HON’BLE SRI JUSTICE G. KRISHNA MOHAN REDDY CRIMINAL PETITION No.2083 OF 2008 DATE: 20-08-2011 BETWEEN: M/s. Aluminum Industrial Limited, Lingampalli, Hyderabad, Rep. by its Divisional Chief Executive, Mr. Bala Chandran Nair, S/o.G.S.Madhavan Nair, Aged 54 Years and another. - - - Petitioners/ Accused. AND Employees State Insurance Corporation, 5-9-23, Hill Fort Road, Hyderabad, Rep. by its Insurance Inspector And The State of A.P., Rep. by Public Prosecutor, High Court of A.P., Hyderabad. - - - Respondents/ Complainants. This Court made the following : HON’BLE SRI JUSTICE G. KRISHNA MOHAN REDDY CRIMINAL PETITION No.2083 OF 2008 ORDER: This Criminal Petition is filed by the Petitioners/Accused (For short, ‘A-1 and A-2’) under Section 482 Cr.P.C., seeking to quash proceedings in P.C. No.5 of 2008, pending on the file of the Court of Judicial Magistrate of First Class to try the offences punishable under the Employees State Insurance Act, 1948 (For short, ‘the Act’) and Chairman, Industrial Tribunal-I, Hyderabad, registered in respect of offence punishable under Section 85 (a) of the Act. 2. Whereas the Petitioners are the accused and the Respondent No.1 is the defacto complainant in the Prosecution Case. For the sake of convenience, I refer the parties as arrayed in the Prosecution Case. 3. The case of the prosecution is as follows : A-1 is the company, represented by its Executive Director. A-1 Company which was brought under the coverage of the Act was found to be carrying on the business of manufacturing of Aluminium Wora drawing machines with the aid of power and Code No.52-0702-64 was allotted to the factory to facilitate necessary compliance under the provisions of the Act. A-2 is the Executive Director and person-in-charge of A-1 and he is responsible to conduct its business. Further, therefore he is the Principal Employer within the meaning of Section 2 (17) of the Act. Further, as per section 40 of the Act, every principal employer has to pay necessary contributions of concerned employer and employees under Regulation 31 of the E.S.I. (General) Regulations, 1950 but, A-2 being the Principal Employer, failed to pay relevant contributions on ADHOC BASIS amounting to Rs.11,43,017/- (Both Employer’s and Employees share of contribution) for the period from January, 2005 to September, 2006 vide C-18 (ADHOC) dated 27-11-2006. Hence, A-2 being the Principal Employer is liable to be punished for the offence punishable under Section 85 (a) of the E.S.I. Act. 4. It is the contention of learned counsel for A-1 and A-2 that as per the record sanction was given by the Regional Director, Employees State Insurance Corporation (for short ‘E.S.I.C), Hyderabad vide proceedings No.52-T/11/14/52-0702-64/Legal, dated 05-11-2007 so far as A-2 is concerned and so far as A-1 is concerned, there is no such sanction issued by the Regional Director, E.S.I.C., Hyderabad. Therefore, the prosecution of A-1 without sanction is not tenable and accordingly the corresponding proceedings against A-1 are to be quashed. Further it is his contention that since more than a decade ago the company has become defunct and no salaries are being paid to its employees and therefore there is no question of making the corresponding contributions under the E.S.I Act. Further in order to prosecute A-2 it must be that he was the principal employer who was in the overall control of the affairs of the firm by virtue of Section 2 (17) of the Act read with Section 2 (15) of the same Act and also Section 2(n) of the Factories Act and it is for the prosecution to plead prima facie that the said provisions have been complied with but in-fact there is no allegation that he got overall control of the factory and therefore even though there is a sanction to prosecute him the prosecution against him is not tenable on the said ground that there is no prima facie material to the effect that he has been the principal employer of the factory. 5. On the other hand, it is the contention of learned counsel for the respondent that in order to ascertain relevant factors, notices were issued to the management of A-1 to produce relevant records but it was not complied with whereas unless the same was ascertained on the production of such records, A-2 has got no right to claim that he is not the principal employer having overall control of the factory and he cannot be prosecuted in the case and she has also contended that by virtue of Section 45-A of the Act the Corporation got every right to determine necessary contributions to be paid by A-1 taking necessary measures while drawing the attention of the Court to the provisions of Section 39 and 40 and also Sections 2 (15) and 2 (17) of the Act also. Therefore, it is to be seen as to whether there is material to prosecute A-1 and A-2 with reference to relevant provisions of Law. Section 39 of the Act provides : “Contributions :- (1) The contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer's contribution) and contribution payable by the employee (hereinafter referred to as the employee's contribution) and shall be paid to the Corporation. (2) The contributions shall be paid at such rates as may be prescribed by the Central Government: Provided that the rates so prescribed shall not be more than the rates which were in force immediately before the commencement of the Employees' State Insurance (Amendment) Act, 1989. (3) The wage period in relation to an employee shall be the unit in respect of which all contributions shall be payable under this Act. (4) The contributions payable in respect of each wage period shall ordinarily fall due on the last day of the wage period, and where an employee is employed for part of the 2 [wage period], or is employed under two or more employers during the same wage period, the contributions shall fall due on such days as may be specified in the regulations. (5) (a) 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 twelve per cent per annum or at such higher rate as may be specified in the regulations till the date of its actual payment : Provided that higher interest specified in the regulation shall not exceed the lending rate of interest charged by any scheduled bank. (b) Any interest recoverable under clause (a) may be recovered as an arrear of land revenue or under Section 45-C to Section 451.” Section 40 of the Act provides : “Principal employer to pay contributions in the first instance :- (1) The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employee's contribution. (2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, made there under, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employee's contribution by deduction from his