Delhi District Court
G. L. Management Services Pvt. Ltd vs Employees State Insurance Corporation on 30 April, 2025
IN THE COURT OF SH. GAURAV SHARMA
JSCC-CUM-ASCJ-CUM-GUARDIAN JUDGE, EAST
KARKARDOOMA COURTS/DELHI
CNR No. DLET030004722013
ESIC 12/2023
M/s G.L. Management Services Pvt. Ltd.
E-10A, Ground Floor
Jawahar Park, Vikas Marg
Laxmi Nagar, Delhi-110094
Through Sh. Gopal Joshi
Its Director
......Plaintiff
Versus
M/S. Employees State Insurance Corporation
Divisional Office, 2nd Floor,
Parsvnath Metro Tower,
Shahdara, Delhi-110032
Through Its Joint Director
......Defendant
Date of Institution : 19.10.2013
Judgment reserved on : 01.02.2025
Judgment pronounced on : 30.04.2025
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 1/38
JUDGMENT
30.04.2025
1. Petition Allowed.
2. It’s a skill to snatch out defeat from jaws of victory. The
respondent has been able to achieve exactly that. With all
things in its favour, it did not run the last mile and ended
up on the darker side.
3. Pithily put, it is the case of the petitioner that it is a duly
incorporated company under the Companies Act providing
facility management services to its clients situated in
different states. It is stated that the respondent covered the
petitioner company under ESIC Act vide employer code
no. 10-50340-101 more than a decade ago from the date of
filing the instant petition. It is averred that the petitioner
company has been regularly making payment of ESI
contribution for the ‘covered’ employees since last 12
years and submitting regular returns in that regard. Half
yearly returns used to be also submitted by the petitioner
with the respondent from the date of coverage till about
September 2011 whereafter, compliances are being made
electronically/online as per rules. No complaint of any
shortcoming qua such compliances or any allegation of the
contributions of ‘covered’ employees not being deposited
with the respondent were ever made/levelled against the
petitioner company till before the impugned notice came to
be issued. It is stated that on account of shifting of the
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office of the petitioner on 13.03.2012, the bundles
containing computers, printers, A/c books, vouchers, ESI,
EPF records, service tax and other taxation records and
official records pertaining to a period until March 2012
were stolen/lost and on 26.03.2012, a complaint was also
made to the police authorities vide DD No. 77B dated
26.03.2012, with public notice being also published. Vide
C-18 dated 21.03.2013, it is claimed that the respondent
issued a show cause notice to the petitioner company
proposing to recover and determine the amount of
contribution payable in respect of the employees of
factory/establishment u/s 45A, ESIC Act. The notice was
accompanied with a table of ad hoc assessment of Rs.
1,31,22,192/- having been arrived at on the basis of figures
of profit and loss account and balance sheet for the period
01.03.2018 to 31.03.2012 for the figures appearing under
the heads – Salary, Business Promotion Wages, Overtime,
Lab Charges, Staff Welfare, Accounting Charges, Vehicle
Running and Maintenance, R&M – Machines and Office,
Security charges, Consultancy charges,Director
remuneration, Conveyance, Furniture and Fixtures,
Building and Office Equipment. Such demand, as per the
notice was stated to have been arrived at after
deducting/adjusting the alleged amount of Rs. 38,250/- for
March 2008, Rs. 3,28,2012/- for the year 2008-09, Rs.
9,37,189/- for the year 2009-10, Rs. 6,30,207/- for the year
2010-11 and Rs. 11,79,933/- for the year 2011-12 as ESI
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contribution paid by the employer. It is averred that there
was no occasion to invoke Section 45A, ESIC Act
proceedings against the petitioner as it was not the case
that it was not complying with the provisions of Section
44, ESI Act evidenced by the fact that half yearly returns
were being submitted by it. The allegations with regards
petitioner being unable to have produced the relevant
record when called for, as per the petition were vague. It
was also argued that the show cause notice did not note all
the details as to when and before whom appearance was
required to be entered into. In fact, it is also contended that
the show cause notice was not served properly as well.
Further, it has also been stressed upon that the show cause
notice didn’t give any details as to how the liability sought
to be recovered was arrived at and the amounts stated in
the profit and loss account/balance sheet could not have
been picked up arbitrarily to make assessment. It is stated
that after the show cause notice was issued, the respondent
vide final order dated 06.06.2013 through its Asst. Director
u/s 45A, ESI Act determined Rs. 1,29,33,203/- as
contribution for the period from June 2008 to March 2012
against the petitioner company, which is herein impugned.
