Appeal No 1854 of 1992
From the Judgment and Order dated 18121990 of the Kerala High Court in MFA No 800 of 1990
ML Verma VJ Francis V Subramanian and Padmakumar for the Appellant
PS Poti and R Sasiprabhu for the Respondent
The Judgment of the Court was delivered by MOHAN J
This appeal by special leave is directed against ie judgment of the High Court of Kerala in MFA No 80090 dated 181290
The short facts leading to this appeal are as under The respondent Hotel is situated in Kaloor Cochin 17
It is a commercial establishment
In July 1985 this establishment obtained a Bar licence whereupon a Bar was started
After running the business for some time it was closed down with effect from 31388
The Insurance Inspectors of the appellant verified the records of the respondent establishment on 29987 91087 and 1910 87
It was reported that the employment strength of the respondent establishment including Chembaka Restaurant and Mayuri Bar was more than 19 as on 17785
Therefore it was treated as covered under the hereinafter referred to as the Act with effect from 11785 provisionally
The fact of coverage was intimated to the respondent by notice dated 21388
Since the final date of coverage could be decided only after verifying all the records pertaining to the date of functioning of the establishment the respondent was requested to produce all the records such as attendance register wage register ledgers etc
from the date of starting of the establishment
The respondent was also called upon to start 222 compliance under the Act with effect from 11785
But there was no compliance
Hence a notice was issued in Form C 18 dated 26388 along with a draft order for contribution amount of Rs 4939975 which was assessed under section 45 A of the Act for the period 11785 to 31388
Though the respondent was afforded an opportunity to appear before the officer it was not availed of However a letter dated 13788 was received but the explanations were not acceptable to the appellant
Subsequently a detailed order dated 3888 under section 45 A of the Act was passed calling upon the respondent to pay a contribution of Rs 4939975 together with interest at 6 per cent failing which it would be covered as an arrears of land revenue
Again reminder was sent on 22988
No reply was received
Hence in order to recover the contribution under section 45 A of the Act a claim in Form 19 was sent to the District Collector Ernakulam on 311088 requesting to recover the contribution for the period from 11785 to 31388
Challenging these proceedings the respondent filed an application under section 75 of the Act before the Employees  Insurance Court Alleppey
Inter alia it was contended that the applicant respondent in this appeal at no time employed 20 or more persons during the relevant time
The order was illegal because under section 45 A of the Act the respondent was entitled to a reasonable opportunity of being heard
That was not afforded
These contentions were refuted by the appellant
It was incorrect to state that on no occasion the respondent employed 20 or more workmen since the inspection report dated 81286 clearly established to the contrary
The contention that no opportunity had been afforded before initiating the revenue recovery proceedings was also denied in view of Form C 18 dated 23688 show cause notice dated 3888 and reminder dated 22988
By its order dated 6th June 1990 the Employees  Insurance Court Alleppey came to the following conclusion In the result I can only uphold the assessment made by the ESI Corporation
But when the question of recovery is considered certain other aspects cannot be ignored
The adhoc assessment itself was made by the opposite party after the 223 closure of the entire establishment
All the employees working in the establishment had left by that time after accepting the termination of their services
In respect of those employees who had already left the ESI Corporation is now trying to recover contribution
Now the position emerges is that despite the collection of contribution it will be impossible to bring under coverage those employees because they are not at all available for coverage and for enjoying the benefits under the scheme
Therefore even if the proceedings initiated earlier were sus tainable so long as the employees are not available for the purpose of coverage there is no meaning in collecting contribution alone
In these circumstances I can only hold that the applicant had failed to comply with provisions of the ESI Act at the appropriate time
Therefore according to me after the closing of the establishment such recovery steps are not justified but only the prosecution as contemplated under sec
85 of the ESI Act is attracted
Therefore it is upto the ESI Corporation to decide whether any prosecution should be launched against the applicant for the contravention or noncompliance of the requirements of the ESI Act and Rules  Aggrieved by the same the appellant Corporation preferred an appeal in MFA No 800 of 1990
A Division Bench of the Kerala High Court by its order dated 18th December 1990 posed the question for determination as to whether the appellant could proceed against respondent for realisation of contribution under the ESI scheme after the closure of establishment
The High Court upheld the finding of Insurance Court that the respondent had failed to comply with the provisions of the Act at the appropriate time
However it proceeded to hold that the respondent establishment was closed on 31388
P3 notice calling upon the respondent to pay the contribution was only on 23688
