IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH F . A . O . N o . 1 1 1 o f 1 9 8 3 Date of Decision : November 26, 2008 M/s Raj Mechanical Industries and another ....Appellants Versus The Employees' Insurance Corporation and others .....Respondents CORAM : HON’BLE MR. JUSTICE T.P.S. MANN Present : Mr. V.G. Dogra, Advocate for the appellants. Mr. Vikas Suri, Senior Standing Counsel for E.S.I.C.-respondents No. 1 and 2. T.P.S. MANN, J. The Regional Director of Employees' State Insurance Corporation passed an order on 2.6.1978 directing the District Collector, Ludhiana for effecting the recovery of an amount of Rs. 17003/- from the appellant-firm as contributions including interest. The said order was challenged by the appellants by filing an application under Section 75(i)(g) of the Employees' State Insurance Act ((hereinafter referred to as the 'the Act'), on the ground that it had already made a representation to the Regional Director on 23.2.1978 that overtime wages were F.A.O. No. 111 of 1983 - 2 - Rs. 47618.41p. and on that amount the contributions had already been paid and the difference payable was only Rs. 1760.10p. and including the amount of short payments, the total amount payable was Rs. 2249/-, which had been paid and a request had been made to withdraw the recovery proceedings initiated by the District Collector, Ludhiana. It was also pleaded that no wages had been paid to the employee of the firm, as alleged, rather the work was got done from independent contractors, who were not covered by the definition of the term “employee” as contained in Section 2(9) of the Act. Furthermore, no amount of contributions was payable on the entire overtime wages in the light of the Schedule in case the rate of wages did not change by adding overtime payments. The Regional Director of the Respondent-Corporation was under an obligation to afford reasonable opportunity to the appellants of being heard before resorting to ad hoc assessment and issuing the recovery papers as the same was in violation of the principles of natural justice. Also, the claim for the contribution, pertaining to the period 1.4.1973 to 31.3.1974 and 1.8.1973 to 31.1.1975, was barred by the period of limitation under Section 77(i)(a) of the Act. Accordingly, prayer was made for quashing the order of the Regional Director of the respondent- Corporation directing the recovery of Rs. 17,003/- through the Collector. The respondent-Corporation opposed the petition by filing a written statement pleading therein that the recoveries sought to be effected were perfectly legal and justified. No work was got done by the F.A.O. No. 111 of 1983 - 3 - appellant-firm from private contractors, as alleged. The dues were payable on the amounts shown to have been paid by the firm. It was denied that overtime wages were not liable for contribution. It was also denied that the claim from 1.4.1973 to 31.3.1974 and 1.8.1973 to 31.1.1975 was barred by time as the dues were recoverable as arrears of land revenue and the law of limitation did not apply to such recoveries. On the pleadings of the parties, following issues were framed:- 1. Whether the recovery in question is illegal and bad and ultra vires ? OPA. 2. Relief. Later on, following additional issue was also framed :- Additional Issue - Whether the plaint (sic) is time barred ? OPD (sic) While the firm produced AW1 L.R. Wadhawa AW2 Inder Mohan Dhanda, partner of the firm and AW3 Jiwa Singh in support of its case, the Corporation examined RW1 Hari Mitra, Insurance Inspector and RW2 Harbinder Kumar, U.D.C., E.S.I. Corporation. After going through the pleadings and the evidence led by F.A.O. No. 111 of 1983 - 4 - the parties on the same, learned Employees' Insurance Court vide impugned order dated 18.10.1982 held that the recovery in question was legal and neither bad nor ultra vires. Moreover, the demand being made by the Corporation was not barred by time. Accordingly, the petition filed by appellants under Section 75(i) (g) of the Act for quashing of the order of the Regional Director of the respondent-Corporation for effecting the recovery of Rs. 17003/- was dismissed with costs, which were assessed at Rs. 150/-. Hence, the present appeal on behalf of the firm and its managing partner in this Court under Section 82 of the Act. Learned counsel for the appellants submitted that though the respondent-Corporation had initially advanced a claim for recovery of an amount of Rs. 19252/-, yet later on, it brought the said amount down to Rs. 17003/-. The overtime payments have been wrongly clubbed with the wages. It was also submitted that the appellant-firm had been getting some work done from outside and independent persons and, therefore, the payments made to them could not be treated to be wages on which the respondent-Corporation could claim contributions. It was also submitted that only the Regional Director of the respondent-Corporation was competent to claim contributions whereas the order of ad hoc assesment Ex. R4/A had been passed by the Assistant Regional Director of the