IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.N.KRISHNAN MONDAY, THE 7TH SEPTEMBER 2009 / 16TH BHADRA 1931 Ins.APP.No. 38 of 2008() --------------------------------- IC.6/2005 & 23/2005 of EMPLOYEES INSURANCE COURT, KOLLAM .................... APPELLANT/OPPOSITE PARTY -------------------------------------------- THE REGIONAL DIRECTOR, E.S.I.CORPORATION , PANCHADEEP BHAVAN, NORTH SWARAJ ROAD, THRISSUR. BY ADV. MR.T.V.AJAYAKUMAR RESPONDENT/APPLICANT: ------------------------------------- HINDUSTAN LATEX LTD. (A GOVT. OF INDIA UNDRTAKING) AKKULAM PLANT SREEKARIAM P.O.,THIRUVANANTHAPURAM BY MR.U.K.RAMAKRISHNAN, SENIOR ADVOCATE, ADV. MR.V.KRISHNA MENON, MR.E.K.MADHAVAN, MR.DEVIDAS.U.K. THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 07/09/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: rs. M.N.KRISHNAN, J. ........................................... Ins. Appeal NO.38 OF 2008 ............................................. Dated this the 7th day of September, 2009 J U D G M E N T This is an appeal preferred against the order of the Employees Insurance Court, Kollam whereby the said court declared that imposition of penalty for the delayed payment of contribution is unsustainable. It has also held that the respondent can charge interest only from 13.9.1995 onwards in the matter in stead of 13.5.1995. It is against that decision, the Corporation has come up in appeal. The learned Judge who admitted the appeal has formulated the following questions of law: (i) Whether the declaration of the learned EI Court that Ext.P3 order issued by the Corporation imposing damages is unsustainable, is not illegal and violative of the amendment to Section 85-B of the ESI Act brought into force by the Act 29/1989 and incorporation of Regulation 31-C of the ESI (General ) Regulation. (ii) Whether the learned E.I Court has not erred in relying on the principles laid down in 1988 (2) KLT 280 in : 2 : view of the rulings of the Supreme Court reported in AIR 1994 SC 521, 1997 SC 1773, 1998 SC 680 etc? 2. The points that arise for determination are (1) whether the court below was right in setting aside the imposition of penalty (2) whether the court below was right in ordering that interest need be paid only from 13.9.1995. Point No.1: 3. This question deals with imposition of damages. Under Section 85 B of the E.S.I. Act, imposition of damages by way of penalty is only a discretionary jurisdiction vested with the Corporation and the word used therein is 'may' and not 'shall'. Large number of authorities are there on the subject matter and unless one is able to establish that there is contumacious conduct or recalcitrant attitude or mens rea to evade payment ordinarily damages by way of penalty cannot be imposed. Considering the precedents on the issue, a Division Bench of this Court in the decision reported in E.S.I. Corporation v. Qetcos Ltd (2008 (3) KLT 336) held that it is not mandatory that in all cases of delay in payment of contributions, damages shall be recovered. As : 3 : early as in 1988, a Division Bench of this Court has taken the view that there must be a contumacious conduct on the part of the defaulter in not making the payment. 4. A perusal of the facts of this case would reveal that it was not on account of any contumacious conduct or deliberate avoidance the amount was not paid by the company in time. So, it has to be held that the principle laid down by this Court in the decision referred to above has to be followed and therefore, imposition of penalty by way of damages cannot be realised in this case. So, that point is answered in favour of the respondent in the appeal. 5. So far as the second point is concerned, the matter is again covered by the decision of a Division Bench of this Court reported in Cannanore Drug Lines v. E.S.I Corporation (2007 (1) KLT 880). In that case this Court held that the bona fide impression of the appellant that his establishment was not covered under the provisions of the E.S.I Act or the pendency of a dispute before the E.S.I Court regarding the appellant's liability to pay E.S.I contribution cannot be a valid ground for exempting the appellant from : 4 : paying interest in terms of Section 39(5)(a) and Regulation 31 A under the provisions of the E.S.I. Act. When the statute does not provide for any such exemption the respondent cannot exclude the amount of interest from the demand made against the appellant. So, the liability to pay the interest would start within 21 days from the date of the liability had arisen and therefore the finding of the court below that interest need be paid from 13.9.1995 is incorrect whereas it would be only appropriate that interest is to be paid from 13.5.1950 as claimed by the Corporation. 6. In the result, the appeal is disposed of as follows: 1. The finding of the E.I Court regarding non-liability to pay the damages by the respondent in the appeal is sustained. 2. The finding of the E.I. Court that interest need be paid from 13.9.1995 is set aside and it is made clear that the establishment is liable to pay interest from 13.5.1995. Disposed of accordingly. M.N.KRISHNAN, JUDGE cl : 5 : : 6 :