THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Appeal No.16 of 2009 Date:27th July, 2010 Between: The Regional Director, Employees State Insurance Corporation, Hyderabad. …Appellant and M/s.Rikvin Floors Limited (in liquidation) rep. by its Official Liquidator, High Court of A.P., Hyderabad. …Respondent *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Appeal No.16 of 2009 JUDGMENT: This Company Appeal has been taken out by the Regional Director, Employees State Insurance Corporation, Hyderabad, against the order dated 25.06.2009 passed by the Official Liquidator, whereby and whereunder part of the claim of the appellant to an extent of Rs.2,75,190/- has been admitted as an unsecured debt, while rejecting the balance claim of Rs.4,18,190/-. 2. M/s.Rikvin Floors Limited has been ordered to be wound-up on a reference from the BIFR on 31.10.2005. During the course of winding-up process of the company, the Official Liquidator has been permitted to invite claims from the creditors vide order dated 26.11.2007 passed in C.A.No.2050 of 2007. Accordingly, the Official Liquidator by way of notice published in newspapers, invited claims from the creditors to be received on or before 21.01.2008. In response, the Regional Director, Employees State Insurance Corporation, Hyderabad filed a claim. The Official Liquidator issued a notice in Form No.68, dated 04.11.2008 requiring the Regional Director, Employees State Insurance Corporation, Hyderabad, to attend the investigation or produce further evidence on 24.11.2008. The Insurance Inspector (Legal), office of the Regional Director, Employees State Insurance Corporation, Hyderabad attended the investigation on 24.11.2008 and sought for 20 days time to produce documents. Thereafter, G.S.N.Murthy, Asst. Director, office of the Regional Director, Employees State Insurance Corporation, Hyderabad, submitted the documents on 19.12.2008. The amounts claimed before the Official Liquidator by the Regional Director, Employees State Insurance Corporation, Hyderabad, are as follows: Contributions for the period from 10/97 to 3/2000 Rs.2,75,190/- Interest calculated upto 31.12.2003 Rs.1,48,342/- Damages upto 31.12.2003 Rs.2,69,848/- The Official Liquidator admitted the claim of the Regional Director, Employees State Insurance Corporation, Hyderabad, to an extent of Rs.2,75,190/- as unsecured debt, while rejecting the balance claim of Rs.4,18,190/-. Hence, this Company Appeal by the Regional Director, Employees State Insurance Corporation, Hyderabad. 3. Heard learned counsel appearing for the appellant and learned counsel appearing for the Official Liquidator. 4. Learned counsel appearing for the appellant submits that the appellant is entitled to claim interest as per Regulation 31-A the Employees’ State Insurance (General) Regulations, 1950 (for short, ‘the Regulations’) and damages on the contributions as per Section 85-B of the Employees’ State Insurance Act, 1948 (for short, ‘the Act’) and therefore, rejection of the claim made by the appellant, under the heads as interest and damages, by the Official Liquidator is contrary to the Regulations and the provisions of the Act and therefore, the said amounts are to be admitted. 5. Learned counsel appearing for the Official Liquidator submits that to claim damages under Section 85-B of the Act, employer shall be given a reasonable opportunity of being heard and thereupon the Corporation may recover from the employer by way of penalty such as damages not exceeding the amount of arrears as may be specified in the Regulations. In a way, his contention is once the unit has been ordered to be wound-up, it is the Official Liquidator, who represents the company, and there being no notice to the Official Liquidator with regard to the demand of payment of contributions, question of paying damages under Section 85-B of the Act does not arise. 6. There are two issues involved in this Appeal. Firstly, whether the appellant is entitled to claim interest on the contributions? Secondly, whether the appellant is entitled to recover damages? 7. Issues 1 and 2: The appellant claimed Rs.1,48,342/- towards interest and Rs.2,69,848/- towards damages upto 31.12.2003. It is pertinent to refer Regulation 31-A of the Regulations, which reads as hereunder: “31-A. Interest on contribution due, but not paid in time:- An employer who fails to pay contribution within the periods specified in Regulation 31, shall be liable to pay (simple interest at the rate of 12 per cent per annum) in respect of each day of default or delay in payment of contribution.” According to Regulation 31 of the Regulations, an employer who is liable to pay contributions in respect of any employee shall pay those contributions within 21 days of the last day of the calendar month in which the contributions fall due. According to Regulation 31-A of the Regulations, 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 12 per cent per annum. The claim of the appellant towards interest is in accordance with the Regulation 31A of the Regulations. Therefore, the order passed by the Official Liquidator rejecting the amount claimed by the appellant towards interest cannot be sustained. 8. Learned counsel appearing for the appellant submits that the claim of the appellant has overriding preferential treatment for payment as provided under Section 529-A of the Companies Act, 1956. In a way her contention is that contribution is part and parcel of the workmen dues and therefore, the contributions are to be treated on par with the secured creditors. 9. Learned counsel appearing for the Official Liquidator submits that this issue is no more res integra in view of the order dated 06.04.2009 of this Court passed in Company Appeal No.1697 of 2008 in C.P.No.58 of 2000 (The Regional Director, ESI Corporation, Hyderabad v. M/s.Kera Sainter Limited (in liquidation) rep. by Official Liquidator, High Court of A.P., Hyderabad), wherein it has been held that the debt/arrears of contribution payable to the ESI Corporation has only been listed to enjoy the same priority along with the rest of the government dues and tax dues set out under Section 530 of the Companies Act, 1956. It will not have any preference over the overriding priorities listed under Section 529-A of the Companies Act, 1956. 10. In view of the settled proposition of law, the contention of the learned counsel appearing for the appellant cannot be accepted. 11. With regard to the damages, a notice is required to be given to the employer before imposing penalty such as damages not exceeding the amount of arrears such as explained in the Regulations. The Company was before the BIFR from the year 1999 till the reference made to this Court in the year 2002. Ultimately, the revival of the company proved to be futile and the matter was referred to this Court and the reference was entertained as RCC No.6 of 2002. By order dated 31.10.2005, the company was directed to be wound-up. No notice has been issued to the Official Liquidator demanding the contribution as provided under Section 85-B of the Act. A reading of Section 85-B of the Act indicates that a notice to the employer is mandatory before imposing penalty. There being no notice to the Official Liquidator, who represents the company in liquidation, the appellant is not entitled to claim any damages. 12. Accordingly, the Company Appeal is partly allowed admitting the claim of Rs.1,48,342/- towards the interest calculated upto 31.12.2003 apart from Rs.2,75,190/-. No costs. ______________________ B.SESHASAYANA REDDY, J. Date:27th July, 2010. CS THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Company Appeal No.16 of 2009 Dated:27th July, 2010