IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 21-02-2006 CORAM THE HONOURABLE MR.JUSTICE M.KARPAGAVINAYAGAM AND THE HONOURABLE MR.JUSTICE S.R.SINGHARAVELU WRIT APPEAL Nos.3825 of 2004,1410,1411 & 1458 of 2005 AND W.A.M.P.Nos.7226 of 2004,2629,2630 & 2707 of 2005 W.A.No.3825 of 2004: Cosmopolitan Club, 63 Anna Salai, Chennai-600 002, rep. by its Hon. Secretary. ... Appellant/Petitioner -vs- The Deputy Director, Regional Office (Tamil Nadu), Employees' State Insurance Corporation, 143, Sterling Road, Nungambakkam, Chennai-600 034. ... Respondent/Respondent W.A.Nos.1410 & 1411 of 2005 : NEPC INDIA LTD., rep. by its Director, No.36, Wallajah Road, Chennai-600 002. ... Appellant in W.A.No.1410/2005/Petitioner NEPC AIRLINES, (A Division of NEPC INDIA LTD.), No.36, Wallajah Road, Chennai-600 002. ... Appellant in W.A.No.1411/2005/Petitioner -vs- 1.Employees State Insurance Corporation, Rep. by its Regional Director, 143, Sterling Road, Nungambakkam, Chennai-600 034. https://hcservices.ecourts.gov.in/hcservices/ 2.The Recovery Officer, Employees State Insurance Corporation, 143, Sterling Road, Nungambakkam, Chennai-600 034. ... Respondents in both appeals/Respondents W.A.No.1458 of 2005: M/s.Southern Petro Chemicals Industries Corporation Ltd., represented by its Corporate Employee Relations Manager Mr.M.Maheswaran, 88, Mount Road, Guindy, Chennai-32. ... Appellant/Petitioner -vs- 1.Employees State Insurance Corporation represented by its Assistant Director, 143, Sterling Road, Nungambakkam, Chennai-34. 2.The Recovery Officer, Employees' State Insurance Corporation, No.143, Sterling Road, Chennai-34. 3.The Authorised Officer, Insurance Branch VI, ESI Corporation, Chennai-34. ... Respondents/Respondents W.A.No.3825 of 2004 under Clause 15 of the Letters Patent filed against the order of this Court dated 17.09.2004 made in W.P.No.35567 of 2003. W.A.Nos.1410 and 1411 of 2005 under Clause 15 of the Letters Patent filed against the orders of this Court dated 05.07.2005 made in W.P.M.P.Nos.3081 and 3080 of 2005 in W.P.Nos.23420 and 23421 of 2004 respectively. W.A.No.1458 of 2005 under Clause 15 of the Letters Patent filed against the order of this Court dated 18.06.2005 made in W.P.No.22890 of 2004. https://hcservices.ecourts.gov.in/hcservices/ For appellants in W.A.Nos.3825/2004 & 1458/05:Mr.AL.Somayaji, Senior Counsel, assisted by Mr.K.V.Shanmuganathan and Mr.T.S.Gopalan For appellant in W.A.Nos.1410 & 1411/05 : Mr.Vijay Narayan, Senior Counsel, assisted by Mr.S.R.Rajagopalan For respondents in all Writ Appeals : Ms.R.Vaigai, assisted by Mr.A.Paramasivam, Standing Counsel for ESIC J U D G M E N T M.KARPAGAVINAYAGAM,J. The following is the question posed before this Bench : "Does the proviso to Section 77 (1A) (b) of the Employees' State Insurance Act,1948, providing limitation of five years for claiming contribution, debar the Employees' State Insurance Corporation from recovering the contribution arrears as arrears of land revenue under Section 45B, in pursuance of an order under Section 45A of the Act ?" 2. Employees' State Insurance Corporation, respondents herein, passed orders, claiming the E.S.I.Contribution arrears from the appellants/various companies. Assailing those orders, the appellants filed separate writ petitions before the learned single Judge, on the ground that the orders passed by the Corporation were time barred. However, the learned single Judge, ultimately, dismissed those writ petitions and directed the appellants to invoke the alternative remedy, by approaching the E.S.I.Court and to raise the point. The said orders, passed by the learned single Judge, are being challenged in these Writ Appeals. 3. The main point urged by the learned Senior Counsel, appearing on behalf of the appellants in these appeals, is that the Corporation cannot make any claim against the employer after a period of five years, to which the claim relates, as incorporated in Section 77 (1A) (b) proviso of the Act, and since it relates to the bar of https://hcservices.ecourts.gov.in/hcservices/ jurisdiction, the appellants have directly approached the High Court under Article 226 of the Constitution and, as such, the learned single Judge, instead of deciding the point in issue, wrongly directed the appellants to approach the E.S.I.Court and invoke the alternative remedy. 