IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.N.KRISHNAN TUESDAY, THE 20TH JANUARY 2009 / 30TH POUSHA 1930 Ins.APP.No. 39 of 2008(A) ------------------------------------ E.I.C. NO.17/2005 OF E.I.COURT, KOZHIKODE. .................... APPELLANT / (OPPOSITE PARTY IN THE INSURANCE CASE): --------------------------------------------------------------------------------------- THE REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPORATION, THRISSUR. BY ADV. MR.T.P.M.IBRAHIM KHAN, SC, ESI CORPN. RESPONDENT/ (APPLICANT IN THE INSURANCE CASE): -------------------------------------------------------------------------------- THE CANNANORE CO-OPERATIVE SPINNING MILLS LTD., REPRESENTED BY ITS MANAGING DIRECTOR. BY ADVS. MR.E.K.NANDAKUMAR, MR.A.K.JAYASANKAR NAMBIAR, MR.K.JOHN MATHAI, MR.P.BENNY THOMAS, MR.ANIL D. NAIR. THIS INSURANCE APPEALS HAVING BEEN FINALLY HEARD ON 20/01/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: INS. APP. NO.39/2008-A: ORDER ON I.A. NO. 1806/2008 IN INS. APP. NO. 39/2008-A DISMISSED 20/01/2009. SD/- M.N.KRISHNAN. JUDGE. //TRUE COPY// P.S. TO JUDGE. Prv. M.N.KRISHNAN, J ===================== INAP No.39 OF 2008 ===================== Dated this the 20th day of January 2009 JUDGMENT This appeal is preferred against the order of the Employees Insurance Court, Kozhikode in E.I.C.No.17 of 2005. It is an application submitted by the applicant therein seeking for a declaration that the orders passed by the respondent corporation imposing damages for the delayed payment of contribution are unsustainable. 2. The appellant is a co-operative society registered under the Kerala Co-operative Societies Act and 90% of the shares are held by the Government of Kerala. There are 560 employees working under the applicant. The applicant before the court below according to it was facing acute financial crisis since 2001. The mill was laid off and there was complete cessation of operation in the mill from March, 2003 to August, 2003. So, it is on the basis of the financial crisis and the inability to raise the fund, the contribution could not be paid in time and therefore it pleads dropping of the proceeding for damages. It has been opposed by the Employees State Insurance Corporation and it is strongly contended that the INAP 39/2008 -:2:- mere plea of financial difficulty cannot be a ground to exonerate it from imposing damages. The insurance court found in favour of the applicant therein and set aside the order of imposition of damages. It is against that decision, the present appeal is preferred. 3. The question that arises for determination is whether there are circumstances warranting imposition of damages under Section 85B of the Employees Insurance Act. At the outset, I may like to point out that Section 85B is giving the power to the E.S.I. Corporation to impose penalty by way of damages. Or, in other words, it is of a plenary nature. The word used under Section 85B is 'may' and not 'shall'. When the question of interest is to be paid, the word used is 'shall' which means it is mandatory and no discretionary jurisdiction is granted to the Corporation. 4. Admittedly the respondent Spinning Mill is a co-operative one with 90% of the shares possessed by the State Government. There are 560 employees and due to the financial crisis the spinning mill had to be closed down. So, really there was a financial crunch which made the spinning mill fight for its existence and that was the reason the contribution was not paid in time. It has also to be understood that it is a co-operative enterprise and therefore in all probabilities the mens rea to delay payment would not be there. A Division Bench of this Court in the decision reported in Regional INAP 39/2008 -:3:- Director, ESI Corporation and another v. Managing Director, M/s.Qeteos Ltd.(ILR 2008(3)Kerala 132) had given the guidelines to be followed in these type of cases. This Court held that levy of damages for delayed payment of contribution, is not mandatory in all cases. If there is no mens rea and the employer was unable to pay the contribution in time due to circumstances beyond its control, damages can be waived completely. This Court also referred to the decision of the Apex Court reported in Emp. State Insurance Corporation v. HMT Ltd. and another(AIR 2008 SC 1322). It was observed that “a penal provision should be construed strictly. Only because a provision has been made for levy of penalty, the same by itself would not lead to the conclusion that penalty must be levied in all situations. Such an intention on the part of the legislature is not decipherable from Section 85B of the Act. When a discretionary jurisdiction has been conferred on a statutory authority to levy penal damages by reason of an enabling provision, the same cannot be construed as imperative. Even otherwise, an endeavour should be made to construe such penal provisions as discretionary, under the statute is held to be mandatory in character”. Relying on the earlier decision of the Apex Court, it was observed that “existence of mens rea or actus reus to contravene a statutory provision must also be held to be a necessary INAP 39/2008 -:4:- ingredient for levy of damages and/or the quantum thereof”. So, it has to be held that unless there is a contumacious conduct and intention to flagrantly violate the provisions of the statute and further intention to deliberately evade and postpone the payment, one cannot attribute there was mala fide intention on the part of the respondent herein to delay the payment. It was only on account of the genuine reason of financial crisis it was unable to pay the amount. I am conscious of the fact that mere financial crisis may not be a sole ground but when that financial crisis coupled with the absence of mens rea and the non-intention to deliberately evade payment, I think the discretionary jurisdiction has to be exercised in favour of the respondent and that has been precisely done by the Employees Insurance Court. Therefore I do not find any merit in this appeal. Hence it is dismissed, but under the circumstances without any order as to costs. M.N.KRISHNAN, JUDGE Cdp/-