THE HON’BLE SRI JUSTICE NOUSHAD ALI Civil Miscellaneous Appeal No.935 of 2006 JUDGMENT : By orders No.AP/MEC/52-0093-65, dated 26-08-2003 passed under Section 85-B of the Employees’ State Insurance Act, 1948, the appellant – company suffered levy and obligated to pay damages of Rs.69,107/- said to be for the delayed payment of contribution payable by the appellant for the period from 10/1998 to 1/2002. By another order No.Ins./AP/MEC/52-0093-65/84, dated 25-09-2003 under the provisions of Section 39(5) read with Section 45-C to 45-I of the E.S.I. Act, 1948, the appellant was further directed to pay interest of an amount of Rs.47,259/- as obligated under Section 39(5) of the Act read with Regulation 31 of the E.S.I. (General Regulation), 1950. Assailing these two orders the appellant approached the E.S.I. Court in E.I. Case No.47 of 2003 under the provisions of Section 75(1)(g) of E.S.I. Act. The said case having been dismissed by orders dated 11-05-2006 which in effect confirmed the orders of the respondents referred to above. This C.M.A. is directed against the aforesaid orders. The appellant is a registered company under the Companies Act and it came under the Administrative Control of the Ministry of Heavy Industry, Government of India since 1959. Ever since 1990 it suffered huge and continuous losses which in fact disabled the company to meet the salaries and wages of its employees. At times, the Government of India came to its rescue by providing financial assistance to pay the net salaries and wages of the employees. Since the appellant is covered to pay its contributions under the E.S.I. Act, the respondents issued a Notice No.AP/MEC/52-0093-65, dated 29- 07-2003 apprising the appellant that it defaulted in payment of its contribution for the period from 10/98 to 1/02 and later by orders dated 26-08-2003 directed remittance of Rs.69,107/- as damages. By yet another letter No.AP/MEC/52-0093-65/84, dated 01-08-2003, the appellant was directed to deposit a sum of Rs.47,259/- as interest for the aforesaid period. This order was followed by another order of even number dated 25-09-2003. It is the case of the appellant that the company suffered huge losses and reached the position unable to discharge its obligation of payment of even wages to its employees. The company was constrained to approach for declaring it as a sick industrial company and for rehabilitation under the provisions of Sick Industrial Companies (special provisions) Act, 1985. The appellant made vain efforts to impress upon the respondents that the amounts raised against it were not payable on the ground that the contributions had already been made or alternatively on the ground that the industry had already become sick and that it was deprived of proper hearing and enquiry into its alleged liability. The appellant alleged that its Assistant General Manager, HR, appeared before the respondent on 13-08-2003 and again on 25-08-2003 and put forth its point of view and further sought for time for further hearing. The appellant alleged that the respondents without considering the request passed ex parte orders under Section 85-B of the Act, thus breached principles of natural justice. The respondents sought to defend its orders inter alia stating that the appellant, since failed to pay the contributions from 10/98 to 1/02 within the prescribed time, it is obligatory on the part of the appellant to pay interest and penalty for delayed payment as per the provisions of Section 39(5) and Section 85-B of the E.S.I. Act and Regulation 31-A of the E.S.I. Regulations, 1950. The appellant was in fact afforded an opportunity of being heard in the matter. The respondents further expressed view that although there could be waiver of damages in the case of sick units, the interest payable could not be waived under the provisions of the Act. The above narrative of the facts and the respective contentions condense the area of dispute. While the appellant pleads its disability to pay the amounts demanded and also its non-liability in making such payments, the respondents contend that the appellant is under a statutory obligation to discharge its liability under the Act. Heard Sri P.Nageswara Sree and Sri P.Rajasekhar, learned counsel appearing for the appellant and respondents respectively. Learned counsel Sri P.Nageswara Sree reiterated and submitted that the respondents did not provide reasonable opportunity to the appellant before fastening liability to pay damages and interest to the appellant. His principal contention however is that the respondents committed an error in not appreciating the fact that the appellant became a sick unit and was already enjoying the benefits under Section 22(1) of the Sick Industrial Companies (special provisions) Act, 1985, as such in law no coercive steps could be resorted to against it. These being the substantial questions of law, it is contended, the impugned orders are unsustainable. Learned counsel Sri P.Rajasekhar on the other hand submitted that orders were passed and amounts were levied only after notice and opportunity to the appellant. He further submitted that mere registration of the appellant by BIFR is not sufficient and that the appellant is not entitled for the benefits of waiver unless the scheme of rehabilitation had been sanctioned under the Sick industrial Companies (Special Provisions) Act, 1985. It is therefore contended that the appellant is liable under the Act. During the course of hearing, the appellant filed C.M.A.M.P. No.485 of 2010 in this Court contending that the appellant company was declared as sick industrial unit by the BIFR during the proceedings held on 10-09-1999 in Case No.504/98 which resulted in the orders dated 29-03-2007 and ultimately resulted in the sanctioning of the scheme for the revival of the company. The appellant filed a copy of the said proceedings in case No.504/1998, dated 29-03-2007 as material document in the appeal. This Court after hearing both the