respondent-Corporation and as such the same was liable to be quashed. Even the contributions pertaining to the bill of wages for the period 1.4.1973 to 31.3.1974 and 1.8.1973 to 31.1.1975 were challenged F.A.O. No. 111 of 1983 - 5 - on the ground of limitation. Finally, it was argued that no contribution was payable on the entire overtime wages as the rate of wages as per Schedule of the Act did not undergo any change even by adding overtime. The issue, as to whether the overtime payments fall within the definition of 'wages' or not, as defined in Section 2(22) of the Act has already been discussed by a catena of judgments rendered by various High Courts of the country. In ESI Corporation v. Birla CSW Mills, 1977(2) Labour Law Journal 420, Delhi High Court held that the overtime allowance was remuneration paid or payable in cash to an employee on the fulfilment of the term of the contract of employment, express or implied as envisaged by Section 2(22) and, therefore, came within the first part of the definition of wages. A Full Bench of the Andhra Pradesh High Court in Employees' State Insurance Corporation, Hyderabad v. Andhra Pradesh Paper Mills Ltd., Rajahmundry, 1978 Labour and Industrial Cases 19, also held, accordingly. This was followed by a Division Bench judgment of the Andhra Pradesh High Court in Hyderabad Allwyn Metal Works Limited v. ESI Corporation, 1981 Labour and Industrial Cases 457. As regards the stand of the appellant-firm that it had been getting some work from outside and independent persons and making the payments to them, which should not be treated to be wages on which the respondent-Corporation could claim contribution, there is statement of F.A.O. No. 111 of 1983 - 6 - only AW3 Jiwa Singh, who in his cross-examination admitted that the bills Exs. A4 and A5, which he claimed to have been signed by his brother Mukhtiar Singh, were in Urdu and he could neither read or write the contents of the bills nor he knew Urdu language. No attempt was made by the appellant-firm to examine Mukhtiar Singh, who had signed the bills Exs. A4 and A5. Moreover, said Jiwa Singh admitted that the firm M/s Mukhtiar Singh Jiwa Singh of which he was earlier a partner was not a registered firm nor it maintained the accounts nor also any tax paid by the said firm. All this shows that there is no evidence on the record from which it could be concluded that the appellant-firm had been getting some work done from outside and independent persons. Even for the sake of arguments if it is taken that the appellant-firm had got some work from outside and independent persons and made payments to them, the payments made to those independent persons would still be covered by the definition of 'wages' in view of the decision of the Hon'ble Supreme Court in The Hyderabad Asbestos Cement Products Limited v. ESI Corporation, AIR 1978 Supreme Court 356. As regards competence of Assistant Regional Director of the respondent-Corporation in passing the assessment order Ex. R4/A, one may refer to the provisions under Section 94A of the Act, whereunder the Corporation could delegate its power not only to its Regional Directors but also to the Deputy Regional Directors and Assistant Directors of the various branches of the Corporation. Similarly, on 14.12.1980, a F.A.O. No. 111 of 1983 - 7 - resolution was adopted by the Corporation under which the powers of the Corporation under Section 45A of the Act were made exercisable by Joint Regional Director/Deputy Regional Director and Assistant Regional Director in respect of a factory/establishment situated within the area in his charge/in his region. The said resolution, as reproduced in the Gazette of India, May 2, 1981, reads as under :- “EMPLOYEES STATE INSURANCE CORPORATION New Delhi, the 10th April, 1981 No. T-11/13/3/76-INS. III.--The Employes' State Insurance Corporation at its meeting held on 14.12.1980 adopted the following Resolution, which is published for information of all concerned :- RESOLUTION “Resolved that the powers of the Corporation under Section 45-A to determine by order the amount of contributions payable shall be exercised; (i) by the Director General in respect of a factory/establishment situated anywhere in India, (ii) by a Regional Director in respect of a factory/ establishment situated within his region, (iii) by Joint Regional Director/Deputy Regional Director and Assistant Regional Director in respect of a factory/establishment, situated within the area in his charge/in his region. Authenticated under Section 7 of the E.S.I. Act, 1948 (as amended).” F.A.O. No. 111 of 1983 - 8 - The delegation of the powers already stands upheld by a Division Bench of this Court in Employees State Insurance Corporation, Chandigarh and others v. Dhanda Engineers Private Limited, 1981 Punjab Law Reporter 354. The challenge to the contributions pertaining to the bill of wages for the period 1.4.1973 to 31.3.1974 and 1.8.1973 to 31.1.1975 loses its sting in view of the provisions of Section 77 of the Act under which the bar of limitation is in respect of the commencement