Since the scheme was made after the closure of the establishment the appellant was not justified in proceeding against the respondent
In this view it dismissed the appeal
It is under these circumstances the ESI Corporation has come up by way of special leave to appeal
Mr ML Verma learned senior counsel for the appellant urges the 224 following 1
The closure of the respondent establishment was on 31388 but the liability with reference to contribution arose earlier
The demand is for the period 11785 to 31388
So long as the establishment is covered by the provisions of the Act it is not open to the respondent to circumvent its liability by contending that before actual recovery proceedings it had closed down
If the finding of the High Court is accepted it would be the easiest way to evade the provisions of the Act
In RM Lakshmanamurthy vs The Employees  State Insurance Corporation Bangalore This Court has held that it is a beneficial piece of social security legislation in the interest of labour
Further the provisions of the Act will have to be construed with that end in view in order to promote the scheme and avoid the mischief
Under section 26 of the Act all contributions are paid into a common fund
Such a fund will have to be administered for the purposes of the Act as indicated under section 28
Therefore the employer cannot contend that he did not collect the employees  contribution and hence he cannot be called upon to pay
Thus the impugned judgment is wrong and is liable to be set aside
Per contra Mr P Surbramanian Poti learned senior counsel for the respondent would argue that the contention of the respondent throughout was that at no time it engaged 20 or more employees
Therefore it was under the belief that the Act would not be applicable
In that belief the employer did not recover from the employees any contribution
Nor was the employer called upon during that relevant time to comply with the provisions of the Act
It was entirely due to the fault of the Officers of the appellant the respondent did not make the contribution
In any event the establishment had been closed down on 31388
It will be unjust to enforce the provisions of the Act and to seek to recover contribution after the closure more so when the employees have settled their claims and have gone away
Certainly such a situation is not con templated under the Act
From this point of view the judgment of the High Court is right and does not call for any interference
In order to appreciate the rival contentions it would be useful to set 225 out the necessary legal background
The is an act for certain benefits to employees in cases of sickness maternity and employment injury and to make provision for certain other matters in relation thereto
Section 14 makes it applicable to all factories in the first instance  Under sub section 5 of the said section the Government may by a Notification extend the provisions of the Act to any other establishment or class of establishment industrial commercial agricultural or otherwise
Admittedly in this case the hotel industry like that of the respondent has been notified under the Act
Under section 26 a fund called Employees  State Insurance Fund is created by all the contributions paid under this Act the purposes for which it may be expended are cataloged under section 28
Section 38 requires all employees in factories or establishments shall be insured
Section 39 talks of contribution
In respect of an employee it shall comprise of contribution payable by the employer employer s con tribution and contribution payable by the employee
It is this contribution which has to be paid to the Corporation
Section 40 imposes the liability to pay contributions in the first instance on the principal employer
After such contribution the employee s contribution could be deducted from his wages
Sub section 4 of section 40 is important
That says as follows 4 Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted Emphasis supplied Therefore this sub section puts the matter beyond doubt that there is an entrustment
In other words the employer is a trustee
Under section 44 there is an obligation on the employer to furnish returns and maintain registers
The benefits available to the insured persons are stated in section 46 1
Sickness 2
Maternity 3
Disablement 226 4
Injury 5
Medical treatment for and attendance on insured persons
Lastly there is power to prosecute under section 85 which includes punishment for failure to pay contributions as well as for contravention of or non compliance with any of the requirements of the Act
In the above legal background we may analyse the factual situation
Two facts stare at us
The liability to contribution of the respondent employer relates to a period between 11785 to 31388 2
The respondent establishment was closed on 31388
The contention of the respondent that at no time there were 20 or more employees in his establishment has to be rejected because at no point of time the respondent sought an adjudication on this aspect
On the contrary the inspections made by the officials of the appellant on 81286 September 87 and October 87 state to the contrary
Therefore we have to proceed on the basis that the provisions of the Act are applicable to the respondent establishment since i it is a notified industry ii in the establishment more than 20 employees were working at the relevant time
From the above provisions it is clear that from the date of his commencement of business namely 11785 there was a liability to contribute