It was also averred that such an order was totally bad in
law as it did not take into account the fact that only
‘covered’ employees, and not all the employees of the
petitioner company were liable for ESIC contribution but
the department had made the assessment based upon all the
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employees in a carte blanche manner. Further, it was also
pointed out that the impugned order stated a new ground
leading upto the assessment, that on a complaint received
from the Vigilance Department at Headquarters office, the
area SSOs were also directed to investigate and inspect the
records of the employer and a report dated 08.10.2012 was
also prepared – which also mentioned that the petitioner
company had handed over a copy of FIR with regards their
claim qua loss of records due to which records sought
could not be produced. Similarly, it was also contended
that another new ground was mentioned in the impugned
order that the respondent had sought last five years’ ITRs,
copies of challans, bank statements, PAN no. and
name/address of their CA from the petitioner company to
enable the authorities to rationally assess the contribution
payable. All this exercise undertaken as per the petitioner
was beyond the scope of the initial show cause notice and
in fact, as per it, no copies of the vigilance complaint etc.
was also supplied by the respondent. It was further stated
by the petitioner that it had paid different amounts as ESI
contributions for the period under scrutiny, whereas the
calculation made by the respondent was based on different
amounts. The details of amounts claimed by the petitioner
were stated to have been secured by it from its clients as it
was explained that petitioner used to provide copies of
duly submitted periodical returns to its clients showing
payment of contribution and after receipt of the show
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cause notice, it had asked them to supply to the petitioner
such copies. With such submissions, it was claimed that
the impugned order and the assessment amount claimed
vide it are totally unsustainable, liable to be quashed/set
aside. Hence the present petition.
4. In the reply filed to the instant petition, the respondent
refuted all the claims of the petitioner and stated, in
substance, that when the petitioner company did not supply
the department the records sough qua the ESI contribution,
it was very much within the law for it to pass an
assessment order u/s 45A, ESI Act. It was argued that the
petitioner attended neither of the personal hearings
scheduled for 12.04.2013 and 29.05.2013. The records
based upon which the final assessment was made by the
respondent, as per it, were duly collected from the
Registrar of Companies office and as such therefore, no
fault could be found with such an approach. Considering
the same, it was contended that the proceedings undertaken
by the respondent were well within the confines of law and
the petition moved was liable to be dismissed.
5. In rejoinder, the petitioner denied the claims of the
respondent in toto and reiterated its submissions afresh.
6. Vide detailed order dated 31.10.2015, the issue of
depositing 50% of the assessment amount by the petitioner
u/s 75(2B), ESI Act was adjudicated upon and considering
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the overall circumstances of the case, Ld. Predecessor at
the time had been pleased to waive such a requirement
only to the extent of 25%. The balance amount was duly
deposited by the petitioner with the court thereafter.
7. With the pleadings being complete, following issues for
determination were framed vide order dated 17.03.2016 :
I) Whether the petitioner is entitled for the prayer of
setting aside the impugned order dated 06.06.2013? OPP
II) Whether the petition of the petitioner is not
maintainable as petitioner has no locus standi or cause of
action? OPR
III) Relief, if any.
8. Petitioner evidence was thereafter led and a total of ten
witness came to be examined. Individually and
collectively, they relied upon the following documents :
i) Certified copy of NCR No. 860/2012
dated 26.03.2012, PS Shakarpur : Ex. PW1/A (OSR)
ii) Salary slips for the month of
November 2009 & of January 2012 : Ex. PW2/1 (Colly.)
iii) Copy of appointment letter dt
28.10.2009 : Ex. PW3/1
iv) TDS certificate for the financial
year 2010-11 : Ex. PW3/2
v) TDS certificate for the financial
year 2011-12 : Ex. PW3/3ESIC 12/2023
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vi) Board Resolution dt 12.01.2016 : Ex. PW3/4
vii) Certificate of incorporation of
plaintiff’s company : Ex. PW3/5
viii) Board Resolution dt 10.10.2013 : Ex. PW3/6
ix) Copy of C-18, dt 21.03.2013 : Ex. PW3/7
x) Copies of police complaints
and public notice : Ex. PW3/8 (Colly.)
