The Supreme Court has ruled that under Section 2(17) of the Employees’ State Insurance Act, 1948, a person’s designation is immaterial if they function as an agent of the owner or exercise supervision and control over the establishment. A Bench of Justices Ahsanuddin Amanullah and Sudhanshu Dhulia, while dismissing an appeal in Ajay Raj Shetty vs Director and Anr., reaffirmed that the scope of ‘Principal Employer’ extends beyond mere titular roles.
Background of the Case:
The appellant, Ajay Raj Shetty, was convicted under Section 85(i)(b) of the ESI Act for non-payment of employee contributions deducted during his tenure at M/s Electriex (India) Ltd., a company declared sick by the BIFR. A criminal complaint was filed in 2011 after a report by ESIC officers revealed that ₹8,26,696 had been deducted from employee wages between February and December 2010 but not deposited with ESIC. Shetty’s name appeared in the report as the ‘General Manager’ and ‘Principal Employer’ of the company.
The Trial Court convicted Shetty and sentenced him to six months’ imprisonment and a fine of ₹5,000. The conviction was upheld by the First Appellate Court and subsequently by the Karnataka High Court in December 2023. Shetty then approached the Supreme Court.
Arguments by the Appellant:
Senior counsel for the appellant argued that Shetty was never designated as General Manager but was appointed in July 2009 merely as a Technical Coordinator. It was further submitted that the company, being a sick industrial unit, never issued an official appointment letter nor paid his salary. Counsel also emphasized that the ESIC report could not be relied upon as the official who prepared it was not produced for cross-examination.
It was contended that the prosecution failed to prove Shetty’s role in deducting or failing to deposit contributions. Additionally, the appellant pointed to Regulation 10-C of the ESI (General) Regulations, arguing that no Form 01(A) identifying him as Principal Employer was submitted. The entire outstanding ESIC amount was paid after the High Court’s judgment.
Court’s Analysis and Findings:
The Supreme Court rejected the appellant’s contention, holding that the statutory definition of ‘Principal Employer’ under Section 2(17) is broad and functional in nature. The Court observed:
“Designation of a person can be immaterial if such person otherwise is an agent of the Owner/Occupier or supervises and controls the establishment in question.”
The Court found that Shetty fell within this statutory definition, noting:
“From the materials available on record, we find that the Appellant falls within the ambit of Section 2(17) of the Act, being a ‘managing agent’.”
The Bench clarified that even though Shetty denied being a General Manager, he failed to produce documentary proof like pay slips or appointment letters, nor did he name any other person who was in charge during the relevant period. The Court held that in such circumstances, the conviction was legally sustainable.
Rejection of Case Law Cited by Appellant:
The appellant had relied on ESIC v. Gurdial Singh and J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers, but the Court found these decisions distinguishable. The Court explained that Gurdial Singh dealt with directors’ liability where an occupier existed and J.K. Industries pertained to the Factories Act, not the ESI Act.
Conclusion and Sentence:
The Court refused to interfere with the six-month sentence or substitute it with a symbolic imprisonment till the rising of the court. The Bench held:
“We are not convinced to substitute the term of imprisonment to be operative only for a day till the rising of the Court.”
The appeal was dismissed. The appellant was directed to surrender before the Trial Court within two weeks. The exemption from surrender earlier granted was withdrawn.
Citation: Ajay Raj Shetty vs Director and Another, Criminal Appeal No. ___ of 2025 (@ SLP (Crl.) No. 3743 of 2024), decided on April 17, 2025