of the proceedings before the ESI Court by a party. Only aggrieved party would initiate the proceedings before the Court and as such an application is required to be filed within a period of three years from the date on which the cause of action had arisen to the party moving the application. On 19.3.1977, RW1 Hari Mitra, Insurance Inspector, Ludhiana visited the factory of the appellant-firm. He wanted to find out from the Accountant of the appellant-firm about the addresses of the persons, who submitted monthly bills and were said to have been working outside the factory, but the Accountant did not provide any such information nor it was available in the vouchers. Said Insurance Inspector noticed various payments having been made regularly. Accordingly, for the year 1975-76, the Insurance Inspector recommended vide Ex. R1 to the Regional Director of the respondent-Corporation to claim contribution for an amount of Rs. 6082.50p., from the appellant- F.A.O. No. 111 of 1983 - 9 - firm on a total amount of wages of Rs. 86890.38p. for the period from 1974 to 1977 (upto November, 1976). The Insurance Inspector, once again, visited the factory of the appellant-firm on 26.3.1977 and checked the ledger, cash book and vouchers/bills for the period from 4/73 to 3/74, especially concerning the expenditure booked under the head “O/S Wages”, which he found to the tune of Rs. 46056.13p., upon which an amount of Rs. 3224/- was payable as contribution from the appellant- firm. Accordingly, on 4.5.1977, the respondent-Corporation vide demand letter Ex. R3 required the appellant-firm to pay the aforementioned amounts along with some other amounts, besides interest thereon. When the appellant-firm failed to pay the contributions as demanded, the Assistant Regional Director was left with no other option but to issue a show cause notice Ex.R4 to the appellant-firm on 17.12.1977 as to why assessment as envisaged by Section 45-A of the Act be not made and in case of failure to pay the contributions, interest at the rate of 6% per annum became payable on the arrears of contributions. The total amount of contributions were determined at Rs. 19,252/-, out of which Rs. 16528.55p. was towards arrears of contributions for the period from 1.4.1973 to 30.11.1976 and Rs. 2723.18p. towards interest for the said period, the total amount recoverable rounded of to Rs. 19,252/- and, accordingly, the District Collector was directed to effect the recovery from the appellant-firm vide order dated 18.1.1978 (Ex. A2). It was only on receipt of said notice that for the first time the appellant-firm came out with its stand in writing vide letter dated 23.2.1978 (Ex.A3), wherein it F.A.O. No. 111 of 1983 - 1 0 - opposed the notice. After confirming the fact that the appellant-firm had already paid an amount of Rs. 2249/-, the Regional Director of the respondent-Corporation required the District Collector to effect recovery of Rs. 17,003/- only vide notice dated 2.6.1978 (Ex. A1). The aforementioned material would show that the respondent-Corporation had been proceeding in accordance with law while making the inspection of the premises of the appellant-firm and, that too, in the presence of the Accountant, wherein it found sufficient material so as to require appellant-firm to pay contributions for an amount of Rs. 17,003/-. It also stands established that once the respondent-Corporation learnt about the payment of Rs. 2249/- as having been made already by the appellant- firm that it brought down its demand from Rs. 19,252/- to Rs. 17,003/-. Thus, it cannot be said that the principles of natural justice had not been followed by the respondent-Corporation while passing the impugned order. As regards the last argument that even by adding overtime, there is no change in the rate of wages which were liable to contribution as per Schedule to the Act, it may be observed that no such submission had been made before the learned Court below on behalf of the appellant- firm at the time of final arguments. However, a perusal of Schedule I to the Act, as was in force upto 1.2.1991 shows that the reference made to the Table therein is with regard to the daily rate of benefit and not contributions. Rate of contributions are provided for in Rule 1 of the said F.A.O. No. 111 of 1983 - 1 1 - Schedule, whereas the Table referred to is part of Rule 3 of the said Schedule. Thus, reference to the Table in Schedule I to the Act for the purposes of contribution is mis-directed and incorrect in law. As already held, the overtime payments were part of the wages and, therefore, liable to contributions as per Schedule I to the Act. This issue does not arise in respect of the various amounts paid by the appellant-firm to different persons, who, according to it, were outside and independent employees. Moreover, Schedule I to the Act has since been omitted with effect from 1.2.1991. In view of the above, there is no merit in the appeal, which is, accordingly, dismissed. ( T.P.S. MANN ) November 26, 2008 JUDGE satish Whether to be referred to the Reporters : YES / NO