The High Court · 2025

THE HON'BLE SHRI JUSTICE ANIL KUMAR JUKANTI CNTIL IVTENT: No- 295 0F 20L4 This civil Miscellaneous Appeal is filed-aggrieved by the order dzrted 23.11.2011in E.l.c.No.43 of 2oor on the lile of the Emcloyees Insurance court and chairman Industrial Tribunal-l (flor short, the Tribunal,), Hyderabad.

2. Heard Mr. C. Niranjan Rao, learned counsel for appellanl, and Mr. P. Rajasekhar, learned Standing counsel for respondent Nos.1 to 3.

3. Apirellant is one of the Directors of Mls.Maa Durga Inclustries situated at Rudraram, patancheru Mandal company was manufacturing machine components. rn 1994, Mahesh co-operative Bank sanctioned a term loan and statr: Bank of India (sBI) sanctioned working capital loan. Recovery proceedings were initiated before the Debts Recovery'lribunal by sBI against the company. The company filed a case against SBI before National credit Framervork (NCRF), Delhi. The machinery, plant, land and building were hypothecated to Mahesh Bank. For recovery of amounts \ \ t: 2 JAK, J C.M.A.No.295 _2014 payable to Mahesh Bank, an auction was conducted and the said plant, machinery, land and building were sold to M/s.Charminar Pressure Vessels Private Limited in January, 2OOl. Appellant resigned as Director w.e.f. 3O.O9.2OO2. Company amount of Rs.1L,O9,698/- including interest to Employees State Insurance Corporation (ESI Corporation). Code No.52-12975-66 was allotted by ESI Corporation, covering w.e.f. 01.05.1996, company paid contributions from

01.05. 1996 to 30.09.L996, failed to pay contributions later A notice in Form C-18, dated O4.12.L998, was issued for the period 01.10.1996 to 30.09.1998. An opportunity to appear on 02.02.1999 was given. Time was sought, none appeared before the ESI Corporation.

4. An order dated 19.08.1999 under Section 45A of the Employees State Insurance Act, 1948 (for short, 'the Act') determining the contributions payable by Company amounting to Rs.5,52,765/- was passed. Recovery Officer issued prohibitory orders claiming contributions of including interest. An amount of Rs. 1 1 ,A9,698 /- ) J n a J JAK, J C.M.A n"o.295 2014 Rs.5,00,OOO/- was paid and a balance of Rs.6,09,698/- was due. liteps were initiated, as per the Act, for recovery of amoun-s, due to the Corporation. On the basis of certificate issued by the authorized officer, attachment of properties of the factory was issued on 18.07.2OO7

5. Arrest memo dated lO.O9.2OO7 was also issued. On issuance of arrest memo (Ex.P1), appellant filed a petition under Siection 75(i)(g) of Act questioning the jurisdiction of the Recovery Inspector of ESI Corporation. It is orLly subsequent to issuance of Ex.Pl, two cheques bearing Nos.351296 and 351297 were issued and out of the due amount of Rs. 1 1 ,O9,698 f -, an amount of Rs.5,00,0OO /- were paid and the remaining amount was not paid. T'he Tribunal, based on the pleadings, framed three issues, rvhich are as follows:

1. Whether the petitioner is not liable to pay the contribution amount of Rs.1 1,06, 198/- as demanded by the respondent No.1?

2. Whether the arrest memo order dated 1O.09.2OO7 passed by lst respondent is against the principles of natural justice and is liable to be set aside?

3. 'fo what relieP t': 4 JAK, J C.M.A.No.295 _2014

6. The second issue pertains to a-rrest memo dated

10.09.2007 .

7. Grievance of appellant/petitioner is, authorities did not follow the procedure mandated under Section 45C of the Act. Further grievance is that second issue framed, being a crucial one pertaining to an'est, Tribunal erred in not delving into the aspect and deciding the lSSUC Hence, Civil Miscellaneous Appeal.

8. Learned counsel for appellant submitted that colnpany was closed in the year 1996 and properties of the company i.e., plant, machifl€ry, land and building were auctioned. it is. further submitted that question of paying contributions from O 1. 10. 1996 to 30.09. 1998 rvould not arise, as no operations were carried out. It is further submitted that except stating that the company received certain orders, no evidence has been brought on record that the company was in operation upto September, 1998.

9. It is submitted that as per Section 45C of the ESI Act, the recovery officer has to initiate proceedings for attachment r) 5 JAK, J C.M.A.No.295 _2014 of movable or immovable properties of the factory or establis;hment. It is further submitted that though the Corporzrtion is a\vare that the immovable and movable properties of the cornpany were auctioned, the recovery officer rlirected for sale of movable/immovable properties of the principal or immediate employer. It is also submitted that Se,:tion 45C of the Act empowers the recovery officer to adopt cne or more of the modes mentioned. That proviso Iends enough width for the recovery officer to go against the movablr: or immovable property of the principal or immediate employe,r, but not an arrest. It is pointed out that arrest of an individual is a direct attack of the limb of the individual which s.eould be the last option or last mode to be employed.