parties allowed the said petition by orders dated 19-03-2010. An order passed by the E.S.I. court is made appealable under Section 82 of the E.S.I. Act to the High Court and the same shall lie if it involves a substantial question of law. From a conspectus of the respective contentions as noticed hereinbefore in the preceding paragraphs and as canvassed before the respondents and the Tribunal as well, the substantial question of law involved is whether the appellant is entitled as covered under the 2nd proviso to Section 85-B of the E.S.I. Act for reduction or waiver of the damages; and whether the appellant is also entitled for the waiver of interest; both questions substantial in view of the proceedings of the BIFR, dated 29-03-2007. Under Section 85-B of the E.S.I. Act where an employer fails to pay the amount due in respect of any contribution or any other amount payable under the Act, the Corporation is vested with the power to recover from the employer by way of penalty such damages not exceeding the amount of arrears as specified in the regulations. This power should be exercised after the employer is given a reasonable opportunity of being heard. This measure of levying damages is however is excepted under the 2nd proviso whereunder the Corporation is permitted to reduce or waive the damages in the case of a sick industrial company in respect of which a scheme for rehabilitation has been sanctioned by the Board for Industrial and Reconstruction established under Section 4 of the Sick Industrial Companies (special provisions) Act, 1985 subject to such terms and conditions as specified in the regulations. The principal provision therefore mandates the compulsory imposition of damages, but by virtue of the proviso, the Corporation is vested with power either to reduce or totally exempt a Sick Industrial Company for the liability to pay damages. Even in the principal provision Section 85-B(1), the Corporation although is authorized to impose damages by way of penalty on a defaulted employer, the power is not unfettered. The Corporation in every case need not impose the maximum amount equivalent to the arrears, but it is subject to the provisions of Regulation 31-C of the E.S.I. (General) Regulations, 1950. Regulation 31-C provides for the maximum rate of damages depending upon the period of delay in paying the contributions. The Regulation also provides and enables the Corporation to completely waive the damages in respect of a factory or establishment which is declared as Sick Industrial Company, for which rehabilitation scheme has been sanctioned and also in exceptional hard cases. Even in other cases, the Corporation is enabled to waive the damages up to 50% depending upon the merits of each case. The provisions referred to above are materially and substantially deserve consideration in the case of the appellant. The case of the appellant all through has been that it has become a sick industrial unit and financially disabled. This was the prime and substantial plea of the appellant before the respondents and also before the Tribunal. This plea was not acceptable and in fact not accepted by the respondents and the Tribunal as well on the premise that no scheme of rehabilitation had been sanctioned by the BIFR and mere registration of the case of the appellant for consideration by the Board was not sufficient. The Tribunal in fact declined the relief mainly on that premise. It is however to be noted that when the Tribunal disposed of the matter on 11-05-2006 although the proceedings were pending before the BIFR in Case No.504 of 1998, the proceedings ultimately were completed and orders were passed on 29-03-2007, subsequent to the orders of the Tribunal. It is obvious that the Tribunal had no occasion to consider and appreciate the effect of the proceedings of the BIFR dated 29-03-2007. Nonetheless, the proceedings of the BIFR are vital and germane for the just disposal of the claim made by the appellant. The BIFR scheme appended to its proceedings dated 29-03-2007 in clause-I specifically referred to the arrears payable to the E.S.I. Corporation and recommended to consider to waive the said arrears for the period from January 1, 1997 to August 20, 2002 for the sum stated to be at Rs.58.48 lakhs. The scheme sanctioned by the BIFR is a subsequent development and this Court cannot straight away accept it. The Corporation should have necessary opportunity to examine the factual aspects of the scheme and its legal effect on the liability of the appellant under the E.S.I. Act. The learned counsel for the appellant therefore submits that the matter may be remanded to the first respondent for fresh consideration. In the light of the aforesaid discussion and in the interest of justice, I am of the considered view that the matter is liable to be enquired into afresh in the light of the proceedings of the BIFR, dated 29-03-2007 for which course of action the respondents have not expressed substantial objection. Eventually, the impugned orders passed in E.I. Case No.47 of 2003, dated 11-05-2006 inclusive of those impugned in the said case are liable to be set aside. Since the BIFR has sanctioned a scheme of rehabilitation in respect of the appellant company, clause-I of which covers the waiver of arrears of contribution payable to the Corporation, the Corporation also may have to consider the effect of clause-I in respect of the payment of interest in the delayed payments as ordered by the respondents vide orders No.Ins./AP/MEC/52-0093-65/84, dated 25-09-2003. The C.M.A. is accordingly allowed and the impugned orders passed in E.I. Case No.47 of 2003, dated 11-05-2006 inclusive of those impugned in the said case are set aside and the matter is remanded to the first respondent with a direction to consider the matter afresh in the light of the observation made and pass an appropriate order after giving an opportunity to the appellant. No order as to costs. ________________ NOUSHAD ALI, J. 26-03-2010. SKMR