4. Relying on the Full Bench decision of Kerala High Court in ESI CORPORATION v. EXCEL GLASSES LTD. (2003 (3) L.L.N. 1142), Mr.A.L.Somayaji and Mr.Vijay Narayan, learned Senior Counsel, appearing for the appellants in separate appeals, would contend that the claims made in the orders impugned, passed by the Corporation, are well beyond the period of limitation of five years, as prescribed under Section 77 (1A) (b) of the Act; as such, those orders are illegal, the same are liable to be set aside and, consequently, the orders passed by the learned single Judge, directing the appellants to approach the E.S.I.Court, have to be held invalid. 5. On the other hand, Ms.R.Vaigai, learned counsel for the respondents, namely, E.S.I.Corporation, would vehemently contend that the orders, claiming contribution arrears, have been passed by the Corporation under Section 45A of the Act; there is no period of limitation with reference to the recovery of amounts passed under the said Section; the period of limitation, contemplated under Section 77 (1A) (b) would not apply to the orders passed by the Corporation and the recovery proceedings under Sections 45A and 45B; the Full Bench judgment of Kerala High Court, cited by the Senior Counsel for the appellants, which gives the wrong interpretation, is not binding on this Court and, therefore, the appellants shall be directed to approach the E.S.I.Court, by filing necessary application, challenging the orders impugned, to seek appropriate remedy, as directed by the learned single Judge. 6. The crux of the submissions made by the learned Senior Counsel for the appellants is as follows : "(i) Chapter VI of the Act consisting of Sections 74 to 83 deals with the machinery for adjudication for disputes and claims. Section 75 (2) provides that the claim for recovery of contribution from the principal employer can be decided by the Employees' Insurance Court. Sections 76 and 77 would provide for commencement of proceedings before the said Court. Section 77(1A) of the Act provides that an application shall be made within a period of three years from the date on which the cause of action arises. (ii) According to Section 77 (1A) (a), the cause of action in respect of a claim by the Corporation shall arise on the date on which such claim is made by the Corporation for the first time. (iii) Proviso to Clause (b) of Section 77(1A) mandates that no claim shall be made by the Corporation after five years of the period to which the claim relates. This proviso, providing the period https://hcservices.ecourts.gov.in/hcservices/ of limitation, was introduced by Act 29 of 1989 on 20.10.1989. (iv) Prior to the introduction of Act 29 of 1989, the statute did not place any such period of limitation and, as a result, the Corporation could make a claim at any time. In order to put a restriction on the Corporation, proviso has been provided under Act 29 of 1989, precluding the Corporation from making claim after five years from the date on which the cause of action arises. (v) Under Section 44 (3) of the Act, the employer is required to maintain such registers or records in respect of the establishment. Regulations were framed as per the said sections. (vi) As per Regulation 32(2), every employer shall preserve every register maintained for a period of five years from the date of last entry therein. Similarly, Clause (b) to Section 77(1A) provides for period of limitation for initiation of proceedings, by putting an embargo on the right of the Corporation from making a claim after five years, to which the claim relates. (vii) Chapter IV of the Act consists of Sections 38 to 45- I. These Sections lay down a mechanism for determination of contributions and making of recovery by the Corporation from the principal employer. (viii) Section 45A, which was inserted