xi) Copy of 45(A) order : Ex. PW3/9
xii) ESI return for the period
01.04.2008 to 30.09.2008 : Ex. PW3/10
xiii) ESI return for the period
01.10.2008 to 31.03.2009 : Ex. PW3/11
xiv) ESI return for the period
01.04.2009 to 30.09.2009 : Ex. PW3/12
xv) ESI return for the period
01.10.2009 to 31.03.2010 : Ex. PW3/13xvi) ESI return for the period
01.04.2010 to 30.09.2010 : Ex. PW3/14xvii) ESI return for the period
01.10.2010 to 31.03.2011 : Ex. PW3/15xviii) ESI return for the period
01.04.2011 to 30.09.2011 : Ex. PW3/16xix) Copies of passport and air
tickets of directors of plaintiff’s
company : Ex. PW3/17 (Colly.)xx) Copy of letter dt 07.05.2012 : Ex. PW3/18
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xxi) Reply dt 04.06.2012 : Ex. PW3/19xxii) Salary slips for the month of
August 2009 & November 2011 : Ex. PW4/1xxiii) Salary slips for the month
of June 2011 & October 2012 : Ex. PW5/1xxiv) Salary slips for the month of
August 2008 & November 2012 : Ex. PW6/1xxv) Certified copies of ESI
Contribution Returns under
Regulations 26 of the ESI Act
for the period 01.04.2008 to
30.09.2011 of the petitioner
establishment : Ex. PW7/1
(Colly. 06 pages)xxvi) Certified copies of ESI
Contribution C-6 Register
maintained by ESI Corporation
of the petitioner establishment
for the period October 2010 to
June 2014 : Ex. PW7/2
(Colly. 02 pages)xxvii) Certified copies of ESI
Inspection instructions dated
14.03.2012 and 01.05.2000 : Ex. PW7/3
(Colly. 05 pages)xxviii) Salary slips : Ex. PW8/1
(Colly. 02 pages)xxix) Copy of Aadhar Card : Ex. PW8/2 (OSR)
xxx) Salary slips : Ex. PW9/1
(Colly. 02 pages)ESIC 12/2023
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xxxi) Copy of Aadhar Card : Ex. PW9/2 (OSR)xxxii) Salary slips : Ex. PW10/1
(Colly. 02 pages)xxxiii) Copy of Aadhar Card : Ex. PW10/2 (OSR)
9. After examination and cross examination of petitioner
witnesses, PE was closed on 08.08.2023. Respondent
examined a total of two witnesses at its end as RW1 and
RW2.
10.Both the respondent witnesses were duly cross examined
also whereafter, RE was closed on 31.01.2024.
11.Final arguments were thereafter advanced by both the
sides and copies of authorities relied upon were also filed,
forming part of the record.
12.Submissions considered. Record perused.
13.Issue No. 2 framed is with regards locus of the petitioner
to move the instant petition. Nothing has been shown to
the court by the respondent to suggest anything otherwise
disentitling the petitioner to avail the remedy of moving
this court to get the impugned assessment order set aside.
As such therefore, any argument on this aspect is a non
starter. Issue No. 2 is decided in favour of the petitioner
and against the respondent.
ESIC 12/2023
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14.Before proceeding, it shall be in fitness of things to set out
the provisions of law of the ESIC Act, 1948 with which we
are concerned herewith:-
Section 2 (9) “employee” means any person employed for
wages in or in connection with the work of a factory or
establishment to which this Act applies and–
(i) who is directly employed by the principal employer on
any work of, or incidental or preliminary to or connected
with the work of, the factory or establishment, whether
such work is done by the employee in the factory or
establishment or elsewhere; or
(ii) who is employed by or through an immediate employer
on the premises of the factory or establishment or under
the supervision of the principal employer or his agent on
work which is ordinarily part of the work of the factory or
establishment or which is preliminary to the work carried
on in or incidental to the purpose of the factory or
establishment; or
(iii) whose services are temporarily lent or let on hire to
the principal employer by the person with whom the
person whose services are so lent or let on hire has entered
into a contract of service;
[and includes any person employed for wages on any work
connected with the administration of the factory or
establishment or any part, department or branch thereof or
with the purchase of raw materials for, or the distribution
or sale of the products of, the factory or establishment
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[or any person engaged as an apprentice, not being an
apprentice engaged under the Apprentices Act, 1961 (52 of
1961), or
[and includes such person engaged as apprentice whose
training period is extended to any length of time] but does
not include]–
(a) any member of [the Indian] naval, military or air
forces; or
[(b) any person so employed whose wages (excluding
remuneration for overtime work)
[such wages as may be prescribed by the Central
Government] a month:
Provided that an employee whose wages (excluding
remuneration for overtime work)
[such wages as may be prescribed by the Central
Government] at any time after (and not before) the
beginning of the contribution period, shall continue to be
an employee until the end of that period;]
Section 2 (10) “exempted employee” means an employee
who is not liable under this Act to pay the employee’s
contribution;
Section 2 (14) “insured person” means a person who is or
was an employee in respect of whom contributions are or
were payable under this Act and who is by reason thereof,
entitled to any of the benefits provided by this Act;
Section 38. All employees to be insured.–Subject to the
provisions of this Act, all employees in factories, orESIC 12/2023
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establishments to which this Act applies shall be insured in
the manner provided by this Act.
