IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.SASIDHARAN NAMBIAR THURSDAY, THE 12TH MARCH 2009 / 21ST PHALGUNA 1930 Ins.APP.No. 33 of 2004() ------------------------ IC.17/2002 of E.I.COURT, KOZHIKODE .................... APPELLANT/RESPONDENT: -------------------------------- THE REGIONAL DIRECTOR, E.S.I. CORPORATION, THRISSUR. BY ADV. SRI.T.V.AJAYAKUMAR RESPONDENT/ APPLICANT: ------------------------- C.P. RATNAKARAN, MANAGING PARTNER OF ERSTWILE M/S. ANJALI ENGINEERING WORKS P.H.E. ROAD, CALICUT-20 AND RESIDES AT PARAKKATTU HOUSE, POST VENGERI, CALICUT-10. ADV. SRI.V.V.SURENDRAN SRI.P.A.HARISH THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 12/03/2009, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: M.SASIDHARAN NAMBIAR,J. ------------------------------------------ INS.APPEAL NO.33 OF 2004 ------------------------------------------ Dated 12th March 2009 JUDGMENT Late Asokan was the proprietor of M/s.Royal Engineering Works. Based on the inspection conducted by the inspectors of the Insurance Corporation on 18/4/1991 Asokan was directed to comply with the provisions of E.S.I Act w.e.f 18/4/1991. He challenged that order before E.I court, Kozhikode in E.I.C.No.12/1992. It was contended before the E.S.I court that his establishment never employed more than 7 persons and therefore it is not covered under E.S.I Act. It was also contended that factory ceased to function subsequent to 26/3/1991 consequent to the illness of C.P.Asokan, the proprietor. Under Ext.D1 order dated 31/7/1997 E.S.I court declared that M/s.Royal Engineering Works is liable to be covered under E.S.I Act w.e.f 18/4/1991. When that proceeding was pending Asokan had died on 8/7/1992 and the proceedings was continued by his legal heirs. In that proceedings respondent, the Managing Partner of Ins.Appeal33/04 2 M/s.Anjali Engineering Works was examined after producing the partnership deed contending that it was a continuation of original establishment M/s.Royal Engineering Works subsequent to its stoppage on 26/3/1991. E.I court did not accept that contention. Subsequent to Ext.D1 order, respondent was directed to pay Rs.26,554/- being the E.S.I contribution for the period from 18/4/1991 to 31/8/1998 treating M/s.Anjali Engineering Works as continuation of M/s.Royal Engineering Works. Respondent challenged that order before E.I court, Kozhikode in E.I.C.69/1999 contending that it is not continuation of M/s.Royal Engineering Works but an independent establishment and it is not covered under E.S.I Act. Under Annexure II order which was marked as Ext.D3 before E.I court in E.I.C.17/2002 the petition was dismissed declaring that M/s.Anjali Engineering Works is a continuation of establishment of M/s.Royal Engineering Works and therefore appellant is liable to pay E.S.I contribution from 18/4/1991 to 23/7/1991 which was due from the widow of the original proprietor Asokan and Rs.26,011/- as the contribution from 24/7/1991 to 31/8/1998 from the respondent. Pursuant to the said order respondent remitted the Ins.Appeal33/04 3 contribution of Rs.26,012/- on 27/12/2001. But interest payable under Section 39(5) of E.S.I Act was not paid. When it was demanded respondent approached E.I court, Kozhikode by filing E.I.C.17/2002. It was contended that he is only liable to pay contribution from the date of Ext.D3 order and therefore declaration that demand of Rs.23,195/- by way of interest in respect of the contribution amount from the period from 24/7/1991 to 31/8/1998 made by the appellant is unsustainable. E.I court as per order dated 11/12/2003 found that under sub section 4 of Section 39, contribution payable in respect of each wage period shall ordinarily fall due on the last day of wage period and under Section 39(5) if a contribution is not paid on the due date, interest is payable at the prescribed rate and regulation 31 of E.S.I (General) Regulation, 1950 provides a period of 21 days for effecting payment from the due date as provided under Section 39(4) and found that respondent is liable to pay contribution only from the date of Ext.D3 order and therefore he is liable to pay interest from 18/10/2001 to 27/12/2001 at the rate of 15% per annum. That order is challenged in the appeal. Appeal was admitted on Ins.Appeal33/04 4 the following substantial question of law. Whether the findings of the E.I Court that contribution for the period from 18/4/1991 to 31/8/2001 had fallen from the date of Ext.D3 final order namely 27/9/2001, is violative of Section 39(4) and 30(5)(a) of E.S.I Act. 2. Learned counsel appearing for appellant and respondent were heard. 