10. Learned counsel relying on the judgments of learned Singte Judge of this Court in D.R. Venkatesh a. Regiono.l Proaident tr.rtnd Commissiorter, Hgderabdd and Anothert contend,:d that learned Single Judge while dealing with a similar provision in Employees Provident Fund Act held that the movable or immovable properties have to be attached and therr only the subsequent mode should be followed. ' zoo+ 1s; AI- D 355 7 6 . JAK, J C.M.A.No.295 _2014 I 1. Learned Standing Counsel for respondent-Esl Corporation submitted that appellant/petitioner has not challenged the proceedings under Section 45A of the Act. In the absence of challenge, the contributions payable as dues to ESI Corporation under the proceedings have attained finality. That, authorities initiated steps to recover the amounts.

12. It is submitted that it is only after an auction by Mahesh Bank for recovery of its dtres in 2OO7, arrest memo rvas issued. It is pointed out that once properties of the company i.e., plant, land, machinery and building were atfached by the bank, the respondent authorities issued the arrest memo and that there is no illegality in issuing the arrest memo, as it is one of the moCes available to recovery officer under Section 45C of the Act. It is submitted that Tribunal passed a detailed order after considering the entire issue(s).

13. It is submitted that company raised export orders for year 1996-97 , job rvork and . payments to a tune of t^ , ,. , ,.;.1:r:,. !:,\ 7 C.M.A.No.295 JAK, J -2014 Rs.19,(i7,OOO/- were macte , that salaries wei'e paid to employees. For {inancial year 7997-98, an amount of Rs.28,000/- for job work and 'uvages of Rs.86,OAOl- were paid. It is submitted that Tribunal considered the entire facts a;rd arrived at a conclusion and that no interference is necessitatcd. That Tribunai rightly clismissed the petition.

14. Heard learned cournsels, perused the record aIId conside:red the submissions

15. The appeliant/petitioner rvas one of the four Directors of M/r;. Maa Durga Industries srtuated -at Rudraram, Patancheru Mandal. It is a unit covered with Code No.52- y2g7$-o6 and contributions from M"y, 1996 to September, tgg6 a:nounting to Rs.4O,B38/- were paid. It is the case of ESI Corporation, that, from October, 1996 to September 1998, r:ontributions $/ere not paid, in spite of company taking up manufacturing activities, doing job work and paying salaries. An amount of Rs.11,09,698 l- to be paid as contribution for the period 01.10.1996 to 30.09.1998 has been ar.:ived at. I f ii 8 JAK, J C.M.A.No.295 2014 r-'.

16. Notice in Form C-18 was issued for the dues, an opportunity to appear on 02.02.1999 was provided. The authorised officer passed an order under Section 45A of the Act on 19.08.1999 determining the contributions payable as Rs. 5, 52,7 65 / - (Ex. P5) .

17. It is observed from the order of the Tribunal that the company was given a term loan by Mahesh Bank and a capital loan by SBI. SBI initiated proceedings before Debts Recovery Tribunal and Mahesh Bank auctioned the properties of the company. Properties were sold to M/s. Charminar Pressure Vessels Private Limited in January, 2OOL. The entire issue revolves around the arrest memo issued on LO.O9.2OO7. Section 45C of the Act is as follows "45C. Issue of certificate to the Recovery Officer (1) Where any amount is in arrears under this Act, the authorised oflicer may issue, to the Recovery Officer, a certificate under his signature specifying the amount of arrears and the Recovery Officer, on receipt of such certificate, shall proceed to recover the amount specified therein from the factory or establishment or, as the case may be, the principal or immediate employer by one or more of the modes mentioned bclow- (a) attachment and sale of the movable or immovable property of the factory or establishment or, I i'=) 9 JAK, J C.M.A.No.295 2014 ari the case may be, the principal or immediate errrployer; (b) arrest of the etnploycr and his detention in prison; (c) appointing a receiver for the management of ttLe movable or itnmovablc propertics of the factory or es;tablishment or, as the case may be, the employer: Prc,vided that the attachrnent and sale of any property unrler this section shall first be effected against the prcperties of the factory or establishment and where su<:h attachment and sale is insufficient for recovering the whole of the amount of arrears specified in the certificate, the Recovery Officer may take such prcceedings against the property of the employer for recovery of the whole or any part of such arrears. (2) The authorised officer may issue a certificate under sub-section (1) notrvithstanding that procecdings for recovery of the arrears by any other mode have been taken."

