M/S S.K. PLAST INDUSTRIES v. 1. The Employees State lnsurance Corporation

Judgment

Civil Misccllaneous Appeal No.80 of 2014 is liled challenging thc order, dated 03.09.2010, in E.l.C.No.33 of 2003 passed b), the Bmployees Insuralce (lourt and Chairman Industrial Tribunal I, at Hyderabad.

2. lJeard M r. Chanak-ya Baba, learnei counsel

representing Mr. B.Chandraser-r Rccldy, learned <;ounsel for appellant and Mr. P.Rajasekhar, learned counsel for respondent No.1

3. Briel'lacts Appcllant Est ablishment partnership lirm engaged in thc br-rsiness of manufacturing and sale of plastic items. lt is the case of appellalt that it has never engaged more than 8 employees and hence, not covered under the provisions of Employees' State Insuiance Act, 1948 (for short "ESI Act, 1948"1. Responclent No.1 Corporation issttc'd letter dated 29.Ol .2OOl stating that 2 JAK. J cMA_80_2014 provisions of ESI Act, 1948, are applicable to appellant w.e.f. 06.l2.2OOO and directed the appellant to pay amount from 06.12.2000. A Notice in Form No.C 18, dated

03.7O.2OO2, proposing an amount of Rs.48,334/- tow'ards contribution for the period from 06.l2.2OOO to 31.03.2002 u,as issued. An opportunity of personal hearing was given or-r 20.11 .2OO2. A show cause notice, dated 14.L1.2002, was issued. Appellant addressed a letter, dated 28. ll.2OO2 (Ex.P6), informing that trSI Act, 1948, noL applicable, and enclosed records for reference. Respondent No.1 Corporation passed order, dated 09.12.2OO2 (Ex.P7), under Section 45-A of ESI Act, 1948, to pay ar1 amount of Rs.48,334/-. The show cause notice and order dated

09.12.2002 were addressed to one Mr. Shamshad, u'ho according to respondent No.1 Corporation \,vas a supervlsor.

3.1 Appellant filed tr.1.C.No.33 of 2003 under Section 75(i)(g) of ESI Act, 1948, to set aside the order No.APIINS.IXl52-l9O4O 34, dated 09.12.2OO2 ar-rd to 3 J,\K. J (tM.,\ 80 l0 l4 declare the provisions o[ ESI Act, 1948, not applicable to appeliant

3.2 The Employees insurance Court and Chairman Industrial Tribunal-1, Hyderabad, vide order, dated

03.09.2010, held that appcllant is liable to pay the amount and dismissed the petition. Challenging the order, dated 03.09.2010, in tr.1.C.No.33 of 2003,'.I-tc: present appeal is filed

4. Learned counsel for appellant submitted that order, dated 09.12.2OO2, is not a speaking order and no reasons are forthcoming, except recording that on tl-re basis of inspection report. appellarrt is r-rnder obligation tt pa-y the amount of Rs.48,334/ - tou,ards contribution under ESI Act, 1948. It is further submitted that when an order under Section 45-A of ESI Act, 1948, is passed, the authority has to arrive at the figure on the basis of computation by best judgment method. It is also submitted that Assistant Director has not stated in his '- E*trt5F :i!rl--1^. llaura J. _.-ir-.. I I I i i I t t I I I I I I I I I I I ! ! I I i 2 4 JAK, J cMA 80 2014 order as to how the figure was arrived at and there is no application of mind, while passing the order.

4.1 It is submitted that al order under challenge before the appellate forum has to be appreciated on the basis of the reasoning given in the order by the primary authority. That the appellate forum cannot improvise and add r'vhat is not stated in the primary authority's order. It is further submitted that appellate authority, while passing the order, has not considered the plea advanced and held that appellarlt has not produced the records. It is also submitted that though the appellate authority recorded in its order that attendance registers (Exs.P8 & P9) and u,age registers (Exs.Pi0 & P11) were produced showing that only 7 employees were engaged in the establishment, the appellate authority concluded that these registers rr"'ere brought into existence for the purpose of the case, which is an improper statement. 4 .2 It is submitted that order of the primary authority passed under Section 45-A of ESI Act, 1948, is bereft of I I I trffi-. >t*: :/ ' tta,5.+ ,/ - ..i.:::.i, ,, -. 5 JAK, J CI\IA 80 20 14 reasoning and cannot be sustained. Learned counsel relied upon the judgment of this Court in And.hra Pradesh Hq.nd.loom Weaaers Co-operative Societg Limited Vs. Emplogees' Stdte Insurq.nce CorporationL. Placing reliance on paragraph No.24 of the said judgment, it is contended that authorities should have arrived at the figure on the basis of best judgment assessment and in the absence of such procedure being followed, orricr, dated

09.12.2OO2, cannot be valid in the eye of lau,.

