover the dues from the  contractors/immediate employers.

18.     It appears that the determining authority did not give an opportunity  of hearing to the petitioner in regard to the names and other particulars of the  contractors.  The impugned judgment, therefore, cannot be sustained.  It is  set aside accordingly.  The appeal is allowed and the matter is remitted to the  ESI Corporation/determination authority for considering the matter afresh.   The authority shall either implead the contractors as parties and/or summon  them for producing necessary records for the said purpose.  In the facts and  circumstances of the case, there shall be no order as to costs.