by the Act 44 of 1966, would show that in a case where an establishment fails to furnish the returns, the Corporation can determine the amount of contribution, after giving reasonable opportunity of hearing to the employer, and the said order of determination can be a sufficient proof for proceedings under Section 75 of the Act. (ix) So, a conjoint reading of Sections 45-A to 45-I in Chapter IV and the proviso to Clause (b) of Section 77(1A) in Chapter-VI would clearly indicate that the Corporation cannot claim after a period of five years, to which the claim has arisen, in the light of the regulations framed to the effect that the employer need not maintain the records beyond five years." 7. Learned counsel for the respondent Corporation would make the following reply : "(i) The scheme of the Act shows that the legislature did not lay down any limitation on the obligation of the employer to pay the contribution nor any limitation on the right of the Corporation to claim or recover the contribution. There is no limitation prescribed for recovery of contribution, determined by the Corporation, under Chapters IV, V and VII. (ii) Under Section 44 in Chapter IV, it is mandatory on the part of the employer to furnish proper returns, upon which the https://hcservices.ecourts.gov.in/hcservices/ Corporation has to scrutinize, assess and pass an appropriate order. However, the method of recovery was not clearly set out in the Chapters. Therefore, under Act 44 of 1966, Sections 45-A to 45-I were introduced, in order to curb default by the employers and also to provide for an efficient and speedy method of recovery. (iii) When the Corporation passes an order under Section 45A, the said order is final as far as the Corporation is concerned and it can recover the same as arrears of land revenue under Section 45B. Since the order under Section 45A need not be executed by the Corporation through the E.S.I.Court under Section 77, proviso to (b) (1A) of Section 77, prescribing five year limitation, has no impact on the orders under Section 45A. Since Section 77 deals with 'commencement of proceedings' before the Insurance Court under Chapter VI, the proviso to the Section, imposing limitation, will have to be confined to such proceedings alone. When an order is passed under Section 45A, it is the employer that is to approach the E.S.I. Court, disputing the said claim. So, the non-payment of contribution is a "continuing cause", as provided under Section 39(5) (A). (iv) The appellants cannot escape from the obligation to deposit 50% of the amount due, as mandated by Section 75 (2B) of the Act. For having defaulted in making the contribution and also in depositing 50% with the Court, the appellants should not be allowed to circumvent the proceedings, by entertaining their Writ Petitions under Article 226 and, therefore, the orders passed by the learned single Judge are liable to be confirmed and the appellants may be directed to approach the E.S.I.Court, to seek appropriate remedy." 8. Learned Senior Counsel for the appellants would cite the following authorities : (i) 1971 (1) SUPREME COURT CASES 309 (STATE OF WEST BENGAL v. NORTH ADJAI COAL CO.LTD.); (ii) A.I.R.1996 SUPREME COURT 197 (M.G.ABROL, ADDITIONAL COLLECTOR OF CUSTOMS, BOMBAY, v. SHANTILAL CHHOTELAL & CO.) ; (iii) A.I.R.1999 SUPREME COURT 22 (WHIRLPOOL CORPORATION v. REGISTRAR OF TRADE MARKS, MUMBAI); (iv) 2000 (2) L.L.J.82 = 2000 (4) L.L.N.927 (REGIONAL DIRECTOR, ESI CORPORATION v. SAMSONS RUBBER INDUSTRIES (P) LTD.; (v) 2001 (9) SUPREME COURT CASES (J.M.BAXI & CO. v. COMMISSIONER OF CUSTOMS, NEW KANDLA); https://hcservices.ecourts.gov.in/hcservices/ (vi) 2002 (3) L.L.N.164 (EID PARRY (INDIA) LTD. v. ESI CORPORATION); and (vii) 2003 (3) L.L.N.1142 (ESI CORPORATION v. EXCEL GLASES LTD.). 