CoramThe Honourable Mr v. M/s.Skiltek Engineers

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 27-7-2007CoramThe Honourable Mr.Justice N.PAUL VASANTHAKUMARC.M.A.No.1224 of 2000The Regional Director,E.S.I. Corporation,143, Sterling Road,Madras - 34....Appellant(Respondent)Vs.M/s.Skiltek Engineers,rep.by its Managing Partner,V.Lakshmanan,120, Angappa Naicken Street,Madras - 600 001....Respondent/(Petition)This Civil Miscellaneous Appeal is preferred against the order dated12.11.1999 made in ESIOP No.71 of 1990 on the file of I Additional Judge,City Civil Court, Chennai.For Appellant:Mr.G.DesappanFor Respondent :Mr.Pauldasfor M/s.Sampathkumar AssociatesJ U D G M E N TThis Civil Miscellaneous Appeal is filed by the Regional Director,Employees State Insurance Corporation, Madras, challenging the order dated12.11.1999 made in ESI.O.P.No.71 of 1990.2.The respondent herein filed ESI.O.P.No.71 of 1990 under section75 of the Employees State Insurance Act, 1948, to set aside the orderdated 30.5.1990 declaring that the respondent establishment is not coveredunder Employees State Insurance Act, 1948, for the period from 9.3.1989 to8.3.1990 on the ground that the respondent establishment is engaged in thebusiness of manufacturing certain industrial products, having a small unitwith seven employees to work regularly and at times one or two casualemployees be engaged and at no point of time ten or more persons wereengaged.3.On 9.3.1989, the Inspector of ESI Corporation visited the https://hcservices.ecourts.gov.in/hcservices/ respondent establishment and verified the records, pursuant to which acommunication was issued on 3.4.1989 stating that the respondentestablishment is covered under the Employees State Insurance Act, 1948,from 9.3.1989 and on the basis of the said inspection report C-18 noticedated 21.3.1990 was issued to the respondent establishment to show causeas to why contribution should not be determined at Rs.8,421.60 from March,1989 to February, 1990 and orders under section 45A should not be passedcalculating at 7.25% and the assumed wages of Rs.880/- per month peremployee. The respondent establishment sent a reply on 7.5.1990 disputingthe coverage. Respondent's representative appeared before the appellanton 11.5.1990 and explained in person that the respondent establishment isnot covered under the Employees State Insurance Act, 1948. In spite ofthe same, on 30.5.1990, an order was passed under section 45A forRs.8,204/- towards contribution from 9.3.1989 to 8.3.1990 with 12%interest and the same was directed to be paid within 15 days. Thegrievance of the respondent establishment was that without serving theinspection report, which is the basis for issuing the show cause notice,the coverage of the respondent establishment under the Employees StateInsurance Act, 1948, was passed.4.The E.S.I. Court framed the following issues:(a)Whether the respondent establishment is not covered under theESI Act for the period from 9.3.1989 to 8.3.1990 ?(b)Whether the order passed under section 45A on 30.5.1990directing the respondents to contribute Rs.8,294/- is illegal or not ?5.The E.S.I. Court considered the defence of the respondentestablishment that at any point of time more than seven persons were notemployed in the respondent establishment. One Murali was examined as PW-1and one Tamilmani was examined as PW-2. Their evidence was that after theinspection of the establishment, copy of the inspection report was notsent to the establishment. The said Murali also submitted that twopersons viz., Veeraraghavan and Purushothaman, who were found at the timeof inspection, were not engaged by the respondent establishment and thesaid Veeraraghavan was working in some other company. One Dayalan andMurali were engaged casually on that particular day and the attendanceregister which was marked as Ex.A-7 contained only seven persons' name whowere employed in the company. RW-1 who was the Assistant Director of theESI Corporation deposed that on 9.3.1989 he inspected the premises andfound that the establishment was manufacturing automobile componnts and hefound 11 persons were working and he submitted a report Ex.R-1.6.The E.S.I. Court found that the said Veeraraghavan andPurushothaman were employees of Insap Flexibles and Engineers PrivateLimited and Murugan Industries and they are not employees of therespondent establishment. The ESI Court also found that during theinspection, attendance register and wage register were verified, but stillthe Inspector who was examined as RW-1 submitted Ex.R-1 report onpresumption without proper enquiry. The Inspector also failed to note thesalary paid to other persons beyond seven in his inspection report and https://hcservices.ecourts.gov.in/hcservices/ therefore allowed the appeal filed by the respondent herein.7.In this appeal even though the following three questions of lawwere raised,(1)Whether the finding of the Lower Court thatthe respondent establishment was not coverable, can besustained in law ?(2)Whether the determination of contribution onnotional wages is wrong when the respondent did notproduce the necessary records ?(3)Whether the order of the Lower Court is notliable to be set aside on anyone or more of the groundsthereof ?I am of the view that the same are only questions of fact which arealready answered by the E.S.I.Court and there is no clinching evidence toshow that more than seven persons were employed in the respondentestablishment on the date of inspection.8.Section 45A of the ESI Act clearly states that no order shall bepassed by the Corporation unless the principal or immediate employer orthe person in charge of the factory or establishment has been given areasonable opportunity of being heard.9.Admittedly the inspection report which was used as basis forissue of show cause notice was not served by the E.S.I. Corporation. Inthe decision reported in 1982 Lab.I.C. 1787 (Regional Provident FundCommissioner, Employees' Provident Fund, New Delhi and another v. Glamour-Proprietor Seth Hassaram and Sons (India) Pvt. Ltd., New Delhi and others)a Division Bench of the Delhi High Court held that the inspection reportis bound to be given to comply with the principles of natural justice. Inthe decision reported in AIR 1970 SC 2042 (Chandra Bhawan Boarding andLodging, Bangalore v. State of Mysore) it is held that dividing linebetween the administrative power and quasi-judicial power is quite thinand the principles of natural justice apply to the exercise of theadministrative power as well. Even though the order passed under section45A of the Employees State Insurance Act, 1948, is on the basis of bestassessment, in view of the provisions contained in Section 45A(1), thereport copy shall be furnished.10.It is not the case of the appellant that the respondentestablishment has not co-operated. In the absence of co-operation fromthe establishment only best assessment order under section 45A can bepassed unilaterally. The respondent establishment cannot be treated asnon-cooperative since they have produced attendance register and wageregister. Still the Inspector presumed the payment of wages to personsother than seven employees and taking note of the said facts also ESICourt set aside the same. In the decision reported in (2007) 1 SCC 584(ESI Corporation v. C.C.Santhakumar), in paragraph 15, the HonourableSupreme Court explained the position by stating that unilateral order ofbest assessment can be passed under section 45A, only if there is no co- https://hcservices.ecourts.gov.in/hcservices/ operation from the establishment and the said amount determined can berecovered as arrears of land revenue under section 45B of the Act.11.Hence I am of the view that the mandatory requirement underproviso to section 45A(1) was not followed and the respondentestablishment was denied of reasonable opportunity of being heard beforecovering the respondent establishment under the Employees State InsuranceAct, 1948.There is no merit in the Civil Miscellaneous Appeal and the same isdismissed. No costs.sd/-Asst.Registrar/true copy/Sub Asst.RegistrarvrTo1. The Registrar,City Civil Court, Chennai.2. The I Additional Judge, City Civil Court, Chennai.3. The Record Keeper, V.R.Section, High court Madras.+ 1 cc to Mr.Sampath kumar Associates Advocate SR No.47076JRG(CO)RD 20.8.07C.M.A.No.1224 of 2000