It has already been seen under section 40 the primary liability is his to pay not only the employer s contribution but also the employee s contribution
Therefore he cannot be heard to contend that since he had not deducted the employee s contribution on the wages of the employees he could not be made liable for the same
The object of making a deeming entrustment sub section 4 of section 40 will be altogether rendered nugatory if such a contention were to be accepted
After all when he makes employee s contribution he is entitled to deduct from the wages
Therefore by force of the application of the statutory provisions the liability to contribute during this relevant period namely 11785 to 31388 arose
There is no gain saying in that
Hence we reject the arguments of Mr Subramanian Poti learned senior counsel for the respondent
From the above statutory provisions it would be clear that from out 227 of the common fund maintained under section 26 the employees derive various benefits like sickness maternity disablement injury medical treatment for and attendance on insured persons
Therefore it is a beneficial piece of social security legislation
As a matter of fact this Court had occasion to consider the same in BM Lakshmanamurthy s case supra
At page 370 paragraph 16 it was held  The Act is thus a beneficial piece of social security legislation in the interest of labour in factories at the first instance and with power to extend to other establishments
Provisions of the Act will have to be construed with that end in view to promote the scheme and avoid the mischief Mr ML Verma learned senior counsel for the appellant is right in his submissions in this regard
The Insurance Court as well as the High Court have correctly upheld the demand for contribution
But it is rather strange to conclude that the demand could not be enforced against a closed business
If this finding were to be accepted it would not promote the scheme and avoid the mischief
On the contrary it would perpetrate the mischief
Any employer can easily avoid his statutory liability and deny the beneficial piece of social security legislation to the employees by closing down the business before recovery
That certainly is not the indentment of the Act
To hold as the High Court has done would set at naught all these beneficial provisions
It is equally fallacious to conclude that because the employees had gone away there is no liability to contribute
It has to be carefully remembered that the liability to contribute arose from the date of commencement of the establishment and is a continuing liability till the closure
The very object of establishing a common fund under section 26 for the benefit of all the employees will again be thwarted if such a construction is put
We cannot also accept the finding of the High Court that because Ext
P3 notice was issued on 23688 after the closure of the respondent establishment on 31388 the appellant was not justified in proceeding against the respondent
The proceeding for the recovery is of the dues of contribution which arose prior to the closure on 313 88
Therefore it matters little when notice was issued calling upon to pay the contribution
228 In our considered view such a notice is only a reminder to the employer to discharge his statutory obligation
For all these reasons we have little hesitation in setting aside the impugned judgment of the High Court which in turn upholds the order of Employees  State Insurance Court
The appellant will be entitled to proceed with the recovery proceedings in accordance with law
Accordingly the appeal will stand allowed with costs
GN Appeal allowed


Summary:
The three appeals arose out of disputes relating to the publication of telephone directories of MTNL a Government of India Undertaking
The MTNL introduced a new concept of yellow pages  in telephone directories and these yellow pages were to contain advertisement under different headings
The contractor who was to be awarded the contract for printing such directories was to collect the revenue from the advertisements in the yellow pages as well as in the white pages of the telephone directory supply the same free of cost to the for its subscribers and pay royalty to the MTNL in connection with printing of such directories
Tenders for publication of the directories for Delhi and Bombay were invited
Tender of UIP respondent No 2 in the Writ Petition and appellant in one of the appeals CANo 91 of 1993 was accepted and an agreement dated 14th March 1987 was executed
UDI respondent No 3 to the Writ Petition and appellant in one of the other appeals CA No 90 of 1993 was a subsidiary of UIP
Under the original agreement UIP was to publish directories every year for a period of five years from 1987 to 1991 for Delhi and Bombay separately pay an amount of Rs 2016 crores as royalty to the MTNL supply the directories free of cost to subscribers
UIP also furnished a 82  performance guarantee for a sum of Rs one crore and was also to supply the same number of supplementary directories which were to be published six months after the publication of the annual issue to be published in NovemberDecember every year
UIP was given the exclusive right for procurement of the advertisements in the yellow pages as well as strips bold the extra entries in the white pages the rates to be fixed by the UIP for each issue of the directory and such rates to be printed for general information
It was stipulated that if UIP committed default or breach of the agreement or failed in the due performance thereof the MTNL shall be entitled to recover from the UIP by way of compensation or liquidated damages and amount calculated at the rate of Rs One lakh for every day or part thereof for the delay beyond the stipulated date
