CORAMTHE HONOURABLE MRS v. M/s. Somasundaram Super Spinning Mills,(Muthanenthal Post, Manamadurai),A Unit of Tamil Nadu Textile

1BEFORE THE MADURAI BENCH OF MADRAS HIGH COURTDATED: 16.10.2012CORAMTHE HONOURABLE MRS.JUSTICE S.VIMALAC.M.A(MD)Nos.855 of 2011and Cross objection (MD) No.40 of 2012The Joint Director, ESI Corporation Office,Sub Regional Office, 4th Road, K.K.Nagar,Madurai... Appellant in CMA No.855 of 2011& Respondent in Cross Objection No.40 of 2012/RespondentVersusM/s. Somasundaram Super Spinning Mills,(Muthanenthal Post, Manamadurai),A Unit of Tamil Nadu Textile Corporation,No.15, Dr. Munusamy Street, Avinasi Road, Coimbatore,Through its Managing Director... Respondent in CMA No.855 of 2 & Cross-Objector in Cross Objection No.40/2012/PetitionerCivil Miscellaneous Appeal filed under Section 82 of the ESI Act,1948, against the judgment of the ESI Court (Labour Court), Madurai,passed in ESI OP No.57 of 2010, dated 22.04.2010.Cross Objection filed under Order 41 Rule 22 of the Code of CivilProcedure to set-aside the decree and judgment of the ESI Court, Madurai,in ESI OP No.57 of 2010 and to allow the appeal filed before the ESICourt, Madurai, by way of quashing the respondent's order under Section85B, dated 28.06.2005 and to allow the Cross appeal in CMA (MD) No.855 of2011 as prayed for.For appellant in CMA No.855 of 2011 & for respondent in Cross Obj. No.40 of 2012 : Mr. K.C.RamalingamFor Respondent in CMA No.855 of 2011 & for appellant in Cross Obj. No.40 of 2012: Mr. P.Chandrabose- - -C O M M O N J U D G M E N TCivil Miscellaneous Appeal filed by ESI Corporation, challenging thejudgment and decree of the ESI Court (Labour Court), Madurai, passed inESI OP No.57 of 2010, dated 22.04.2010, directing the respondent to pay12% of the damages imposed by the appellant. 2. Cross Objection has been filed by the respondent herein seeking toquash the order of the appellant passed under Section 85-B, dated28.06.2005, directing the respondent to pay a sum of Rs.6,28,386/- asdamages. https://hcservices.ecourts.gov.in/hcservices/

23. The ESI Corporation claimed a sum of Rs.6,28,386/-, as damages,from the respondent-Spinning Mill, on the ground that there had beendelay in the payment of contribution for the period from 06/86 to13.08.1986 (demand notice, dated 23.01.2001), 04/92 to 02/94 (demandnotice, dated 24.01.2001) and 04/83 to 10/85 and 01.11.1985 to 13.08.1986(demand notice, dated 25.01.2001). The employer was asked to show causeas to why damages under Section 85B of the ESI Act should not be leviedand recovered, as per the show cause notices, dated 23.01.2001,24.01.2001 and 25.01.2001 making a demand of Rs.45,602/- (06/86 to08/1986), Rs.5,44,514/- (04/92 to 03/94) and Rs.42,896/- (04/83 to 10/85and 01.11.1985 to 13.08.1986). After getting the reply, the ESICorporation passed an order, dated 28.06.2005 imposing damages ascontemplated under Regulation 31 (c) of ESI (General) Reg. 1950 read withSection 85(B)(i) of the ESI Act, 1948. 4. Challenging the order dated 28.06.2005, Somasundaram SuperSpinning Mills, filed an application under Section 75 (1) (g) of the ESIAct, 1948, before the ESI Court, Madurai, in ESI OP No.57 of 2005,praying to set-aside the order passed by the ESI Corporation, underSection 85 (B) of the ESI Act. 5. On consideration of the oral and documentary evidence, the ESICourt, gave a finding that the Mill is liable to pay 12% of the damagesclaimed. As against this finding, the ESI Corporation has filed thisCMA, raising the following substantial questions of law and thecontentions:-Substantial Questions of law:-"(i) On the facts and circumstances whether the binding ofthe Tribunal that, the Tribunal has power to reduce the damageswithout any valid reason and fixed of Rs.6,28,386/- as per 31-Cof ESI Regulation (General) 1950? (ii) Whether the interpretation to Regulation 31-C ofGeneral Regulation of ESI 1950 by the lower court is sustainablein law?(iii) When the respondent did not produce any records toprove his contentions that he has paid the contribution amountwithin the time limit prescribed by the ESI Act, was it correctfor the lower court, to come to a conclusion that the respondenthas no intention to pay the contribution amount belatedly?"Contentions:-(i) The ESI Court failed to appreciate the provisions underRegulation 31, ESI (General) Regulations 1950, which stipulates that anemployer is liable to pay contributions in respect of an employee withintwenty-one days of the last date of the calendar month, in which thecontribution falls due and to submit returns of the contribution withinthe stipulated time under Regulation 26, failing which, the employer isliable to pay interest and damages for their failure to pay thecontribution in time, in terms of Regulation 31 (A) and 31 (C) of the ESIRegulation, 1950 read with