9. Learned counsel for the respondents would cite the authorities, as under : (i) 1971 (2) SUPREME COURT CASES 860 (BHARAT BARREL v. ESI CORPORATION); (ii) 1980 (II) L.L.J. 301 (REGIONAL DIRECTOR, E.S.I.CORPORATION v. M/S.FIBRE BANGALORE (P) LTD.); (iii) 1981 (I) L.L.J.166 (ESI CORPORATION v. RAMADAS REDDIAR) ; (iv) 1982 (II) L.L.J.416 (ESI CORPORATION v. ASIAN PAINTS INDIA LTD.); (v) 1994 (II) L.L.N.896 (STANDARD FABRICATORS (I) (P) LTD. v. ESI CORPORATION) ; (vi) 1995 (II) L.L.J.1173 (E.I.D.PARRY (INDIA) LIMITED v. T.R.D.,T.N.E.S.T.C.); (vii) 1997 (1) SUPREME COURT CASES 625 (ESI CORPORATION v. F.FIBRE BANGALORE (P) LTD.); (viii) 1997 (III) L.L.J.(SUPP.)1127 (SIDDESHWAR & CO. v. ESI CORPORATION); (ix) 1998 (III) L.L.J.(SUPP.)877 (H.R.C., MALAKPET, HYDERABAD v. ESI CORPORATION, HYDERABAD); (x) 1998 (79) F.L.R.947 (M/S.ALLD.CANNING CO. v. REGIONAL DIRECTOR, ESI CORPORATION, KANPUR) ; (xi) 1999 (II) L.L.J.581 (TRANSPORT CORPORATION INDIA LTD. v. EMPLOYEES' STATE INSURANCE CORPORATION) ; (xii) 2000 (III) L.L.J. (SUPP.) 582 (REGIONAL DIRECTOR, ESI CORPORATION v. HENRY WOLSEY & CO.); (xiii) 2001 (II) L.L.J.62 (STANDARD LITERATURE CO.(P) LTD. v. ESI CORPORATION); https://hcservices.ecourts.gov.in/hcservices/ (xiv) 2001 (1) L.L.N.1197 (JAYANT VITAMINS LTD. v. ESI CORPORATION) ; (xv) 2004 (2) C.T.C.326 (THE REGIONAL DIRECTOR, ESI CORPORATION v. CHEMFAB ALKALIS (PUBLIC) LTD.); and (xvi) UNREPORTED JUDGMENT OF THE DIVISION BENCH OF KARNATAKA HIGH COURT in M.F.A.No.5041 of 1999, DATED 18.12.2004. 10. We have heard the learned Senior Counsel for the appellants and the learned counsel for the respondents and also given our thoughtful consideration to the rival contentions, made on either side. 11. The main thrust of the argument by the learned Senior Counsel for the appellants is that most of the decisions rendered by this Court as well as other High Courts and cited by the learned counsel for the respondents were prior to introduction of Act 28 of 1989; therefore, those decisions would be of no use; further, this Court, in several decisions, followed the Vijayan Pillai's case, reported in 1998 (2) L.L.N.289, which has been overruled by the Full Bench in E.S.I.Corporation v. Excel Glasses Ltd., reported in 2003 (3) L.L.N. 1142 and, as such, the finding given by the Kerala High Court Full Bench, stating that the claim made by the Corporation after five years is time barred under Section 77 (1A) (b) proviso, has to be followed. 12. On the other hand, learned counsel for the respondents would vehemently contend that the Full Bench of Kerala High Court has completely overlooked the basic principles of various chapters, especially Section 68; the Full Bench decision of Kerala High Court has not been accepted to by the Karnataka High Court in Mazagon Dock Limited case in M.F.A.No.5041 of 1999, and, as such, the view taken by the Division Bench of this Court earlier and also the Division Bench of Karnataka High Court may be accepted. 13. Before dealing with the above decisions, it would be better to look into various provisions of the Employees' State Insurance Act. 14. The scope of Chapter IV and Chapter VI of the Act is the core of controversy, arising in these appeals. Let us now deal with this issue. 15. The whole Act, namely, The Employees State Insurance Act, is divided into eight chapters. The first chapter consists of Sections 1 to 2A. It gives the title of the Act, the definitions and provides for the registration of factories etc. Chapter II deals with https://hcservices.ecourts.gov.in/hcservices/ the establishment of the Employees' State Insurance Corporation, the Standing Committee and the Medical Benefit Council. It embodies Sections 3 to 25. Chapter III provides for the establishment of Insurance Fund, Finances and Audit of accounts. It consists of Sections 26 to 37. Chapter IV consists of Sections 38 to 45. It provides that the employee shall be insured and the principal employer shall be liable to pay contribution. Chapter V deals with the benefits, which are admissible to the employees. It embodies Sections 46 to 73. Chapter VI deals with machinery for the adjudication of disputes and claims. It consists of Sections 74 to 83. Chapter VII (Sections 84 to 86A) provides for penalties. Chapter VIII contains miscellaneous provisions. It includes Sections 95 and 96, which entitle the Central and State Governments to frame rules. 