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CASE NO.: Appeal (civil)  340 of 2008

PETITIONER: Emp. State Insurance Corporation

RESPONDENT: H M T  Ltd & Anr

DATE OF JUDGMENT: 11/01/2008

BENCH: S.B. Sinha & J.M. Panchal

JUDGMENT: JUDGMENT

CIVIL APEAL NO 340 OF 2008 (Arising out of SLP (C) No.4827 of 2006)

S.B. Sinha, J.

       Leave granted.

1.      Interpretation and application of Section 85-B of the Employees State  Insurance Act (The Act) and Regulation 31C of the Employees State  Insurance (General) Regulations, 1950 (The Regulations) is in question in  this appeal which arises out of a judgment and order dated 12.9.2005 passed  by a Division Bench of the Karnataka High Court in Writ Appeal No.2587  of 2004 allowing the appeal in part preferred from the judgment and order  dated 25.3.2000 passed by a learned Single Judge of the said Court in Writ  Petition No.38753 of 1998.  2.      Respondent is an ’employer’ within the meaning of the provisions of  Section 2(17) of the Act.  Indisputably, prior to issuance of the notification  dated 27.3.1992, the wage ceiling of the employees was restricted to  Rs.1,600/- per month.  The same was increased to Rs.3000/- per month with  a view to bring them within the purview of the Act.   3.      Validity of the said notification was challenged in a large number of  writ petitions by the employees.  By an interim order passed by the High  Court, the operation of the notification was directed to be stayed.  The said  writ petitions were dismissed by an order dated 5.8.1992.   4.      Writ appeals were filed by the ’employees’ through their respective  Trade Unions.  While admitting the said appeals, the interim order operating  during the pendency of the writ petition was allowed to continue.   The said writ appeals were also dismissed by the Division Bench of  the High Court by reason of a judgment and order dated 11.7.1995, inter  alia, on the premise that there was no impediment for the respondent herein  to deposit the contributions of the employees concerned.   5.      On and from the said date interest was claimed till the date of actual  payment.  Appellant thereafter also raised a claim for payment of interest for  delayed payment and furthermore levied damages in terms of Section 85B of  the Act.   6.      A writ petition filed by the respondent herein questioning the validity  of the said notice dated 9.6.1998 was dismissed by an order dated 25.3.2000.   A review petition was filed by the appellant herein which was also dismissed  on merits.   An intra court appeal was preferred thereagainst and by reason of the  impugned judgment, it was allowed in part opining : 1.      that although period of delay is slightly more than two years, some  reasonable time should be allowed for deposit of contributions and,  thus, restricting the period of payment of interest to two years only. 2.      No damage should be directed to be levied in the facts and

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circumstances of the case as Section 85B of the Act provides for an  enabling provision and does not make is mandatory to levy damages  in every case.   7.      Mr. C.S. Rajan, learned Senior Counsel 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 take into consideration the  purported effect of Regulation 31C of the Regulations which provides for  levy of interest as also damages. 8.      Mr. C.V. Francis, learned counsel appearing on behalf of the  respondent, on the other hand, would support the impugned judgment.   9.      The said Act was enacted to provide for certain benefits to the  employees of an establishment in case of sickness, maternity and  employment injury and to make provisions for certain other matters in  relation thereto.   10.     Chapter IV of the Act provides for payment of contributions.  Section  39 of the Act postulates payment of contributions thereunder both by the  ’employer’ as also the ’employee’.   11.     Section 85B of the Act empowers the Corporation to recover damages  in the event an employer fails to make the payment of the amount due in  respect of contribution; subject, however, to the condition that the amount  thereof would not exceed the amount of arrears as may be specified in the  Regulations.  Proviso appended thereto incorporates the principles of  ’Natural Justice’. 12.     Obligation on the part of the employer to deposit the contributions of  both the ’employer’ and the ’employee’ is not in dispute.   What is in dispute is as to whether the amount of damages specified in  Regulation 31C of the Regulation is imperative in character or not.   It is a well known principle of law that a subordinate legislation must  conform to the provisions of the Legislative Act.  Section 85B of the Act  provides for an enabling provision.  It does not envisage mandatory levy of  damages.  It does not also contemplate computation of quantum of damages  in the manner prescribed under the regulations. 13.     The statutory liability of the employer is not in dispute.  An employee  being required to be compulsorily insured, the employer is bound to make  his part of the contribution.  An employee is also bound to make his  contribution under the Act.  But the same does not mean that levy of  damages in all situations would be imperative.   14.     Section 85B of the Act uses the words ’may recover’.  Levy of  damages thereunder is by way of penalty.  The Legislature limited the  jurisdiction of the authority to levy penalty, i.e., not exceeding the amount of  arrears.  Regulation 31C of the Regulations, therefore, in our opinion, must  be construed keeping in view the language used in the Legislative Act and  not de hors the same.   15.     Our attention, however, has been drawn to a decision of this Court in  Hindustan Times Ltd. v. Union of India [(1998) 2 SCC 242] wherein it has  been laid down : "From the aforesaid decisions, the following  principles can be summarized : The authority under Section 14-B has to apply his  mind to the facts of the case and the reply to the  show-cause notice and pass a reasoned order after  following principles of natural justice and giving a  reasonable opportunity of being heard; the  Regional Provident Fund Commissioner usually  takes into consideration the number of defaults, the  period of delay, the frequency of default and the  amounts involved; default on the part of the  employer based on plea of power-cut, financial  problems relating to other indebtedness or the  delay in realization of amounts paid by the cheques  or drafts, cannot be justifiable grounds for the  employer to escape liability; there is no period of  limitation prescribed by the legislature for  initiating action for recovery of damages under  Section 14-B."