The MTNL without prejudice to other rights could by notice in writing determine the contract
UIP defaulted and committed breach of the agreement inasmuch as directories for Delhi were published only for the years 1987 and 1988 and for Bombay only for the year 1987
For the year 1987 Delhi issue was published after a delay of seven months and Bombay issue after six months and the Delhi issue of 1988 was published only in August 1990 a delay of two years
There was no publication of the directories for Delhi for the years 1989 1990 and 1991 and in respect of Bombay for the years 1988 1989 1990 and 1991
A supplemental agreement was entered on 26th September 1991 between UIP UDI MTNL and Sterling Computers Limited appellant in one of the appeals CA
No 89 of 1993
Sterling by this agreement was introduced to carry out the unexecuted portion of the agreement with UIP
By this supplemental agreement Sterling was to print and publish 13 main issues of Delhi and Bombay directories within a period of seven years including the year 1991 on payment of additional royalty of only Rs 10 crores to the MTNL over and above the royalty stipulated in the original agreement by the UIP
Under the agreement dated 14th March 1987 the royalty which was payable was Rs 2016 crores for the period 1987 to 1991 but under the supplemental agreement Sterling was given the contract to publish 13 main issues of the Delhi and Bombay directories upto 1997 and 1998 but for the extended period it had to pay royalty only for an amount of Rs 10 83 crores
A Writ Petition was flied questioning the validity and legality of the supplemental agreement on different grounds including the ground of mala fide
It was contended by the petitioners that under the grab of a supplemental agreement a fresh contract was awarded to Sterling for a fresh period from 1991 to 1997 on fresh terms and conditions to publish the directories every year for Delhi and Bombay without inviting tenders or affording an opportunity to others to submit tenders so that they may be also considered for award of the said contract
It was asserted by the petitioners that in the process of entering into the supplemental agree ment the MTNL which is a public undertaking and a State  within the meaning of Article 12 of the constitution had suffered a loss of more than Rs 60 crores without any corresponding benefit accruing to the MTNL or to the public in general
MTNL contested the writ petition contending that the supplemental agreement was a result of a bona fide commercial decision free from any bias or malice that the original contract for the years 1987 to 1991 had been awarded to UIP after inviting tenders but UIP having gone bankrupt no money could have been realised from it
The termination of the original contract was no remedy although repeated contraventions and breaches had been committed by the UIP inasmuch as there was no publication of directory for Bombay for the years 1988 1989 1990 and 1991 and for Delhi for the years 1989 1990 and 1991
In order to salvage Rs 2016 crores which was payable to the MTNL under the original agreement dated 14th March 1987 by the UIP and which had not been paid a decision was taken by the MTNL to enter into a supplemental agreement and to allow the UIPUNISterling to publish the thirteen issues of directories six main issues for Delhi and seven main issues for Bombay upto years 1997 98 apart from the supplementary directories
The High Court allowed the writ petitions and came to the conclusion that the supplemental agreement dated 26th September 1991 cannot be held to be an extension of the original agreement dated 14th March 1987 and that the supplemental agreement was tainted with malice the object being to provide unjust enrichment to UIPUDISterling
In the appeals to this Court it was contended on behalf of the 84 appellants that the supplemental agreement was entered into by the MTNL taking into consideration the circumstances then existing which had been examined at the highest level and as such a Court should not examine the discretion exercised by the public authority as a court of appeal because the decision to enter into the supplemental agreement also involved a question of policy and it was pointed out that the contract had been awarded in the year 1987 to UIP on an experimental basis on such terms and conditions on which in past directories had not ever been published and that the real experiment was as to how the directories  could be published without incurring any cost by MTNL
On behalf of the Writ Petitioners it was stated that they were prepared to pay to the MTNL an amount of Rs 60 crores for the period 1991 to 19971998 the period covered by the supplemental agreement for which the UIPJDISterling have undertaken to pay only Rs 10 crores as royalty
Dismissing the appeals this court HELD1
Ile publication of directories by the MTNL is not just a commercial venture the primary object is to provide service to the people
92F 2The norms and procedures prescribed by Government and indicated by Courts have to be more strictly followed while awarding contracts which have along with a commercial element a public purpose
92F 3The action or the procedure adopted by the authorities which can be held to be a State  within the meaning of Article 12 of the Constitution while awarding contracts in respect of properties belonging to the state can be judged and tested in the light of Article 14 of the Constitution