Sections 39 to 41 and 85 (B) of the ESI Act. (ii) "No intention" / "No Mens-rea" to pay the payment belatedly, isnot a ground to grant waiver to the Mill and the Mill has not establishedserious or rare case for consideration as to waiver or reduction of https://hcservices.ecourts.gov.in/hcservices/ 3damages. Financial constrains, manufacturing cost, administrative cost,etc., cannot be the grounds for waiver. (iii) There are no mitigating circumstances or justifiable groundsestablished by the respondent Mill, against levying damages.6. The ESI Court has given a finding that the belated payment, is anadmitted fact. However considering the fact that, the belated payment isnot intentional, the amount of damages claimed was held to be excessiveand the Mill is directed to pay 12% of the damages claimed.Justifiability of this finding is under challenge.7. The learned counsel for the appellant contended that under nocircumstances, there could be an exemption from payment of contributionand when there is a delay in contribution, the liability to pay damagesis imperative and even if the establishment is transferred, thetransferee establishment is liable to pay damages in respect of defaultcommitted by the transferor establishment. In support of the contention,the decision reported in 2005-III-LLJ 356 (DALGAON AGRO INDUSTRIES LTD.v. U.O.I.) is relied upon, where-under, it has been held that transfereeof an establishment would be liable for damages imposed under Section 14(B) of the EPFMP Act, 1952, also in respect of default committed beforethe date of transfer. 7.1. With regard to this legal position, in principle, there cannotbe any dispute and the other side, did not dispute the applicability ofthis proposition to the facts of this case. 7.2. Relying upon the decision reported in 2012 (2) Law Weekly 596(Regional Provident Fund Commissioner v. The Hooghly Mills Co. Ltd., &Ors.), it is contended that, a remedial statute receives liberalconstruction whereas a penal statute calls for strict construction andthat the provisions for imposition of damages being penal in nature itshould be strictly construed and the damages imposed should be upheld. 7.3. Whether the liability to pay damages is absolute or otherwise(there could be any mitigating circumstances) is the issue to beconsidered as the contention that the liability to pay damages isabsolute is disputed by the other side.8. The learned counsel for the respondent pointed out that Section 14(B) of the EPF Act and Section 85-B of the ESI Act are identical innature and the decision rendered in W.P.No.458 of 2011, dated 24.04.2012,covers the present dispute and therefore, the appeal has to be dismissed.8.1. The learned counsel for the respondent relied upon the decisionrendered in Writ Petition No.458 of 2011 (Somasundaram Super SpinningMills v. EPF Appellate Tribunal and three others), where-under it washeld by the High Court that "irretrievable prejudice" caused to thedefaulter, due to non-application of mind, (in considering the case ofthe defaulter), by the Corporation was held to be a ground to quash therecovery certificate issued by the ESI Corporation and quashing ofRecovery Certificate ordered by the Tribunal was upheld by the HighCourt. 8.2. The next contention of the learned counsel for the respondent isthat in order to claim damages it must be proved that delay in payment of https://hcservices.ecourts.gov.in/hcservices/ 4contribution is intentional and that when the delay is not intentional /when there is no mens-rea, which is a necessary ingredient for levyingdamages, the imposition of damages is unjustified. In support of thecontention, the decision reported in ESI Corporation, Madurai v. HabeezMotor Transport, Pudukottai, (2012) 1 CLR 910 is relied upon. 8.3. Yet another contention is that the Regulations only prescribegeneral guidelines and the upper limit at which imposition of damages canbe made and that it does not mean that mitigating circumstances cannot betaken into consideration. In support of this contention, the decisionreported in 1995 (II) LLN 667 (SC) (Prestolite India Ltd. v. RegionalDirector, ESI Corporation and another) is relied upon, wherein it hasbeen held as follows:-"Even if the regulations have prescribed general guidelinesand the upper limits at which the imposition of damages can bemade, it cannot be contended that in no case the mitigatingcircumstances can be taken into consideration by theadjudicating authority in finally deciding the matter and it isbound to act mechanically in applying the uppermost limit of thetable."9. Now it is for the court to consider whether the ESI Corporation isbound to take into account, the mitigating circumstances alleged by theMill. In order to find out whether there were mitigating circumstancesavailable, it is necessary to advert to the factual matrix. (i) The Mill was taken over by the Tamil Nadu Textile Corporation in1986. (ii) The Commissioner of Payment was appointed by the Government ofTamil Nadu to discharge the pre-takeover liabilities of the Mill. (iii) The Commissioner of Payment discharged the pre-takeoverliabilities. (iv) The company incurred loss of Rs.715.00 lakhs as on 31.03.2004. 