16. The provisions, which are relevant for consideration, are contained in Chapters IV and VI. 17. We, now, see the relevant provisions of Chapter IV. Under Section 38 in Chapter IV, all employees in factories or establishments, to which the Act applies, shall be insured in the manner provided in the Act. The contribution shall be payable in respect of the employees at such rates as may be prescribed by the Central Government. Further, initially, the contribution, which includes the employees' share also, has to be paid by the principal employer. However, it is entitled to recover from each employee, his share of the contribution. Section 41 permits the principal employer, who has made the payment, to recover the amount from the "immediate employer". Under Section 44, the principal immediate employers are required to submit the returns in the prescribed form. If the Corporation has reason to believe that an employer has failed to furnish the return, it can call upon the person in-charge of the factory or establishment to furnish the requisite information. Clause (3) of Section 44 lays down that "every principal and immediate employer shall maintain such registers or records in respect of his factory or establishment as may be required by regulations made in this behalf." Section 45 entitles the Corporation to appoint Inspectors. It delineates the duties and functions and also fix the areas of their jurisdiction. Sections 45-A to 45-I lay down the mechanism for determination of contributions, making of recovery etc. 18. Let us see Section 45A. It was inserted by Act 44 of 1966 and enforced with effect from 17.06.1967. It reads as under : "45A.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 S.44 or any Inspector or other official of the https://hcservices.ecourts.gov.in/hcservices/ Corporation referred to in Sub-sec.(2) of S.45 is prevented in any manner by the principal or immediate employer or any other person, in exercising his functions or discharging his duties under S.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-sec.(1) shall be sufficient proof of the claim of the Corporation under S.75 or for recovery of the amount determined by such order as an arrear of land revenue under S.45B or the recovery under Ss.45C to 45-I" 19. A perusal of these provisions shows that in a case where a factory or establishment fails to furnish the returns or maintain or furnish the registers etc., the Corporation can determine the amount of contributions payable in respect of the employees of that factory or establishment. Such an order can be passed only after giving reasonable opportunity of hearing to the employer or the person in-charge of the factory or establishment. Under Clause (2) of Section 45A, the order passed by the Corporation shall be sufficient proof of the claim of the Corporation under Section 75 or for recovery of the amount determined by such an order as an arrear of land revenue under Section 45B or under Section 45-C to 45-I. 20. Section 45B provides that the contribution payable under the Act may be recovered as arrears of land revenue. Section 45C entitles the Authorised Officer to issue a certificate, specifying the amount of arrears. The Recovery Officer, on receipt of such certificate, is entitled to attach the property, arrest the employer and appoint a receiver for the management of the movable and immovable properties of the factory or establishment. The provisions contained in Sections 45D to 45-I lay down a detailed procedure for effecting the recovery. 21. The next set of relevant provisions is contained in Chapter VI. It relates to the adjudication of disputes and claims. Section 74 deals with the constitution of Courts. Section 75 provides for the matters to be decided by the Court. Section 75 (2) inter alia provides that the claim for recovery of the contributions from the principal employer shall be decided by the Employees' https://hcservices.ecourts.gov.in/hcservices/ Insurance Court. Clause (2B) was added by Act 29 of 1989. By this, it was provided that no matter, which is in dispute between the principal employer and the Corporation in respect of any contribution or any other dues, shall be raised by the principal employer in the Employees' Insurance Court, unless he has deposited with the Court 50 per cent of the amount due from him, as claimed by the Corporation. However, in the proviso, a power has been reserved by which the Court can waive or reduce the amount of deposit. 