Section 39. Contributions.–(1) The contribution payable
under this Act in respect of an employee shall comprise
contribution payable by the employer (hereinafter referred
to as the employer’s contribution) and contribution payable
by the employee (hereinafter referred to as the employee’s
contribution) and shall be paid to the Corporation.
[(2) The contributions shall be paid at such rates as may be
prescribed by the Central Government:
Provided that the rates so prescribed shall not be more than
the rates which were in force immediately before the
commencement of the Employees’ State Insurance
(Amendment) Act, 1989 (29 of 1989).]
[(3) The wage period in relation to an employee shall be
the unit in respect of which all contributions shall be
payable under this Act.]
(4) The contributions payable in respect of each [wage
period] shall ordinarily for due on the last day of the
[wage period] and where an employee is employed for part
of the [wage period] or is employed under two or more
employers during the same [wage period] the contribution
shall fall due on such days as may be specified in the
regulations.
(5) (a) If any contribution payable under this Act is not
paid by the principal employer on the date on which such
contribution has become due, he shall be liable to payESIC 12/2023
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simple interest at the rate of twelve per cent. per annum or
at such higher rate as may be specified in the regulation till
the date of its actual payment:
Provided that higher interest specified in the regulations
shall not exceed the lending rate of interest charged by any
scheduled bank.
(b) Any interest recoverable under clause (a) may be
recovered as an arrear of land revenue or under section
45C to section 45-I.
Explanation.–In this sub-section, “scheduled bank”
means a bank for the time being included in the Second
Schedule to the Reserve Bank of India Act, 1934 (2 of
1934).]
44. Employers to furnish returns and maintain registers in
certain cases.–(1) Every principal and immediate
employer shall submit to the Corporation or to such officer
of the Corporation as it may direct such returns in such
form and containing such particulars relating to persons
employed by him or to any factory or establishment in
respect of which he is the principal or immediate employer
as may be specified in regulations made in this behalf.
(2) Where in respect of any factory or establishment the
Corporation has reason to believe that a return should have
been submitted under sub-section (1) but has not been so
submitted, the Corporation may require any person in
charge of the factory or establishment to furnish such
particulars as it may consider necessary for the purpose ofESIC 12/2023
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enabling the Corporation to decide whether the factory or
establishment is a factory or establishment to which this
Act applies.
(3) Every principal and immediate employer shall maintain
such registers or records in respect of his factory or
establishment as may be required by regulations made in
this behalf.]
45. Social Security Officers, their functions and duties.–
(1) The Corporation may appoint such persons as
inspectors, as it thinks fit, for the purposes of this Act,
within such local limits as it may assign to them.
(2) Social Security Officer appointed by the Corporation
under sub-section (1) (hereinafter referred to as Social
Security Officer), or other official of the Corporation
authorised in this behalf by it may, for the purposes of
enquiring into the correctness of any of the particulars
stated in any return referred to in section 44 or for the
purpose of ascertaining whether any of the provisions of
this Act has been complied with–
(a) require any principal or immediate employer to furnish
to him such information as he may consider necessary for
the purposes of this Act; or
(b) at any reasonable time enter any office, establishment,
factory or other premises occupied by such principal or
immediate employer and require any person found in
charge thereof to produce to such Social Security Officer
or other official and allow him to examine such accounts,ESIC 12/2023
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books and other documents relating to the employment of
persons and payment of wages or to furnish to him such
information as he may consider necessary; or
(c) examine, with respect to any matter relevant to the
purposes aforesaid, the principal or immediate employer,
his agent or servant, or any person found in such factory,
establishment, office or other premises, or any person
whom the said Social Security Officer or other official has
reasonable cause to believe to be or to have been an
employee;
[(d) make copies of, or take extracts from, any register,
account book or other document maintained in such
factory, establishment, office or other premises;
(e) exercise such other powers as may be prescribed.]
(3) Social Security Officer shall exercise such functions
and perform such duties as may be authorized by the
Corporation or as may be specified in the regulations.
(4) Any officer of the Corporation authorised in this behalf
by it may, carry out re-inspection or test inspection of the
records and returns submitted under section 44 for the
purpose of verifying the correctness and quality of the
inspection carried out by a Social Security Officer.]