9.1. It is the contention of the Corporation that waiver of damagescan be considered only when the company is declared sick by the BIFR anda rehabilitation scheme has been sanctioned or there should have beensuch compelling reasons beyond the control of employer to take cognizanceof the situation. 9.2. The learned counsel for the Mill pointed out the circumstanceswhich were beyond the control of the employer and the irretrievabledamage caused because of the belated claim made.10. The following description as to dates and events would go to showthat because of the delay in raising the demand for damages certainlythere would cause irretrievable prejudice to the Mill.Sl.No.DateParticulars1'08.10.1976Original owner of the petitioner mill – SomasundaramCorporation (Pvt) Ltd., closed the mill.2Dec. 1977Government of India taken over the petitioner – Mill331.03.1986Accumulated loss of the Mill was Rs.95.00 Lakhs atthe stage of closure. https://hcservices.ecourts.gov.in/hcservices/ 5Sl.No.DateParticulars41986Government of Tamil Nadu Nationalised the petitionerMill vide Somasundaram Super Spinning Mills(Acquisition and Transfer) Act 81 of 1986 and vestedin the Tamil Nadu Textile Corporation (TNTC)51988Original owner of the Mill filed W.P.1979 of 1988before the Madras High Court by challenging the aboveAct of the Tamilnadu Government.61994TNTC filed reference to BIFR for relief to revive theMill but BIFR rejected the application that ownershipwas questioned in W.P. No. 1979 of 1988 which waspending.714.10.1993Tamil Nadu Government issued G.O. No. 287, Handlooms,Handicrafts, Textiles and Khadi Department regardingto handover the mill back to the original owner,Somasundaram Corporation(P) Ltd.,.8W.P. 13510 of 1994, W.P. No. 20925 of 94 and W.P.4455 of 1996 filed by the Trade Unions challengingthe G.O. No. 287 for handing over the mill to theoriginal owner M/s.Somasundaram Corporation (Pvt.)Ltd.,918.07.1994Somasundaram Super Spinning Mills CEASED itsfunction. (closure of the mill)1030.01.1999Madras High Court in common order in W.P. Nos. 1979of 1998, 13510 of 1994, 20925 of 1994 and 4455 of1996 quashed the G.O. No. 287, Handlooms,Handicrafts, Textiles and Khadi Department dated14.10.1993, and restrained from handing over the Millto the original owner1131.03.1999Accumulated loss of the Mills was Rs.4.73 CRORES12'06/01/2000Petitioner Mill declared as Relief undertaking(Special Provisions) Act 1969 through the ordersdated 06.01.2000, 04.01.2002, 06.01.2003, 06.01.2004ans 05.01.20051323.01.2001Demand notice for damages at Rs.45,602/- for theperiod from 6/86 to 13.08.1986;June 86 to August 86 - Government of India was theowner.1424.01.2001Demand notice for damages at Rs.5,44,514/- for theperiod from April 92 to March 94.April 92 to March 94 the cross objector is the ownerof the Mill.1525.01.2001Demand notice for damages for Rs.42,896 for theperiod from April 83 to 13.08.86.April 92 to March 94 – the Government of India wasthe owner of the Mill.1616.05.2005Personal hearing was conducted by the respondent. https://hcservices.ecourts.gov.in/hcservices/ 6Sl.No.DateParticulars1728.06.2005Orders passed by the respondent under Sec.85B of theESI Act.18'11/8/2005ESI OP No.57 of 2005 filed before the ESI Court,Madurai1922.04.2010 ESI Court, Madurai, passed order in ESI OP No.57 of2005 in relating to the petitioner Mill stated "nomensrea" for the delayed payment of the ESIcontribution for the period from June 1986 toFebruary 1994 fixing the damages at 12%.11. A perusal of the order passed by the ESI Corporation goes on toshow that the Corporation was not inclined to waive the damages becausethere was no proof to show that the Mill incurred loss. For the pre-takeover period the Company is liable to pay damages. It is specificallymentioned in the order that the employer did not produce any evidence toshow that the company was suffering from financial losses. But it is acase of the Mill that the closure during the year 1976 itself was due tothe fact that the Mill was not even able to pay the worker's salary. Inorder to prevent 300 employees employed in the Mill that too from themost backward area of Ramnad District, from being thrown out of theemployment, the Government of Tamil Nadu had taken steps to nationalizethe Mill and vested it with the Tamil Nadu Textile Corporation.Therefore, the contention that there was no proof to show that the Millwas running under losses seems to be without basis. 