22. Section 76 relates to the institution of the proceedings. Under Section 77, provision for commencement of proceedings has been made. It provides as under : "77.Commencement of proceedings.- (1) The proceedings before an Employees' Insurance Court shall be commenced by application. (1A) Every such application shall be made within a period of three years from the date on which the cause of action arose. Explanation.- For the purpose of this sub- section,- (a) the cause of action in respect of the claim for benefit shall not be deemed to arise unless the insured person or in the case of dependants' benefit, the dependants of the insured person claims or claim that benefit in accordance with the regulations made in that behalf within a period of twelve months after the claim became due or within such further period as the Employees' Insurance Court may allow on grounds which appear to it to be reasonable; (b) the cause of action in respect of a claim by the Corporation for recovering contributions (including interest and damages) from the principal employer shall be deemed to have arisen on the date on which such claim is made by the Corporation for the first time; Provided that no claim shall be made by the Corporation after five years of the period to which the claim relates. (c) the cause of action in respect of a claim by the principal-employer for recovering contributions from an immediate employer shall not be deemed to arise till the date by which the evidence of contributions having been paid is due to be received by the Corporation under the regulations. https://hcservices.ecourts.gov.in/hcservices/ (2) Every such application shall be in such form and shall contain such particulars and shall be accompanied by such fee, if any, as may be prescribed by rules made by the State Government in consultation with the Corporation." 23. A perusal of the above provision would show that the proceedings before an Employees' Insurance Court commence with the filing of an application. The application has to be filed within a period of three years from the date on which the cause of action arises. In Clause (a) of the explanation, provision for the fixation of the date on which the cause of action for the claimant or his dependants arises has been fixed. In Clause (b), the starting point for the accrual of the cause of action for the principal-employer has been fixed. It provides that the date on which the Corporation makes the claim from the principal-employer for recovering the contributions including interest and damages shall be the date of cause of action. 24. In the present case, the controversy centres on the proviso to Clause (b) of Section 77 (1A). The crucial question is, "Does the proviso to Clause (b) of Section 77 (1A) fix the limit of time, in which the Corporation can make a claim from the employer, on the basis of the orders passed under Section 45A ?" 25. Section 45A is provided in Chapter IV. Section 77 (1A) (b) proviso is contained in Chapter VI. Now, we have to find out whether there is any connecting link between Chapter IV and Chapter VI. 26. Chapter IV deals with Sections 38 to 45-I. Chapter VI deals with Sections 74 to 83. Sections 45A and 45B in Chapter IV were introduced by Act 44 of 1966 with effect from 17.06.1967, in order to curb the default by the employers and to provide for an efficient method of recovery. The mode of recovery is provided under Sections 45-C to 45-I. On the other hand, Section 75 in Chapter VI relates to the commencement of proceedings before the E.S.I.Court. The proviso to Clause (b) of Section 77(1A) was introduced by the Act 29 of 1989