Section 45A. Determination of contributions in certain
cases. — (1) Where in respect of a factory or establishment
no returns, particulars, registers or records are submitted,
furnished or maintained in accordance with the provisions
of section 44 or any Social Security Officer or other
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official of the Corporation referred to in sub-section (2) of
section 45 is 6 [prevented in any manner] by the principal
or immediate employer or any other person, in exercising
his functions or discharging his duties under section 45,
the Corporation may, on the basis of information available
to it, by order, determine the amount of contributions
payable in respect of the employees of that factory or
establishment:
[Provided that no such order shall be passed by the
Corporation unless the principal or immediate employer or
the person in charge of the factory or establishment has
been given a reasonable opportunity of being heard.]
[Provided further that no such order shall be passed by the
Corporation in respect of the period beyond five years
from the date on which the contribution shall become
payable.]
(2) An order made by the Corporation under sub-section
(1) shall be sufficient proof of the claim of the Corporation
under section 75 or for recovery of the amount determined
by such order as an arrear of land revenue under section
45B 2 [or the recovery under section 45C to section 45-I].
75. Matters to be decided by Employees’ Insurance Court.
–(1) If any question or dispute arises as to–
(a) whether any person is an employee within the meaning
of this Act or whether he is liable to pay the employee’s
contribution, or
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(b) the rate of wages or average daily wages of an
employee for the purposes of this Act, or
(c) the rate of contribution payable by a principal employer
in respect of any employee, or
(d) the person who is or was the principal employer in
respect of any employee, or
(e) the right of any person to any benefit and as to the
amount and duration thereof, or
[(ee) any direction issued by the Corporation under section
55A on a review of any payment of dependant’s benefits,
or]
*****
(g) any other matter which is in dispute between a
principal employer and the Corporation, or between a
principal employer and an immediate employer, or
between a person and the Corporation or between an
employee and a principal or immediate employer in
respect of any contribution or benefit or other dues payable
or recoverable under this Act
[or any other matter required to be or which may be
decided by the Employees’ Insurance Court under this
Act], such question or dispute
[subject to the provisions of sub-section (2A)] shall be
decided by the Employees’ Insurance Court in accordance
with the provisions of this Act.
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[Subject to the provisions of sub-section (2A), the
following claims] shall be decided by the Employees’
Insurance Court, namely:–
(a) claim for the recovery of contributions from the
principal employer;
(b) claim by a principal employer to recover contributions
from any immediate employer;
*****
(d) claim against a principal employer under section 68;
(e) claim under section 70 for the recovery of the value or
amount of the benefits received by a person when he is not
lawfully entitled thereto; and
(f) any claim for the recovery of any benefit admissible
under this Act.
[(2A) If in any proceedings before the Employees’
Insurance Court a disablement question arises and the
decision of a medical board or a medical appeal tribunal
has not been obtained on the same and the decision of such
question is necessary for the determination of the claim or
question before the Employees’ Insurance Court, that
Court shall direct the Corporation to have the question
decided by this Act and shall thereafter proceed with the
determination of the claim or question before it in
accordance with the decision of the medical board or the
medical appeal tribunal, as the case may be, except where
an appeal has been filed before the Employees’ Insurance
Court under sub-section (2) of section 54A in which case
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the Employees’ Insurance Court may itself determine all
the issues arising before it.
[(2B) No matter which is in dispute between a principal
employer and the Corporation in respect of any
contribution or any other dues shall be raised by the
principal employer in the Employees’ Insurance Court
unless he has deposited with the Court fifty per cent. of the
amount due from him as claimed by the Corporation:
Provided that the Court may, for reasons to be recorded in
writing, waive or reduce the amount to be deposited under
this sub-section.]
(3) No Civil Court shall have jurisdiction to decide or deal
with any question or dispute as aforesaid or to adjudicate
on any liability which by or under this Act is to be decided
by [a medical board, or by a medical appeal tribunal or by
the Employees’ Insurance Court].
77. Commencement of proceedings.–(1) The proceedings
before an Employees’ Insurance Court shall be
commenced by application.
[(1A) Every such application shall be made within a period
of three years from the date on which the cause of action
arose.
Explanation.–For the purpose of this sub-section,–
(a) the cause of action in respect of a claim for benefit
shall not be deemed to arise unless the insured person or in
the case of dependants’ benefit, the dependants of the
insured person claims or claim that benefit in accordance
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with the regulations made in that behalf within a period of
twelve months after the claim became due or within such
further period as the Employees’ Insurance Court may
allow on grounds which appear to it to be reasonable];
[(b) the cause of action in respect of a claim by the
Corporation for recovering contributions (including
interest and damages) from the principal employer shall be
deemed to have arisen on the date on which such claim is
made by the Corporation for the first time:
Provided that no claim shall be made by the Corporation
after five years of the period to which the claim relates;
(c) the cause of action in respect of a claim by the principal
employer for recovering contributions from an immediate
employer shall not be deemed to arise till the date by
which the evidence of contributions having been paid is
due to be received by the Corporation under the
regulations.]