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16.     It was, however, opined that in certain situations, the employer can  claim the benefit of ’irretrievable prejudice’ in case a demand for damages is  made after several years.  In that case, this Court was concerned, inter alia,  with a question in regard to the effect of levy of damages after a long time.   The question which, inter alia, arose for consideration therein was as to  whether suo moto revisional jurisdiction could be exercised by the revisional  authority at any time it desires.  The Court made a distinction between the  cases involving ’recovery of money’ from an employer who had withheld  the contributions made by the workmen in trust and other cases.  It was in  that situation opined supra.  We are not concerned with such a situation  herein.   17.     A penal provision should be construed strictly.  Only because a  provision has been made for levy of penalty, the same by itself would not  lead to the conclusion that penalty must be levied in all situations.  Such an  intention on the part of the legislature is not decipherable from Section 85B  of the Act.  When a discretionary jurisdiction has been conferred on a  statutory authority to levy penal damages by reason of an enabling  provision, the same cannot be construed as imperative.  Even otherwise, an  endeavour should be made to construe such penal provisions as  discretionary, under the statute is held to be mandatory in character. 18.     In Prestolite (India) Ltd. v. Regional Director and Anr. [1994 Supp.(3)  SCC 690], this Court rejected a contention raised by the Regional Director  of Employees Insurance that under the Employee’s State Inusrance General  Regulations guidelines have been indicated showing as to how damages for  delayed payment are to be imposed and since such guidelines have been  followed, no exception should be taken thereto made to the impugned  adjudication, stating : "Even if the regulations have prescribed general  guidelines and the upper limits at which the  imposition of damages can be made, it cannot be  contended that in no case, the mitigating  circumstances can be taken into consideration by  the adjudicating authority in finally deciding the  matter and it is bound to act mechanically in  applying the uppermost limit of the table.  In the  instant case, it appears to us that the order has been  passed without indicating any reason whatsoever  as to why grounds for delayed payment were not to  be accepted.  There is no indication as to why the  imposition of damages at the rate specified in the  order was required to be made.  Simply because  the appellant did not appear in person and produce  materials to support the objections, the employee’s  case could not be discarded in limine.  On the  contrary, the objection ought to have been  considered on merits."

19.     In Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai and  Anr. [(2007) 6 SCC 329], this Court stated : "40. Thus, it appears that there is distinct line of  authorities which clearly lays down that in  considering a question of penalty, means rea is not  a relevant consideration.  Even assuming that when  the statute says that one is liable for penalty if one  furnishes inaccurate particulars, it may or may not  by itself be held to be enough if the particulars  furnished are found to be inaccurate is anything  more needed but the question would still be as to  whether reliance placed on some valuation of an  approved valuer and, therefore, the furnishing of  inaccurate particulars was not deliberate, meaning  thereby that an element of mens rea is needed  before penalty can be imposed, should have  received serious consideration in the light of a

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large number of decisions of this Court."

20.     We agree with the said view as also for the additional reason that the  subordinate legislation cannot override the principal legislative provisions.   The statute itself does not say that a penalty has to be levied only in  the manner prescribed.  It is also not a case where the authority is left with  no discretion.  The legislation does not provide that adjudication for the  purpose of levy of penalty proceeding would be a mere formality or  imposition of penalty as also computation of the quantum thereof became a  foregone conclusion.  Ordinarily, even such a provision would not be held to  providing for mandatory imposition of penalty, if the proceeding is an  adjudicatory one or compliance of the principles of natural justice is  necessary thereunder.   21.     Existence of mens rea or actus reus to contravene a statutory provision  must also be held to be a necessary ingredient for levy of damages and/or the  quantum thereof.   22.     The Division Bench of the High Court, therefore, in our opinion, was  not wrong in opining that Section 85-B provides for an enabling provision.   What, however, cannot be appreciated that is such a construction itself  would lead to the conclusion that the High Court is entitled to substitute its  view in place of the statutory authority.  In our considered view, therefore,  the matter should be considered afresh for determination of quantum of  damages etc. in the light of the observations made hereinbefore. 23.     We are, therefore, of the opinion that the impugned judgments cannot  be sustained.  It is set aside accordingly and the matter is remitted to the  High Court for consideration of the matter afresh in the light of the  observations made herein.  The appeal is allowed to the aforementioned  extent.  In the facts and circumstances of this case, there shall be no order as  to costs.