5. Learned counsel for respondent No.1 submitred that appellant did not procluce any records and the records produced before the appellate authority rvere scll serving and were created for the purpose of the issue at hald. It is further submitted that when the Inspector of ESI Corporation visited the premises of appellant Establishment on three occasions i.e., 29.O5.2OO3,

04.06.2003 and 12.06.2003, appellant has not produced records for verification. It is also submitted that as appellant was not cooperating with the Inspector, there I I987 SCC Onl-ire AP 64 L .'N\t--- 6 JAK, J CMA EO 2()I4 \. 1 was no other option, but to issue a show cause notice asking for records.

5. 1 It is submitted that in spite of show cause notice, appeilant has not produced records and it is only at the time of proceedings before the appellate authority, Exs.PB and P9 (attendarce registers) and Exs.PlO and 11 (wage registers) showing employees 7 in number, were engaged in the estabiishment (rnere brought on record). It is pointed out that appellate authority clearly held in its order that such records were brought into existence only for the purpose of the case and are self serving in nature. It is further pointed out that it is only for non-production of records before the primary authority, the primary authority had no other option, but to pass order under Section 45-A of trSI Act, 1948

6. Heard learned counsels, perused the record and considered the rival submissions 7 . Appellant is a partnership firm engaged in the business of manufacturing and sale of plastic items. ---::n* , a. {, l JAK, J CNIA 80 20 I4 Appellant contends that it never engaged more thal B empioyees at any point of time, as such, the provisions under ESI Act, 1948, are not applicable B. A letter, dated 29.01.2001, was issued by respondent No.1 - Corporation about applicability of ESI .A.ct, 1948, with effect from 06.|2.2OOO. It is observed that the letter was issued on the basis of the Inspectors v; sit to the appellalt establishment and requested one Mr. Shamshad (al1eged that he was working as supervisor in appcllant establishment) to produce the records. As no records were produced, Inspector obtained the signature of Mr. Shamshad and submitted a report. On the b,asis of the report submitted, a notice in Form N o. C 1 8, dated

03.lO.2OO2, proposing an amoun[ of Rs.48,334/- tou'ards contribution under ESI Act, 1948, from 06.12.2000 to 31 .O3.2OO2 was issued. An opportunity of personal hearing was slated for 2O.ll.2OO2. A show canlse notice, dated 14 .ll .2OO2, was issued, in response, appeilant addressed a letter, dated 28.ll.2OO2, to Regional Director (a copy of the letter is filed vide Memo USR No.20863, o JAK, J CMA EO 20 14 dated 25.02.2025\. In the letter, dated 28.11.2002, it is stated that appellant establishment is a sma,ll scale unit employing 4 to 7 persons ar-id that they never employed 10 persons or more than 10 persons from the date of beginning of unit. Photocopies (Xerox copies) of wage records for period from December, 2000 to Mardn, 2002, were forwarded along rvith the letter. In the said letter, it is also stated that number of persons employed were below 7 persons. An acknou,ledgement, dated 28. 1I.2002, is observed from the letter-

9. The primary order, dated 09.12.2OO2, 1S passed under Section 45-A of ESI Act, 1948. The contents of the order are as follows: "M/s. S.K. PLASTICS, situated at Kattedan, Hyderabad, is a factory/cstablishment, covered under the trSI Act with Code No.52-1904O 34 was required to pay contributions and submit return of contributions under Section 40 /44 of the Act read with Regulations 26, 29 & 3 1 of the trSI fGeni) Regulations. As the Principal employer failed to pay contributions and submit Return, a show cause notice in form C-18 of even No. daled.3-1o-2oo2 was issued to show cause within 15 clays why contributions as proposed in the said Notice bc not recovered from him, affording an opportunity to represent his case in person with records on 20- tt-2002. 9 JAK, J cMA 80 2014

1. The Notice was duly received by the employer, but he neither replied nor appeared befole the undersigned on 20- ll-2OO2. I have applied my mind to all the relevant facts of the case and my findings are as under: I find from the Inspection Report that lhe factory/estt. is covered under trSI Act and was required to submit Return of contributions along with payment challans for the period from 12 l20OO to 3 I 2OO2. As the Principal emplover failed to comply with the statutory requirement, a show cause notice invoking Section 45-1t was issued to the employer proposing to determile thc contributions as indicated in the show cetusc notice. As the employer failed to respond to the notice and also failed to make anv personal appear:lnce opposing the proposed determination, I ha ve no to determine the other alternative but contributions on adhoc basis under SectiorL 45-A of the trSI Act, as proposed in the Notice. For the above reasons, I, B.V.Rajendrlldu, Asst. Director, in exercise of the powers delegaled to me by the trSI Corporation vrde Resolution da[ed 74-12 lgao determine contributions amour-rring to Rs.48,334/- (Rupees Irorty tright Thousand Three Hundred and Thirty Four Only) for the period from 12 l2OoO to 3 l2OO2 under Section 45 A of Lhe ESI Act. You, as one the principal employer is l-rereby ordered to pay the said amount together rvith interest of Rs.- and further interest (@ 15% till date of payment within 15 davs from the date of this order, failing which the amount shall be recovered under Section 45-C to 45-I of thc ESTI Act." -