3. Learned counsel appearing for the appellant vehemently argued that E.I court is not justified in relying on the observations in Ext.D1 order in E.C.12/1992 when the question whether M/s.Anjali Engineering Works is a continuation of M/s.Royal Engineering works was not a matter which arose for consideration in that case and when the order is in favour of the appellant rejecting the case of the proprietor of M/s.Royal Engineering works, appellant has no liability to challenge said order and therefore for non challenging that order, E.I court should not have found that observation in Ext.D1 order is binding on the appellant. It was argued that subsequent to Ext.D1 order, respondent himself approached E.I court for a declaration that his establishment M/S.Anjali Ins.Appeal33/04 5 Engineering Works is not a continuation of M/s.Royal Engineering Works and when under Ext.D3 order contention was rejected and it was found that M/s.Anjali Engineering works is continuation of M/s.Royal Engineering works with statutory liability to pay interest should not have been excluded from the liability of the respondent and therefore the order in E.I.C.17/2002 is not sustainable. Learned counsel argued that sub section 5 of Section 39 of E.S.I Act is a statutory obligation and it is to be paid by the employer without any demand and when under Ext.D1 it was found that original establishment was covered under the E.S.I Act w.e.f 18/4/1991 and under Ext.D3 order it was found that M/s.Anjali Engineering works is continuation of that establishment, the liability to pay contribution is continuing and E.I court was not justified in providing that respondent is liable to pay interest only from the date of Ext.D3 order. It was argued that liability to pay contribution is not under Ext.D3 order but because M/s.Anjali Engineering Works is a continuation of the original establishment M/s.Royal Engineering works and therefore interest is payable as demanded by the appellant and therefore Ins.Appeal33/04 6 order of E.I court is to be modified. Learned counsel also pointed out that E.I court was not justified in relying on the Division Bench Decision of this court in Regional Director, ESI Corporation v. Cannanore Spinning & Weaving Mills (2001 (3) KLT 393) as the question decided therein was entirely different and in that case in view of an order of stay of the amendment by which contribution was payable, it was held that during the pendency of that appeal when the amendment was stayed by this court contribution is not payable and therefore its interest is also not payable and the said decision cannot be applied to the present case. Learned counsel relied on the following decisions of this court in Cannanore Drug Lines v. ESI Corporation (2007 (1) KLT 880), ESI Corporation v. Bharat Hotel (2008 (3) KLT 195) and that of the Apex court in Goetze (INDIA) Ltd. (2008 (8) SCC 705) and argued that respondent is liable to pay interest as demanded and the order of E.I court is to be modified. 5. Learned counsel appearing for respondent argued that when under Ext.D1 order E.I court had found that M/s.Anjali Engineering works is not a continuation of M/s.Royal Engineering Works and instead is an Ins.Appeal33/04 7 independent establishment and only under Ext.D3 order respondent is made liable to pay contribution and therefore E.I court was fully justified in not directing to pay interest for the period prior to the date of Ext.D3 order. Relying on the decision of this court in ESI Corporation v. Appolo Tyres Ltd (2008 (1) KLT 276) learned counsel argued that decision relied on by the E.I court in Cannanore Spinning and Weaving Mills case (supra) was followed by this court and when under Ext.D1 order it was found that establishment of the respondent is not a continuation of the establishment M/s.Royal Engineering Works, M/s.Anjali Engineering Works has no liability to pay contribution till the date of Ext.D3 order and if, that be so, interest is payable only after the expiry of 21 days from the date of Ext.D3 order as found by the E.I court and the appeal is to be dismissed. 6. Section 39 of ESI Act provides for contributions. Under sub section 4 contributions payable in respect of each wage period shall ordinarily fall due on the first day of the wage period and where the employee is employed for part of the wage period or is employed under two or more employers during the Ins.Appeal33/04 8 same wage period, contributions shall fall due on such dates as may be specified in the regulations. Sub rule 5 provides for payment of interest. Under clause (a) of Sub Rule 5, if any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has become due, he shall be liable to pay simple interest at the rate of 12% per annum or at such higher rate as may be specified in the Regulations till the date of its actual payment. Regulation 31A of Employees State Insurance (General) Regulations, 1950 an Employer who fails to pay contribution within the period specified in Regulation 31, shall be liable to pay simple interest at the rate of 15% per annum in respect of each day of default or delay in payment of contribution. Simple interest at the rate of 15% per annum was incorporated by notification dated 1/11/1994 w.e.f 1/9/1994 instead of the original interest at 12% per annum Regulation No.31 provides time for payment of contribution. Under Regulation No.31 an employer who is liable to pay contributions in respect of any employee shall pay this contribution within 21 days of last day of calender month in which contributions fall due. Ins.Appeal33/04 9 Therefore, contribution payable as provided under sub section 4 of Section 39 is to be paid within 21 days of the last day of calender month in which contribution had fallen due. 7. Under Ext.D1 order it is declared by the E.I court that M/s.Royal Engineering Works is covered by the ESI Act w.e.f 18/4/1991. Therefore, contribution is payable from 18/4/1991 onwards. Under Ext.D3 order it was found that M/s.Anjali Engineering Works is a continuation of the establishment M/s.Royal Engineering Works. Therefore, contribution payable by M/s.Royal Engineering Works is liable to