IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE J.B.KOSHY & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN THURSDAY, THE 22ND MAY 2008 / 1ST JYAISHTA 1930 Ins.APP.No. 11 of 2004() ------------------------ IC.16/2001 of E.I.COURT, KOLLAM .................... APPELLANTS/OPPOSITE PARTIES :- ---------------------------------- 1. THE REGIONAL DIRECTOR, E.S.I.CORPORATION, THRISSUR. 2. THE RECOVERY OFFICER, E.S.I.CORPORATION, KOLLAM. BY ADV. SRI.T.V.AJAYAKUMAR RESPONDENT/APPLICANT :- ---------------------------- THE MANAGING DIRECTOR, M/S.QETCOS LTD., REP. BY SRI R.SYAMNATH. BY ADV. SRI.PIRAPPANCODE V.SREEDHARAN NAIR - R1 SRI.PIRAPPANCODE V.S.SUDHIR - R1 THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 22/05/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K. PADMANABHAN NAIR, J. = = = = = = = = = = = = = = = = = = = INS. APPEAL NO.11 OF 2004 = = = = = = = = = = = = = = = = = = = Dated this the 12th day of March, 2008 R E F E R E N C E O R D E R -------------------------------------- Appeal is filed by the Employees' State Insurance Corporation, Thrissur challenging the order passed by the Employees' Insurance Court, Kollam, in I.C. No.16 of 2001 by which the respondent, a Co-operative Society, fully owned by the Government, was exonerated from payment of damages. Respondent-Society was constituted to provide employment opportunities to unemployed Engineers and Technicians. Appellants demanded contribution to the extent of Rs.1,14,396/-. Subsequently, appellants demanded Rs.1,84,994/- as damages on account of delayed payment. Challenging that order, respondent filed I.C. No.16 of 2001 before the EI Court, Kollam. 2. The main contention raised was that though the Society is fully owned by the State Government and State Government have promised to make available necessary working capital, the same was not done and on account of INS. APPEAL NO.11 OF 2004 -: 2 :- that fact delay in remitting the contribution occurred. The period for which contribution was claimed was from 4/1992 to 7/1994. The EI Court took a view that the respondent was in financial crisis and it was allowed to pay the contribution in instalments and as such it was not liable to pay damages. In Chandrasenan v. Regional Director, E.S.I. Corporation (1996 (1) KLT 243) a Division Bench of this Court held that the fact that employer was allowed to pay the contribution in instalments is not a ground to exempt it from paying the damages. 3. Learned counsel appearing for the respondent has placed reliance on a decision reported in E.S.I. Corporation v. Premanandan (2007 (2) KLT 666) in which it was held that if imposition of damages is by way of penalty, then such damages can be imposed only in accordance with the principles applicable for imposing penalty for failure to carry out a statutory obligation. It was further held that damages cannot be imposed unless the party acted either deliberately or in defiance of law or was guilty of INS. APPEAL NO.11 OF 2004 -: 3 :- contumacious or dishonest conduct. The Division Bench also considered Regulation 31C of Employees State Insurance (General) Regulations, 1950 and held that Regulation 31C would only be guidelines in the matter of imposition of damages and percentage fixed is not absolute. Shri T.V.Ajayakumar, learned counsel appearing for the appellants, argued that in M/s. Prestolite of India Ltd. v. Regional Director (AIR 1994 SC 521) the Apex Court held that while adjudicating damages, the adjudicating authority can take mitigating circumstance into consideration, but should not act mechanically in applying upper most limit of damages. It is argued that in Sovin Knit Works v. E.S.I. Corpn. (AIR 1997 SC 1771) the Apex Court had taken a view that in the case of non-compliance of the provisions of the Act by the employer, the demand is valid. In M/s. Hindustan Times Ltd. v. Union of India (AIR 1998 SC 688) it was held that financial difficulties of the employer is not a ground to exempt it from payment of damages. Learned counsel also relied on an unreported decision of this Court in INS. APPEAL NO.11 OF 2004 -: 4 :- R.P. No.732 of 2007 in Ins. Appeal No.25 of 2003 decided on 14.9.2003. In Ins.Appeal No.25 of 2003 a Division Bench of this Court took a view that unless the employer is guilty of contumacious or dishonest conduct or acted in conscious disregard of its obligation, damage is not leviable. Appellant in that appeal filed R.P. No.732 of 2003 and in the R.P. the Division Bench has clarified that the legal principles laid down by this Court in the present case shall not be treated as having general application and it shall not be a precedent. 4. In Emp. State Insurance Corporation v. H.M.T. Ltd. & Anr. (2008 (1) SCALE 341) the Apex Court has held that the ESI Act was enacted to provide 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. 5. It was also held that 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. 6. Regulation 31C was initially introduced in the INS. APPEAL NO.11 OF 2004 -: 5 :- Regulations with effect from 1.1.1992. It reads as follows: 31-C. Damages or contribution or any other amount due, but not paid in time. - An employer who fails to pay contributions within the periods specified under Regulation 31 or any other amount payable under the Act, shall be liable to pay damages as under. It is argued that Regulation 31C was amended with effect from 27.3.2003. It was contended that before amendment in 2003 once the court finds that employer is liable to pay damage it has no discretion at all, but damage is to be imposed as provided in Regulation 31C of the Regulations because of the mandatory provisions contained in that Regulation. It is pointed out that Premanandan's case (supra) arose in the year 1999. So the provision contained in amended Regulation 31C has no application to the facts of that case and in this case. It is also pointed out that challenging the decision in Premanandan's case (supra) appellant had filed SLP No.9899 of 2007 before the Apex Court and the same is pending. Considering all aspects of the matter, I am of the view that the principles laid down in INS. APPEAL NO.11 OF 2004 -: 6 :- Premanandan's case (supra) require reconsideration. For that purpose the case is to be heard by a Division Bench. In the result, the appeal is adjourned to be heard and determined by a Bench of two Judges. The Registry is directed to place the file before the Honourable the Chief Justice for appropriate orders. K. PADMANABHAN NAIR, JUDGE. vsv K. PADMANABHAN NAIR, J. ===================== M.F.A. ===================== J U D G M E N T ------------------------------------------- TH MARCH, 2008