10. On a perusal of the order, it is noticed that an amount of Rs.48,334/ was required to be pard under Sections 40 I 44 of ESI Act, d 9 48, read with Regr-Llations 26, 10 JAK, J cMA 80 2014 29 and 31 of ESI (Geni) Regulations. It is further stated that principal employer failed to pay contributions and hence, is bound to pay the said amount.

11. As contended, no reasons u,hatsoever have been stated in the order, dated 09.12.2OO2 and the computation method adopted by the authority to arrive at the figure of Rs.48,334/ is nowhere reflected in the order nor is there any reasoning as to how the ligure is arrived at.

12. A learned Single Judge in Andhra Pradesh Handloom Weauers Co-operatiue Societg limited (1 supra), held that the authority, while passing ar-r order under Section 45-A of trSI Act, 1948, has to compute the amount on a rational basis. Mere observation that material placed by assessee is unreliable or no material is placed by assessee, does not empower the authorities to pass an arbitrar5r order

13. Appeilate authority, while passing order in E.I.C.No.33 of 20O3 on 03.O9.20 1O. concluded that the records (i.e., attendance registers and wage registers) L7 JAK, J cMA 80 2014 placed at the disposal of appellate authority wcre brought into existence for the purpose of the case and that appellant did not intentionally place the recorcls at the time of visit ol Inspector of ESI Corporation' On a perusal of the order, it appears that the appellate authority has not arrived at the figure on a rational basis ln other words' the basis of computation is not reflected in the order' dated 09.12.2OO2 nor any reasoning is given as; to how the figure is arrived at.

14. This Court did not notice any method adopted' by the authority on rvhich the appellant is made liable to pay an amount of Rs.48,334/-. A rational approach is necessary to arrive at the figure' In other rt'ords' best judgment assessment would be an appropriate method to adopt.

15. This Court is not inclined to take a different view to that of vieu' taken by learned Single Judge irr the case of Andhra Pradesh Handloom Weanters Co-operatioe Societg limited (1 supra). The primary order is bereft of I I E ! l I I I t i I l I I I I I I l I I I 72 JAK. J cMA 80 20 t4 t reasons, the basis on which the figure has been arrived at is not reflected in the order (except stating that appellant has not produced the records). Law is u,ell settled that if appellant does not produce books/records, al adverse inference can be drawn. But, it is also settled proposition of law that when an authority arrives at a figure, it has to be on a rational basis, or best judgment method is to be adopted. Same is not forthcoming in thc primary order, dated 09.12.2OO2.

16. Order which is the basis for further proceedings if bereft of reasons (devoid of rational approach), the same cannot be sustained. When the very foundational order is not sustainable, the proceedings emanating from thereon cannot be sustained. Appellate authority misguidcd itself a in not appreciating the said aspect. 17 . On consideration of the entire factual matrix of the case, this Court is of the opinion that order, dated

09.12.2OO2, cannot be held to be a valid order in the eye of law and is liable to be set aside and is accordingly set 13 JAK, J cMA 80 20 t4 aside. The appellate authority order, dated O:3 09.2010, is 1iab1e to be set aside and is accordingly set aside . 1B - Accord ingiy, the civil miscellaneous appeal 1S allowed, [he matter is remanded to primarl' authority to pass orders afresh within a period of three (03) months from the date of receipt of a copy of this order. No order as to costs Miscellaneous applications pending, iI any, shall stand closed Sd/- K. SRINIVASA RAO JOINT REGISTRAR //TRUE COPY// \, I \, i t SECTION OFFICER To,

1. The Employees lnsurance Court & Chairman, lndustrial Tribunal- l,Hyderabad

2. One CC to SRI B. CHANDRASEN REDDY,Advocate [OPUC] 3. One CC to SRI P. RAJASEKHAR, Advocate [OPUCI 4. Two CD Copies W Pcsd/PSL a ,, I I l -.t': ,/'60' ,'.,.t \. '\. ' L:<.' .. \.) .1. 0t sEP 2$6 a i,l: -. t: 'r\-'O HIGH COURT DATED:2810212025 JUDGMENT CMA.No.80 of 2O14 ALLOWING THE CIVIL MISCELLANEOUS APPEAL .1 g )v< ,