(2) Every such application shall be in such form and shall
contain such particulars and shall be accompanied by such
fee, if any, as may be prescribed by rules made by the
State Government in consultation with the Corporation.
15.The scheme of the Act is comprehensive. In essence, it
provides for ESIC contribution to be made in respect of
such employees only who are covered by the provisions as
contained in Section 2(9) (10) and (14), and not all the
employees. A determination in this regard is therefore a
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must to proceed with any claim. Further, Sections 39, 44 &
45 of the Act empower the authorities concerned to
undertake examination of records of any organisation
which is covered under the Act as to the returns filed by it
or the contributions of covered employees deposited with
it. Safeguards of providing effective opportunity to be
heard to such organisations have also been in built in such
provisions. Section 45A is the consequential provision
which provides that if an organisation does not provide the
information as sought from the authorities in terms of the
foregoing provisions, then based upon the information the
department has, assessment can made against such
organisations. It is therefore seen that ESIC has been given
wide powers to make assessment in cases of organisations
who flout the law and must be rightly held accountable.
However, such powers are tempered down by the
provision itself in as far as it provides for the basis upon
which such assessment is to be made by stating that ‘based
upon the information’ the department has, effectively
entailing, that assessment amount required to be arrived at
must be objectively calculated, based upon ascertainable
criteria known to law. Howsoever lax an organisation may
be in ensuring compliance with the provisions of the Act,
the legislation is not meant to be made a punitive tool of
recovery by the department and only amounts due, validly
recoverable under the scheme of the Act are required to be
assessed. Sections 75 and 77 of the Act in fact provide a
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 22/38
way out as well and casts a duty upon the Insurance Courts
to examine all aspects of an assessment order to come to a
conclusion that the amount claimed is not arbitrary. It is
duty bound to evaluate the non compliance by a
recalcitrant organisation on one hand but equally on the
other, is also required to be vigilant and guard against
accepting assessments made at the whims of the
department.
16.The legal provisions governing the case at hand and their
scope and intent being as such, the Court now proceeds to
examine Issue No. 1 as to the sustainability of the
impugned assessment order. It is seen that except for the
ground that the basis on which the assessment was made
and the demand amount arrived at was completely
arbitrary and irrational, all other grounds raised by the
petitioner are liable to be repelled. The undersigned has
had the benefit of going through the much elaborate order
dated 31.10.2015 passed by the Ld. Predecessor at the time
whilst dealing with the aspect of deposit of amount u/s
75(2B), ESIC Act. All contentions raised by the petitioner
– Section 45A having been improperly invoked, show
cause notice being defective/having not been properly
served or not laying down complete details as to when and
where the petitioner was required to attend the hearing,
records of the petitioner having been lost/stolen, scope of
show cause notice having been later enlarged to include
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 23/38
vigilant complaints etc. – were considered by the Ld.
Predecessor and found to be not sustainable. On all these
aspects, no evidence also has been lead as such which may
allow this Court now to arrive at a different conclusion
except for the fact that the passport details/travel tickets of
the directors of the petitioner company were filed to show
that they were travelling out during the relevant period.
Such tickets are seen to be showing dates of travel to be
05.06.2013 whereas the endorsements on the passports
reflect the dates of 10.05.2013, 11.05.2013 and
06.06.2013. The hearings before the respondent were on
12.04.2013 and 29.05.2013 which clearly was much before
the dates of travel of the directors of the petitioner
company and therefore do not square up. It shall be in
fitness of things therefore to reproduce the relevant parts of
the order dated 31.10.2015 as follows :
“…..
9. I have heard the Ld. Counsel for both the parties
and perused the record carefully.
10. It was argued on behalf of Ld. Counsel for the
petitioner that the present case is not covered within
the scope of Section 45A of the Act as there were
no circumstances under Section 44 of the Act. The
respondent has now introduced a fresh ground in
their WS by claiming that the show cause notice
was issued so as to verify the authenticity of the
contribution paid by the employer. The said fact is
neither mentioned in the show cause notice or in the
impugned order. The impugned order is also
contradictory as the one hand it states that the
petitioner failed to produce any record and on the
other hand it records that the contribution has been
worked out on the basis of petitioner’s record. The
averment in the impugned order that no record was
submitted is rebutted as the copies of RCs (returnsESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 24/38
of contribution) were duly supplied those are the
documents only required to be maintained under the
Act. Ld. Counsel for the petitioner also placed
reliance upon the judgment of Hon’ble Delhi High
Court in case titled as M/s M.M Suri Vs. ESIC,
1997 ILR 201, Hindustan Time Ltd. Vs. ESIC, 36
(1988 DLT 135) and Hon’ble Patna High Court in
M/s Rocxy Cinema Vs. Bihar, 2013 LILR, 282.