be paid by M/s.Anjali Engineering Works as the latter establishment is continuation of the former establishment. Under ESI Act no specific order of coverage is necessary to make a transferee establishment or establishment which is continuation of the original establishment, payment of contribution provided under the Act. When respondent himself invited Ext.D3 order and when Ext.D3 order has become final and respondent subjected himself to the said order and paid the contribution as directed in Ext.D3 order, it is not open to the respondent to contend that he is not Ins.Appeal33/04 10 liable to pay contribution as a continuing establishment of M/s.Royal Engineering Works. If that be so, liability to pay contribution is not from the date of Ext.D3 order as found by E.I court but could only by virtue of continuation of the original establishment. If that be so, E.I court is not justified in holding that interest is payable only after the expiry of 21 days from the date of Ext.D3 order. 8. Though E.I court had relied on the observations in Ext.D3 order and finding that appellant has not challenged the said observations in Ext.D1 order, the E.I court omitted to take note of the fact that in Ext.D1 order, contentions of the proprietor of establishment was rejected and it was declared that the establishment is covered under the ESI Act w.e.f 18/4/1991 as claimed by the appellant. The only question which arose for consideration and in fact decided in Ext.D1 order is whether M/s.Royal Engineering Works is covered by the ESI Act or not and if so, with effect from which date. While considering the defence raised by the proprietor of M/s.Royal Engineering Works that said the establishment Ins.Appeal33/04 11 stopped function due to his illness and by producing partnership deed of M/s.Anjali Engineering Works it was contended that M/s.Royal Engineering works was not liable to pay contribution. It was observed by the E.I court that M/s.Anjali Engineering Works was not a continuation of the other establishment but an independent establishment. When Ext.D1 order is in favour of the appellant, appellant cannot challenge that order in an appeal. Therefore, E.I court was not justified in relying on that observations, for the reason that appellant did not file appeal against Ext.D1 order. Filing an appeal would arise only if the order is against the appellant. When the contention of the appellant was upheld and it was found that the establishment is covered with effect from 18/4/1991 as claimed by the appellant, there is no question of filing an appeal. Therefore, observation in Ext.D1 order even if it is against the appellant, it cannot be used against appellant. More over, as rightly pointed out by the learned counsel appearing for appellant question whether M/s.Anjali Engineering Works is a continuation of M/s.Royal Engineering Works is not a question which is to be decided by the E.I court in Ins.Appeal33/04 12 that proceedings or in fact decided. 9. E.I court was not justified in relying on the decision of this court in Cannanore Spinning and Weaving Mills’s case (supra). That was a case where an amendment brought into the wage limit under Employees State Insurance (Central) Rules as per notification dated 23/12/1996 to be effective from 1/1/1971, enhancing the wage limit from Rs.3,000/- per month to Rs.6,500/-. As a result more employees came within the coverage. The employees who were thus brought into the coverage challenged it before this court by filing original petition. An order of stay of operation of the amendment was granted. Subsequently original petition was dismissed. Question considered in that case was whether interest is to be paid for the non payment of contribution for the period when the order of stay was in force. Division Bench held that when the contribution was not deducted by the employer, consequent to the order of stay passed by this court at the instance of the employees and the amendment was inoperative because of the stay order, and so payment of contribution in terms of the amendment had not become due to be paid and therefore interest for that Ins.Appeal33/04 13 period is not payable. That principle cannot be applied to the present case. 10. The Division Bench in W.A.1277 of 2003 had considered this question in detail. It was held the contributions payable in respect of each wage period shall ordinarily fall due on the last day of wage period and liability to pay contribution under Section 39(4) and Regulation No.31 of Employees State Insurance (General) Regulations, 1950 stipulates that the contribution shall be paid within 21 days of the last day of the calendar month in which the contributions fall due and under Section 39(5) and Regulation 31 A is a statutory provision making it clear that establishment shall be liable to pay interest at the rate of 12% per annum in respect of each day of default or delay in payment of contribution. Question when failure to pay contribution was under a bonafide impression or belief that establishment was not covered under the provisions of ESI Act, which was later found against the employer and whether on that ground payment of interest could be avoided was considered by Division Bench in Cannanore Drug Lines v. ESI Corporation (2007 (1) KLT 880) Ins.Appeal33/04 14 and held “Merely because the appellant failed to pay contribution allegedly