IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH & THE HONOURABLE MRS. JUSTICE M.C.HARI RANI TUESDAY, THE 5TH OCTOBER 2010 / 13TH ASWINA 1932 Ins.APP.No. 38 of 2006(A) ----------------------------------------- IC.5/2000 of E.I.COURT, KOZHIKODE .................... APPELLANT/3RD RESPONDENT --------------------------------------------- ROOFS ENGINEERS & CONTRACTORS, T.C.NO.36/1402, WEST FORT JUNCTION, TRIVANDRUM-695 008. BY ADV. SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE SRI.E.K.NANDAKUMAR SRI.K.JOHN MATHAI RESPONDENT(S): APPLICANT & RESPONDENTS 1, 2 AND 4: ------------------------------------------------------------------------------------ 1. THE MATHRUBHUMI PRINTING & PUBLISHING COMPANY LTD., KOZHIKODE. 2. THE EMPLOYEES STATE INSURANCE CORPN., PANCHADEEP BHAVAN, NORTH SWRAJ ROUND, TRICHUR-20. 3. ASSOCIATED BUILDERS, PATRON MEMBER BUILDERS ASSOCIATION OF INDIA, KJS COMPLEX, R.C.ROAD, CALICUT-673 032. 4. KAP CONSTRUCTIONS, ENGINEERS AND CONTRACTORS, 4TH FLOOR, CITY CONTRE, ROUND WEST, THRISSUR-680 001. ADV. SRI.U.K.RAMAKRISHNAN, SENIOR ADVOCATE FOR R1 SMT.P.VIJAYAMMA FOR R1 SMT.T.D.RAJALAKSHMY, SC, ESI CORPN. FOR R2 THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 05/10/2010, ALONG WITH INAP NO. 45 OF 2006, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.M. JOSEPH & M. C. HARI RANI, JJ. ----------------------------------------- INS. APPEAL NOS. 38 & 45 OF 2006 ------------------------------------------ Dated this the 5th October, 2010. JUDGMENT K.M. Joseph, J. Both these Appeals raise the following substantial questions of law: “i) Whether the Court below is correct in directing the appellant to pay the ESI contribution directly to the Corporation instead of directing the 1st respondent who was the primary liability in terms of Section 40 of the Act. ii) Whether the Court below is correct in directing the appellant to pay ESI contribution when such claims for adjudication was raised against the app. iii) Whether the Court below is legally correct in directing the immediate employer to pay ESI contribution at the first instance only on the ground INS.APPEALS 38 & 45/2006 2 that the immediate employer is wrongly made as a party to the case. iv) Whether the immediate employer is a necessary party in an Insurance Case filed by the principal employer challenging the demand for contribution made by the ESI contribution. v) Whether the Court below is correct in deciding a claim under Section 75(2)(b) in a claim under Section 75(2)(a) when each claim in the aforesaid sections are independent claim for which independent proceedings are required. vi) Since the Act is not applicable to the appellant and no such code has been allotted whether the court below is correct in directing the appellant to pay the contribution.” 2. The first respondent in both these Appeals entrusted certain construction works to the appellant in both these cases in its in its premises. The first respondent is a covered establishment under the Employees' State Insurance Act, 1948 (hereinafter referred to as the Act). Proceedings were taken under Section 45A INS.APPEALS 38 & 45/2006 3 in respect of the liability of the first respondent towards the employees of the appellants. Against the said proceedings, the first respondent filed E.I.C. No.5/2000 before the Employees Insurance Court under Section 75 read with Section 77 of the Act. In the said proceedings, the appellants in these cases were also impleaded as respondents. Allegations were raised against the appellants that they are liable on the ground that they are principal employers for the reason that they are employing more than twenty employees. Thereafter, an amendment was permitted by the court by which the first respondent claimed that the appellants be directed to remit the amount as they the are immediate employers. 3. The court did not accept the case of the first respondent that the appellants are liable as principal employers. However, acting on notions of justice, the court proceeded to, inter alia, dispose of the matter by directing the appellants in both these cases to remit the amounts due. It reasoned that the appellants are the immediate employers and under the Act, while the responsibility is INS.APPEALS 38 & 45/2006 4 to pay the amounts is cast on the principal employer, the principal employer has a legal right to recover the same from the immediate employer. In the circumstances of the case, the court took the view that it is justified in directing the appellants to remit the amount. In fixing the wage element, the court did not accept the version of the first respondent and instead, fixed the wage element as twentyfive per cent of the total contractual payment. It is feeling aggrieved by the same that the appellants are before us. 4. We heard the learned counsel for the appellants, learned senior counsel appearing on behalf of the first respondent and also the learned counsel appearing on behalf of the second respondent Corporation. 5. Learned counsel for the appellants in both these cases would submit that the order is in the teeth of the statutory scheme of the Act. He would draw our attention to Section 40 of the Act. He would contend that under the Act, it is the obligation of the principal employer to pay the contribution in respect of the INS.APPEALS 38 & 45/2006 5 employees of the immediate employer. Upon payment being made, the principal employer becomes entitled by virtue of the provisions of the Act to recover the same under Section 41 from the immediate employer. He would submit that actually the appellants would have been entitled to the benefit of the exemption granted under the Act, but for the fact that they are carrying on the work in the factory premises. Learned counsel for the appellants would also point out that the fixation of the wage element at twentyfive per cent in the case of a construction in question, which is a new building, is not sustainable, while twentyfive per cent could have been taken as the norm in respect of contract of repairs and maintenance, which is not the case in these matters. Per contra, the learned senior counsel