11. It is not in dispute that the ESIC Act is a social
welfare legislation which has been designed in a
manner to protect the rights of the
workman/employees by providing them medical
facilities and other benefits. It puts an obligations
on the employers to pay certain amount of
contribution in the ESIC fund for the employees
covered under the Act. The employers are also
required to maintain certain record and furnish
returns in terms of Section 44 of the Act. Recently
the said issue of the employers not complying with
the said social piece of legislations was also
recently discussed by the Hon’ble Delhi High Court
in case titled as Virender Sangwan Vs. GNCT of
Delhi CWP No. 7320/15 dated 22.09.2015. In the
said back drop the case of the petitioner needs to be
appreciated.
12. The basis of the present case starts from the
show cause notice dated 21.03.2013 which was
issued by the respondent by stating that the
petitioner has failed to pay any contribution and
submit the return w.e.f. 03/2008 to 03/2012. The
petitioner also failed to produce any particulars of
the contribution of the above said period as well as
of the record. Therefore, the respondent was
constrained to make the assessment on ad hoc basis
on the basis of balance sheet. As per the said show
cause notice the opportunity of hearing as well as
furnishing the relevant record was given. The
petitioner was supposed to present his case on
12.04.2013 at 11:00 am with necessary documents.
Therefore the first ground on which the show cause
notice has been impugned that the show cause
notice does not record the date, time and place of
appearance of the authority where the petitioner
was supposed to appear is incorrect.
13. The second ground on which the order dated
06.06.2013 has been impugned is that it travels
beyond the scope of show cause notice 21.03.2013
and secondly the respondent has taken new groundESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 25/38
in the written statement which does not find
mention in the impugned order. In the written
statement a new ground has been raised by the
respondent that the record was sought as to verify
the authenticity of the contribution. The impugned
order as well as the show cause notice on the
contrary are completely silent on this regard.
14. The show cause notice is the basis on the basis
of which the impugned order dated 06.06.2013 has
been passed. It sought the record regarding
contribution from the year 2008 to 2012 which the
petitioner was asked to produce. Similarly, the
impugned order also records that a complaint was
received by the vigilance department on the basis of
which the area SSO was directed to investigate the
complaint and inspect the record. Therefore, to
assume that new ground has been taken by the
respondent in the written statement is
misinterpretation of the pleadings as well as the
scope of show cause notice dated 21.08.2013. The
object of the entire proceedings was to verify the
contribution record of the petitioner under the ESIC
Act. The documents were sought to be produced
and the said production was not mere a formality.
The object of the said requisition was only to verify
the record in terms of section 44 of the Act. Hence
it cannot be said any new ground has been taken by
respondent in written statement.
15. It was also argued on behalf of the petitioner
that the impugned order is contradictory as on one
hand it states that the petitioner failed to produce
the record and on the other hand it state that the
amount was worked out on the basis of petitioner’s
record.
16. The impugned order has been passed on the
basis of RC (returns of contribution), copies of
balance sheet, P & L Account and schedules
received from the office of registrar of companies.
The opportunity was given to the petitioner to
produce the relevant record of the period noted vide
show cause notice dated 21.03.2013. The said
notice was sent to the petitioner as well as both the
Directors of the company. Service of said notice is
not disputed as the same was sent through
registered cover. Further said show cause notice
also records the fact that the Insurance Inspector
who visited the premises of the petitioner on
08.10.2012 and they failed to produce the record.
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 26/38
Similarly the impugned order also records the fact
that opportunity of personal hearing as well as
production of record was fixed for 12.04.2013 but
the representation dated 09 of April was received
wherein only copies of returns of contribution of
the relevant period were filed. The petitioner was
also asked through letter dated 07.01.2013 to
produce the ITR of five years, copies of challans,
bank statements, PAN number and address of CA
which they again failed to do so. The respondent
while following the principles of natural justice
gave another opportunity of personal hearing for
29.05.2013 upon which the petitioner again failed
to appear and sent his representation stating that the
record has been lost.
17. Thus, in these circumstances the respondent was
left with no option but to call the record from
Registrar of Companies for working out the
contribution assessment. Therefore, the averment in
the impugned order that the assessment has been
done on the basis of record available has to be
appreciated.
