The Supreme Court of India has ruled that the Employees’ State Insurance Corporation (ESIC) cannot resort to summary determination of contributions under Section 45A of the Employees’ State Insurance Act, 1948 (the Act) merely because the records produced by an employer are perceived as inadequate or deficient.
The Division Bench comprising Justice Manoj Misra and Justice Ujjal Bhuyan set aside the orders of the Madras High Court and the Employees Insurance Court, holding that the invocation of Section 45A was “misconceived” and “unsustainable” where the employer had cooperated and produced records.
The legal issue before the Court was whether the ESIC could invoke Section 45A of the Act to determine arrears of contribution when the employer had produced records and participated in hearings, or whether the Corporation was required to proceed under Section 75, which is subject to a limitation period. The Supreme Court held that Section 45A requires the satisfaction of specific pre-conditions—namely, non-production of records or obstruction of duties. In the absence of these conditions, if records are produced but disputed, the ESIC must adjudicate the matter under Section 75, subject to the five-year limitation prescribed under the proviso to Section 77(1A)(b).
Background of the Case
The appellant, M/S. Carborandum Universal Ltd., a manufacturing company covered under the Act, received a show cause notice from the ESIC on November 27, 1996. The notice alleged non-payment of contributions and non-submission of returns for the period from August 1988 to March 1992, proposing an assessment of Rs. 26,44,695.00.
The appellant submitted explanations and participated in personal hearings, producing ledgers, cash books, bank books, and other relevant documents. However, on April 17, 2000, the Corporation passed an order under Section 45A, confirming a demand of Rs. 5,42,575.53 with interest.
The appellant challenged this order before the Employees Insurance Court (Principal Labour Court), Chennai, arguing that the demand was barred by limitation and that Section 45A was inapplicable. The Employees Insurance Court dismissed the petition on July 6, 2015. A subsequent appeal under Section 82 of the Act was dismissed by the Madras High Court on October 12, 2023, which held that there is no limitation for initiating proceedings under Section 45A.
Arguments of the Parties
The Appellant’s Contentions: The appellant argued that Section 45A applies only where no records are maintained or produced, or where there is obstruction. Since they had produced records and attended hearings, the Corporation should have proceeded under Section 75. The appellant contended that the ESIC invoked Section 45A solely to circumvent the five-year limitation period prescribed under the proviso to Section 77(1A)(b) of the Act, as the claim for the 1988-1992 period was raised in 1996 and crystallized only in 2000.
The Respondent’s Contentions: The ESIC argued that the inspection revealed significant omissions in wage recording, with wages clubbed under heads like repairs and maintenance. The counsel for the Corporation submitted that despite multiple opportunities, the appellant failed to produce “complete and proper record” to segregate wage components. The Corporation relied on the Supreme Court’s decision in ESI Corpn. v. C.C. Santhakumar, arguing that non-production of relevant documents justified the “best judgment determination” under Section 45A, to which the limitation under Section 77(1A)(b) does not apply.
Court’s Analysis
The Supreme Court analyzed the statutory scheme, specifically Sections 44, 45, 45A, 75, and 77 of the Act.
Pre-conditions for Section 45A The Court observed that Section 45A can be invoked only if two specific pre-conditions are met:
- No returns, particulars, registers, or records are submitted, furnished, or maintained in accordance with Section 44.
- Any Inspector or official is prevented by the employer from exercising functions under Section 45.
Inadequacy vs. Non-Production The Bench clarified that “mere inadequacy of the record would not confer jurisdiction upon the corporation to invoke Section 45A.” The Court stated:
“The statutory threshold is not inadequate production but non-production. The statute does not permit a best judgment determination merely because the record produced is inadequate.”
Distinguishing C.C. Santhakumar The Court distinguished the present case from the decision in C.C. Santhakumar. It explained that Santhakumar applies where records are not produced or cooperation is refused. The Court noted:
“Once Santhakumar is read and understood in its factual setting, its ratio becomes clear… It would not be appropriate to extend the rationale of Santhakumar to cases where records have in fact been produced and where repeated personal hearings have been attended by the employer.”
The Court emphasized that if the Corporation is dissatisfied with the records produced, the proper course is to raise a dispute under Section 75.
“To enlarge Section 45A so as to cover situations of partial dissatisfaction or perceived inadequacy would tantamount to rewriting the statute in a manner plainly contrary to its text and structure.”
On Limitation The Court held that the ESIC cannot bypass the limitation period by choosing Section 45A when Section 75 is the appropriate remedy.
“The statutory scheme does not allow the corporation to bypass Section 75 merely because it finds verification inconvenient or time consuming.” “If any dispute persisted, to initiate proceedings within the period of limitation prescribed by the proviso to Section 77(1A)(b). Invocation of Section 45A in such circumstances was misconceived.”
Decision
The Supreme Court held that the respondent was not obstructed from inspection, nor was there a non-production of records. Therefore, the invocation of power under Section 45A was “unsustainable.”
The Court allowed the appeal and set aside:
- The Corporation’s order dated April 17, 2000.
- The Employees Insurance Court’s order dated July 6, 2015.
- The Madras High Court’s judgment dated October 12, 2023.
There was no order as to costs.