under a bonafide impression or belief that the establishment was not covered under the provisions of the ESI Act cannot absolve the appellant from the liability of paying interest on the delayed payment of ESI contribution under S.39(5) read with Regulation 31 A. S.39(5)(a) uses the expression “if any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has become due”. Regulation 31 A uses the expression “an employer who fails to pay contribution within the periods specified in Regulation 31”. Neither the provisions in the ESI Act nor the provisions in the ESI (General) Regulations give any discretion to the respondents to exempt the appellant from the liability to pay interest on the delayed payment of ESI contribution. The bona fide impression of the appellant that his establishment was not covered under the provisions Ins.Appeal33/04 15 of the ESI Act or the pendency of a dispute before the ESI court regarding the appellant’s liability to pay ESI contribution cannot be a valid ground for exempting the appellant from paying interest in terms of S.39(5)(a) and Regulation 31 A. When the statute does not provide for any such exemption the respondent cannot exclude the amount of interest from the demand made against the appellant.” 10. Anther Division Bench in ESI Corporation v. Bharat Hotel (2008 (3) KLT 195) considered the contention that the decisions in Cannanore Drug Lines case (supra) and Cannanore Spinning and Weaving Mills case (supra) are conflicting and held “The statutory provisions are very clear and capable of one interpretation only. Hence, ratio of the decision in Cannanore Drug Lines case (supra) lays down the correct legal principle and there is no conflict between the decision in Cannanore Drug Lines case and Cannanore Spinning and Weaving Mills case (supra) as facts are Ins.Appeal33/04 16 different. But, if the delay was occurred due to bonafide reasons, damages can be waived on the facts of each case as imposition of damages is penal in nature and mens rea is necessary unlike statutory obligation to pay interest for delayed payment of contribution. In the above circumstances, imposition of interest on the contribution from the due date of payment has to be upheld.” 11. Another Division Bench in ESI Corporation v. Appolo Tyres Ltd (2008 (1) KLT 276) also considered the said two decisions and held “If a party is not paying contribution correctly in time on a wrong impression, Corporation is bound to pay interest. Even if a party obtains stay from the Court and later it is vacated, the employer who got the stay cannot say that they will not pay the interest. If the establishment is not paying the contribution due, even if on a bonafide impression that the establishment is not covered, they are liable to pay statutory interest on the delayed Ins.Appeal33/04 17 payment of contribution if finally it is held that the establishment is covered under the E.S.IAct. Here, employer was prevented by the stay order issued by the court, an act of the court, at the instance of the employees. On the facts of this case, E.I.court, following the decision of this Court in Cannanore Spinning and Weaving Mills case held that interest need not be paid. It is not a question of E.S.I Corporation granting exemption from payment of interest as interest cannot be waived by the E.S.I Corporation as held by the Division Bench in Cannanore Drug Lines v. E.S.I Corporation (2007 (1) KLT 880) if employer fails to pay contribution on a bona fide belief. Therefore, on the facts, the decision in Cannanore Drug Lines v. E.S.I Corporation (2007 (1) KLT 880) is not in conflict with the decision in Regional Director, E.S.I Corporation v. Cannanore Spinning and Weaving Mills (2001 (3) KLT 393).” As held by the Apex court in Employees State Insurance Ins.Appeal33/04 18 Corporation v. M/s.Hotel Kalpaka International (AIR 1993 SC 1530) no notice is necessary to make a person liable to pay interest for delayed payment of contribution and the notice at best could only be treated as a reminder. Therefore, when the respondent is liable to pay the contribution and as it is a continuation of M/s.Royal Engineering Works, the liability to pay interest arises from the date on which the failure to pay the contribution after 21 days arose. 12. The Apex court in Goetze (INDIA) Ltd. (2008 (8) SCC 705) declared that liability to pay interest is statutory and there is no power of waiver and question of any compromise or settlement does not arise and if the contribution is not paid as provided under the Act within the period provided under the Regulation, interest as provided under the Act and Regulation is to be paid. 13. In the light of the settled legal position finding of the E.I court that respondent is not liable to pay interest for the period prior to 18/10/2001, the date of Ext.D3 order is not sustainable. Order is therefore set aside. As the Ins.Appeal33/04 19 respondent M/s.Anjali Engineering Works is a continuation of the establishment M/s.Royal Engineering Works which is covered under the Act w.e.f 18/4/1991 and the contribution for the period from 18/4/1991 to 31/8/1998 was not paid within the period provided under Section 39(4) and Regulation 31, as provided under Section 39(5) and Regulation 31 A, M/s. Anjali Engineering Works is liable to pay interest at 12% as demanded by the appellant. M.SASIDHARAN NAMBIAR, JUDGE. uj.