for the first respondent would address the following contentions before us: He would submit that this is a peculiar case where the appellants/immediate employers did not furnish the first respondent with the necessary details about the wages being paid INS.APPEALS 38 & 45/2006 6 to its workers. He would further point out that under the Act, it is not open to the principal employer to make any deduction of the wages of the employees of the immediate employer, as deduction of wages is permissible only with respect to the employees of the principal employer. He would also contend that this is a case where, even though it may be true that the appellants were not parties to the proceedings under Section 45A, they were none-the- less made parties before the court and they ought to have utilised the opportunity so afforded to place any data they wished in support of their contentions. He would submit that, at any rate, the ultimate responsibility is fixed under the Act on the immediate employer in respect of employees of the immediate employer and in the peculiar circumstances of the case, the decision of the court in so far as it relates to the recovery of the amounts directly from the appellants may not be disturbed. Learned counsel appearing on behalf of the Corporation also would submit that the ultimate responsibility is cast on the immediate employer. INS.APPEALS 38 & 45/2006 7 6. After having heard the learned counsel for the parties, we are of the view that the directions issued as against the appellants by the court may be difficult to sustain. Sub-section (1) of Section 40 reads as follows: “40. Principal employer to pay contribution 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.” Section 41, thereafter provides for recovery of the contribution from the immediate employer. It reads as follows: “41. Recovery of contribution from immediate employer.- (1) A principal employer, who has paid contribution in respect of an employee employed by or through an immediate employer, shall be entitled to recover the amount of the contribution so paid (that is to say the INS.APPEALS 38 & 45/2006 8 employer's contribution, as well as the employee's contribution, if any from the immediate employer, either by deduction from any amount payable to him by the principal employer under any contract, or as a debt payable by the immediate employer.” Sub-section (1A), no doubt, provides that the immediate employer shall maintain a Register of employees employed by or through him as provided in the Regulations and submit the same to the principal employer before settlement of any amount payable under Sub-section (1). It is open to the immediate employer to recover the employees' contribution from the employees or by through deduction from wages. The conclusion is inevitable on a perusal of Sections 40 and 41 that the legislature intended that it is incumbent upon the principal employer to pay the contribution in respect of an employee of the immediate employer also. But for Section 41, there would have been no legal right with the principal employer to even recover it from the immediate employer. Thus, the Scheme is that the principal employer has to pay initially and INS.APPEALS 38 & 45/2006 9 then it is open to him to recover the same from the immediate employer. 7. In this case, as already noted, the first respondent was called upon to remit contributions in respect of the employees of the immediate employer. Proceedings were initiated under Section 45A. The appellants were not parties in the said proceedings. In proceedings under Section 75 initiated by the principal employer, the appellants were made parties. The principal allegation against them was they would be liable to make contributions in their capacity as principal employer. It is not in the region of any dispute that the court did not accept the case of the first respondent/principal employer that the immediate employers/appellants could be treated as principal employers. Once it was found by the court that the appellants were not liable in their capacity as principal employer, we fail to see how the court could have proceeded to direct the appellants to make the payment. The court is a creature of the statute. Its powers are circumscribed INS.APPEALS 38 & 45/2006 10 by the provisions under which it is created. We are not shown the source for the court to exercise any residuary powers or in other words, we cannot describe the court as a court of unlimited jurisdiction. Certainly, the court cannot give a direction which is opposite to the statutory scheme contained in Sections 40 and 41 of the Act to which we have already adverted to. Yet, this is precisely what the court on motions of justice proceeded to do. We must also notice that this is a case where we should emphasis the fact that the appellants were not even parties before the statutory authority in proceedings under Section 45A. 8. Learned counsel for the appellants in both these cases would submit that if proceedings are taken under Section 45A for which there is power indeed under the proviso to Section 45A against them and the amounts are quantified after giving an opportunity to them and with the first respondent also participating in the proceedings, the appellants will pay up. In such circumstances, we are inclined to hold that the appellants could not INS.APPEALS 38 & 45/2006 11 have been called upon to pay the contributions by the court without calling upon the principal employer to pay the amount by the court and that too, when the appellants were not being made parties to the proceedings under Section 45A. The order dated 19.10.2005 which is appealed before us, to the extent they are against the appellants in these cases, shall stand set aside. Proceedings will be taken by the second respondent against the appellants under Section 45A and concluded within a period of two months from the date of receipt of a copy of this Judgment. The first respondent can also be made a formal party in the proceedings. Sd/= K.M. JOSEPH, JUDGE Sd/= M.C. HARI RANI, JUDGE kbk. //True copy// PS to Judge INS.APPEALS 38 & 45/2006 12