12. The respondent-Mill, which became an unit of the Tamil NaduTextile Corporation, was again closed with effect from 18.07.1994. Thedemand notice were raised in the month of January 2001 claiming damagesunder Section 85B of the ESI Act. So the demand was made nearly afterseven years of the closure of the Mills. During this period all theworkers settled their accounts including EPF and left the concern. Underthe Factories Act, Preservation of attendance registers and pay registersis mandatory only for three years of its last entry. Under the IncomeTax Act, preservation of records are mandatory only for six years.Pointing out these regulations, it is contended that the Mill was notunder a statutory compulsion to preserve records beyond three years.Therefore, it is absolutely impossible to reconstruct the documents forthe period from 1983 to 1994. Contending that, the notice issued undersuch situations, referred above, would cause "irretrievable prejudice" tothe Mill in defending the case, the learned counsel for the Mill seeksquashing of the order passed by the ESI Corporation. In support of thecontention, the decision reported in 1998 (2) LLN 37 (SC) (M/s. HindustanTimes Ltd. v. Union of India and Others) is relied upon. "... if the recovery is made after a large number of years,the prejudice to him is of an "irretrievable" nature: he mightalso claim prejudice upon proof of loss of all the relevantrecords and/or non-availability of the personnel who were,several years back in charge of these payments and provided hefurther establishes that there is no other way he canreconstruct the record or produce evidence; or there are othersimilar grounds which could lead to "irretrievable" prejudice". https://hcservices.ecourts.gov.in/hcservices/

712.1. In the judgment, dated 04.05.2012, of the Gujarat High Court,reported in MANU/GJ/0397/2012 (NITRO AROMATICS (A DIVISION OF DEEPAKNITRITE LIMITED) Vs. REGIONAL DIRECTOR, ESI CORPORATION & 2 OTHERS) hasheld as follows:-"20. The judgment of the Hon'ble Apex Court in the case ofEmployees State Insurance Corporation v. HMT Ltd. And anr. (2008(2) GLH 412) clearly provides for "existence of mens rea or actusreus to contravene a statutory provision must also be held to be anecessary ingredient for levy of damages and/or the quantumthereof." The Hon'ble Apex Court has, referring to its earlierjudgment addressing similar issue regarding damages when there isdelayed payment, has observed and quoted, "Even if the regulations have prescribed generalguidelines and the upper limits at which the imposition ofdamages can be made, it cannot be contended that in no case,the mitigating circumstances can be taken into considerationby the adjudicating authority in finally deciding the matterand it is bound to act mechanically in applying theuppermost limit of the table. In the instant case, itappears to us that the order has been passed withoutindicating any reason whatsoever as to why grounds fordelayed payment were not to be accepted. There is noindication as to why the imposition of damages at the ratespecified in the order was required to be made..." Further, in this judgment, considering the penal nature of theprovision, the Hon'ble Apex Court has also observed that the penalprovision should be construed strictly. It has been specificallyobserved that merely because the provisions enable levy ofpenalty, the penalty should not be levied in all situations."The view taken by the Supreme Court in the decision reported in 1998(2) LLN 37 (SC) (referred to supra) is followed in the aforesaid NITROAROMATICS's case by the Gujarat High Court.12.2. This decision applies to the facts of this case. The orderpassed by the ESI Corporation imposing damages has been passed withouttaking into account the reasons stated by the Mill. No doubt the ESICorporation may make belated claim, but not to the extent of causing"irretrievable prejudice" to the management. Under normal circumstances,this Court would have chosen to remand the matter to the freshconsideration of the ESI Corporation. But having regard to the longinstability in the existence of the Mill itself, the matter is notremanded. The order passed by the ESI Corporation is liable to thequashed and accordingly quashed. 13. In the result, the judgment of the ESI Court passed in ESI OPNo.57 of 2010 is hereby set-aside. The order passed by the ESICorporation, dated 28.06.2005, is quashed. The Civil MiscellaneousAppeal No.855 of 2011 is dismissed and the Cross Objection No.40 of 2012is allowed. No costs. sd/- Assistant Registrar (Crl. Side)/True Copy/Sub Assistant Registrar https://hcservices.ecourts.gov.in/hcservices/ 8ToESI Court (Labour Court),Madurai+ 1 cc to M/s.K.C.Raalingam, Advocate, SR No.35563 C.M.A(MD)Nos.855 of 2011andCross objection (MD) No.40 of 201216.10.2012srkRJ/7.11.128p/3c