Raman Davaram Shelly vs 7he International Airport Authority of India    Ms Kasturi Lal Lakshmi Reddy vs The State of Jammu and Kashmir   Fertilizer Corporation Kamgar Union Regd Sindri vs Union of India   Ram and Shyam Company vs State of Haryana   Haji TM Hasan Rawther vs Kerala Financial Corporation AIR 1988 SC 157 Mahabir Auto Stores vs Indian Oil Corporation  and Kumari Shrilekha Vidyarthi vs State of UP  referred to
92 H 93 A 4
Public authorities at times It Is said must have the same liberty 85 as they have in framing the policies even while entering into contracts because many contracts amount to implementation or projection of policies of the Government
But it cannot be overlooked that unlike policies contracts are legally binding commitments and they commit the authority which may be held to be a State within the meaning of Article 12 of the Constitution In many cases for years
That is why the courts have impressed that even in contractual matters the public authority should not have unfettered discretion
91G H 92A 5In contracts having commercial elements some more discretion has to be conceded to the authorities so that they may enter into contracts with persons keeping an eye on the augmentation of the revenue But even in such matters they have to follow the norms recognised by courts while dealing with public property
92B 6Under some special circumstances a discretion has to be conceded to the authorities who have to enter into contract giving them liberty to assess the overall situation for purposes of taking a decision its to whom the contract is to be awarded and at what terms
If the decisions have been taken in bone fide manner although not strictly following the norms laid down by the Courts such decisions are upheld
92C 7Public authorities are essentially different from those of private persons
Even while taking decision in respect of commercial transactions a publicauthority must be guided by relevant considerations and not by irrelevant ones
If such decision is influenced by extraneous considerations which it ought not to have been taken into account the ultimate decision is bound to be vitiated even if it is established that such decision had been taken without bias
102H 103A 8While exercising the power of judicial review in respect of contracts entered into on behalf of the State the Court is concerned primarily as to whether there has been any infirmity in the decision making process 
By way of judicial review the Court cannot examine the details of the terms of the contract which have been entered into by the public bodies or the state
Courts have inherent limitations on the scope of any such enquiry
But the Courts can certainly examine whether decision making process  was reasonable rational not arbitrary and violative of Article 14 of the Constitution
95C E F 86 Chief Constable of the North Wales Police vs Evans   referred to
9In the facts and the circumstances of the instant case it has to be held that the MTNL has applied the irrelevant considerations  doctrine while granting a fresh contract for a period of five years through the supplemental agreement dated 26th September 1991 because it had failed to take into account considerations which were necessarily relevant ie
following the rule of inviting tenders while granting the contract for a further period of five years on fresh terms and conditions and had taken into account irrelevant considerations
101H 102A 10Philanthropy is no part of the management of an undertaking while dealing with a contractor entrusted with the execution of a contract 102F 11The supply of the directories to public in time was a public service which was being affected by the liberal attitude of the MTNL and due to the condonation of delay on the part of the UIPUDI
There was no justification on the part of the MTNL to become benevolent by entering into the supplemental agreement with no apparent benefit to the without inviting fresh tenders from intending persons to perform the some job for the next five years
102G 12The supplemental agreement is really a fresh agreement with fresh terms and conditions which has been entered by MTNL without inviting any tender for the same
It has been entered to benefit the parties who are admittedly defaulters by not publishing directories for Bombay for the years 1988 1991 and for Delhi for the years 1989 1991 although they had collected several crores or Rupees for the advertisements for the directories to be published in the aforesaid years
103D E 13It is a matter of common experience that whenever applications relating to awarding of contracts are entertained for judicial review of the administrative action such applications remain pending for months and in some cases for years
Because of the interim orders passed in such applications the very execution of the contracts are kept in abeyance
The cost of different projects keep on escalating with passage of time apart from the fact that the completion of the project itself Is deferred
This process not only affects the public exchequer but even the public In general 87 who are deprived of availing the facilities under different projects
As such it need not be impressed that while exercising the power of judicial review in connection with contractual obligations Courts should be conscious of the urgency of the disposal of such matters otherwise the power which is to be exercised in the interest of the public and for public good in some cases become counter productive by causing injury to the public in general
106AB