wages and not otherwise: Provided that no such deduction shall be made from any wages other than such as relate to the period or part of the period in respect of which the contribution is payable, or in excess of the sum representing the employee's contribution for the period. (3) Notwithstanding any contract to the contrary, neither the principal employer nor the immediate employer shall be entitled to deduct the employer's contribution from any wages payable to an employee or otherwise to recover it from him. (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. (5) The principal employer shall bear the expenses of remitting the contributions to the Corporation.” Section 45-A of the Act provides : “Determination of contributions in certain cases :- (1) Where in respect of a factory or establishment no returns, particulars, registers or records are submitted, furnished or maintained in accordance with the provisions of Section 44 or any Inspector or other official of the Corporation referred to in sub-section (2) of Section 45 is 1[prevented in any manner], by the principal or immediate employer or any other person, in exercising his functions or discharging his duties under Section 45, the Corporation may, on the basis of information available to it, by order, determine the amount of contributions payable in respect of the employees of that factory or establishment : Provided that no such order shall be passed by the Corporation unless the principal or immediate employer or the person in charge of the factory or establishment has been given a reasonable opportunity of being heard; (2) An order made by the Corporation under sub- section (1) shall be sufficient proof of the claim of the Corporation under Section 75 or for recovery of the amount determined by such order as an arrear of land revenue under Section 45-B 2[or the recovery under Section 45-C to Section 45-I.” 6. The provisions noted above make it very clear that principal employer of a factory is liable to make such contributions on behalf of the factory. Therefore, it is necessary to ascertain what is meant by principal employer and how far it applies to A-2. As per Section 2 (15) of the Act : "Occupier" of the factory shall have the meaning assigned to it as per Section 2 (n) of the Factories Act, 1948 which is as follows ; “Occupier” of a factory means the person who has ultimate control over the affairs of the factory subject to the provisions thereunder.” As per Section 2 (17) "Principal employer" means : (i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948 (Act No.63 of 1948), the person so named: (ii) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is so appointed, the Head of the Department. (iii) in any other establishment, any person responsible for the supervision and control of the establishment; 7. Section 85 and 85-A of the Act provides for imposing punishment for failure to pay necessary contributions and Section 86 of the Act, deals with the prosecution for non-compliance of paying the contributions. 8. Therefore, by virtue of the provisions enumerated above, it is to be shown prima facie that A-2 was the principal employer of the unit as mandated in Section 2 (15) and (17) of the Act read with section 2 (n) of the Factories Act, 1948 and necessary contributions were not made to the E.S.I. Corporation on behalf of A-1 to proceed under Sections 85, 85-A and 86 of the Act. Further, admittedly necessary sanction was to be given to prosecute A-1 and A-2 for the alleged offences punishable under Section 85 or 85-A of the Act by the Regional Director, E.S.I. Corporation, Regional Office, Andhra Pradesh at Hyderabad, but there are sanction proceedings issued by the Regional Director, E.S.I. Corporation, Andhra Pradesh at Hyderabad only in respect of A-2 vide proceedings No.52- T/11/14/52-0702/-64/Legal dated 05-11-2007. In other words, there are no such sanction proceedings so far as A-1 represented by A-2 is concerned. Hence the charge against A-1 goes at the outset. 9. The Regional Office, A.P. State Insurance Corporation, Hyderabad vide proceedings No.Ins.III-4(1)/1/68 dated 28-02-1968 authorised all the Regional Directors of the Employees State Insurance Corporation to institute prosecution or accord previous sanction for prosecution under the Act in pursuance of Section 86 (1) of the Act as amended by the Employees State Insurance, 1966 (Act 44/66). 10. Even though it is claimed that A-2 was the principal employer of the factory, it is clear by virtue of the material available and also the contentions advanced by the learned counsel for the complainant that such a plea was taken without any supporting record or without any basis and just basing upon some surmises and conjectures. It is pertinent to note in this context that it is advanced by the learned counsel for the complainant that no record was available to come to a conclusion that A-2 was the principal employer of the company whereas, he also claims that even though A-1 and A-2 were asked to submit relevant record, they failed to do so, whereas unless there is a clear material to the effect that A-2 as the principal employer of the factory, failed to pay the contributions to E.S.I., it is not proper to prosecute him for the corresponding charges. In other words, prosecuting him for the charges without any material is against the cardinal principles of the system of criminal administration of justice, which clearly mandates that no body should be prosecuted for any offence, unless there is sufficient material prima-facie to do so. 11. The circumstances narrated above make it amply clear that the cognizance of the case was taken by the Tribunal without applying its mind. No cognizance of a criminal case should be taken unless there is a clear material to do so. As every criminal court has to apply its mind in order to take cognizance of a criminal case with reference to the material available, when it is not complied with, the same should be returned for necessary compliance. It is the duty of the Courts to do justice not only to accused, but also to accuser and hence appropriate directions are to be given to those concerned with to apply their mind and overcome the latches occurred on their part and take necessary measures as per law. Hence, for the foregoing reasons, as there is no prima-facie case against A-1 and A-2 the proceedings are hereby quashed with a direction to the complainant to take necessary measures in that behalf, as per law. _​_________________________ G. KRISHNA MOHAN REDDY, J Dated: 20-08-2011. Dsh/Vjl/Da. THE HON’BLE SRI JUSTICE G. KRISHNA MOHAN REDDY 54 CRIMINAL PETITION No.2083 OF 2008 August, 20, 2011 DSH