18. On a reading of Section 45C of the Act, it is clear that the recr>very officer shall proceed to recover the amounts due from the factory or establishment by attachment and sale of the m,lvable or immovable properties of the factory. Proviso is to be read along with the modes which are mentiotred for recovery. The proviso makes it clear that after an attar:hment and sale, if the whole amount is not recovered as specified in the certificate, the recovery officer may take such pl-oceed.ings against the property of the employer. In other vr/ords, once attachment and sale of movable and l0 JAK, J C.M.A.No.295 _2014 immovable properties of the factory or establishment do not lead to recovery of whole of the amount of arrears specified in the certificate, the recovery officer can initiate proceedings against the property of the employer for recovery of the whole or any paft of such of the arrears. It is only after exhausting this mode, the recovery officer can initiate steps for arrest of the employer or his attendant.

19. From the record, it is evident that no stepS have been initiated for attachment and sale of movable or immovable properties of the principal or immediate employer. The question which arises for consideration is, whether the properties of the appellant could be attached or not, since it is a company having four Directors. Once it is not disputed that the company had four Directors and the appellant has resigned from the Directorship in the year 2OO2, c€rn recovery officer proceed against the appellant, is the prominent issue. Once a Director of the company resigns, proceeding(s) against the Director to arrest him would be an overreach without arriving at a conclusion whether the Director was in-charge of the affairs of the Company at that ., i I l, i. t, JAK, J C.M.A.No.295 2014 particular point of time. Without concluding this essential point of the role of the Director alleged and other Directot's, reachirrg out for arrest is an act in haste'

20. Be that as it may, this Courrt is not inclined to delve into tiris aspect at this pcint of time, as olle of the conterl':ions ra-ised is with. i'cgard tc framing of the said issute, arrest Inemo which is dated iO.O9.2OOT -

21. on a perusal of the record, and the order of the Tribun;il, it is eviCent that Issue No.2 pertains to arrest Memo dated lo.og .2oo7 . The Tribunal appears to have misguirled itself in not dealing '.vith this issue as the order of drrest cf a Director pertains to his liberty- Tribr-rnal should have considered the issue and then arrive at a finding and conclu(le the matter in proper perspective. It is not in dispute' that the appellantlpetitioner issued two cheques. Mere irisuance of cheques would not empower the recovery issue an arrest memo against the officer to appellant/petitioner, that too after his resignation as a Director which is not disputed. The company is due an amoun[ of Rs.6,09,6981- (as seen from the record). There is r\ \\ I .' t2 JAK, J C.M.A.No.295 2014 no finding with regard to other Directors. It is also observed that the appellant/ petitioner and respondent No.4, son of the appellant and also one of the Directors, are made liable for recovery of proccedings. Tribu-nal examined RW.2 and conciuded that appellant is one of the independent Directors and respondent No.4 is also an independent Director.

22. Tribunal, after framing the issues, should have dealt with the issue of arrest, lceeping in view the evidence recorded, documents marked and the record. Appellant was examined as PW.l and RWs. 1 and 2 \ /ere examined on behalf.of respondents - ESI Corporation. Bxs.P1 to P40 were marked for petitioner and Exs.Rl to R1O were mar:ked for respondents. During the course of submissions, quantum of amounts was disputed by counsel for appellant/petitioner. One of the issues framed was that of arrest, the same is not even answered by the Tribunal, this Court is of the considered opinion that ends of justice would be met, if the matter is remanded back for consideration afresh on the issue framed and also the quantum of amounts due and payable to ESI Corporation by considering the evidence on f' I 13 JAK, J C.fv'1.A.No.295 2014 record. Needless to state that an opportunity be granted to the appellant/petitioner (or any of his representative(s)) to appear before tl-re Tribunal. Tribunai shall decide the matter as expeditiously as possible.

23. For reasons aforesaid, the Civil Miscellaneous Appeal is allowed, by setting aside the order dated 23.11.2011 in E.I.C.N0.43 of 2OO7, on ttre file of the Ernployees lnsurance Court errd Chairman Industrial Tribunai- 1 at Hyderabacl. The matter is remand.ed ba.ck for fresh consideration. There shall be no order as to costs. M:.scellaneous applications pending, if any, shall stand closed. SD/. A.V.S. S.C.S.M.SARMA JOINT REGIS ,/TRUE COPY,, lnsurance Court and C records, if anY) Niranjan Rao, Advocate [OPUC] Rajasekhar Advocate [OPUC] SECTION OFFICER , lndustrial Tribunal-1, To,

1. The EntPloYees Hyderabad. (with 2. One CC to Mr. C. 3. One CC to Mr. P. 4. Two CD CoPies Kam/PSL t+y , t HIGH CC)URT DATED i11110412025 JUDGMENT CMA.No.295 of 2014 11 IE SIA 3 ?tJAilm t a''.1 ALLOWIT\IG THE GMA \ b