18. The petitioner right from the beginning when
the area SSO visited the office of petitioner and
gave his report dated 08.10.2012 has claimed that
they have lost the entire record. They also claimed
that they have got registered FIR dated 26.03.2012
in this respect. On the basis of said plea, they were
unable to produce the record firstly before the area
SSO and secondly before the assessing authority.
The claim of the petitioner that they have lost the
entire record while shifting of their office prima
facie does not inspire the confidence and raises a
finger of suspicion. As per the NCR dated
26.03.2012 registered with P.S. Shakarpur that on
13.03.2012 while they were shifting the office they
lost official records and two computers. Firstly
there is delay of more than ten days in recording the
NCR for which no explanation has been furnished.
Secondly to presume that two computers to have
also been lost in the shifting is improbable. The
claim of the petitioner for loss of documents in
transit is probable but to assume that two complete
computers having all the hardware could be lost in
transit is improbable. If it has been lost then it is a
case of theft and not mere missing of articles. After
the registration of said NCR petitioner also got
published public notice in the newspaper which
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 27/38
records that apart from two computers soft as well
as hard copy of entire record has been lost. It is
hard to digest that the entire record for which the
soft copy is generally retained has also been lost in
transit. Till date, no action has been taken by the
petitioner company against the persons responsible
for transportation of the record as well as
computers, Further, surprisingly in the said NCR
though the petitioner has claimed that the entire
official record has been lost but the petitioner
produced the returns of contribution of the year
2008 to 2011 before the respondent which have also
been filed alongwith the petition. No explanation
has been furnished as to how the said documents
are still in possession of the petitioner despite the
fact that entire official record being lost as stated in
public notice. All the said facts raises a finger of
suspicion over the conduct of the petitioner who
seems to have deliberately not produced the record
before the assessing authority who was forced to
pass the order u/s 45A of the Act.
19. Lastly it was argued on behalf of the petitioner
that the manner in which the assessment has been
done in the impugned order is legally not
sustainable. Firstly, they were not authorized under
the provisions of section 44 of the Act to call for the
record and secondly the assessment done on the
basis of balance sheet is faulty. All the employees
of the petitioner are not covered under the purview
of the Act and hence they are not liable to
contribute for all the employees.
20. The object of the Act is to give certain
categories of employees medical facility etc. by
taking contribution from employers as well as the
employees. Section 2 (9) of the Act provides for the
category of employees for which the said facility is
extended. The employer is under the obligation
under the Act to maintain certain registers with
respect to the covered employees and file the
returns with the respondent. Section 44 and 45 of
the Act authorizes the respondent to call for the
records so as to ensure compliance of the
provisions. Therefore, the respondent herein upon
receiving the complaint, directed the area SSO to
inspect the record. As the petitioner failed to
produce the record he submitted his report and
consequently the show cause notice dated
21.03.2013 was issued. Therefore, the respondent
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 28/38
was having the authority under the Act to call for
the record in order to ensure the compliance of
beneficial provisions under the Act.
21. The second limb of the argument that all the
employees of the employer are not covered is the
correct interpretation and therefore, the assessment
done in the impugned order is appears to be faulty.
The said issue came up before the Hon’ble Delhi
High Court in case titled as Hindustan Times Ltd.
Vs. ESIC (supra) wherein it was held that the
determination of the contribution cannot be without
any basis under section 45 A of the Act. The words
determined the amount of contribution payable in
respect of employees appear after the words on the
basis of information available to it are quite
significant. To determine the amount of
contribution and fix the liability three things are
essential (i) employee, (ii) employers, where
principal or immediate, (ii) wages payable to the
employee. Therefore, all the said facts have to be
considered by the assessing authority while passing
of the order u/s 45 A of the Act.
22. In the case in hand the order prima facie seems
to have been passed on the basis of abstract
information i.e. copies of balance sheet, P & L
account etc. Neither the employees were identified
nor their wages for the period in question. The
respondent had all the authority under the Act to
call for the record or to visit the premises or to
examine any official | for reaching to said
conclusion. There seems to be some lack of
exercise of power by the assessing authority who
passed the order without identifying the
beneficiaries of the same. The other judgments
relied upon by petitioner are not relevant being
distinguishable on facts.
23. In view of abovesaid reason I am of considered
opinion that present application of the petitioner
deserves to be allowed but the petitioner is also
guilty of concealment of relevant material. Thus the
condition of waiving of deposit of 50% amount is
reduced to the extent of 25% only. In terms of
abovesaid order, the application is disposed off.”
17.The order as above is self explanatory and there is no
evidence adduced on record to deviate from the same or to
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 29/38
hold anything otherwise on all the aspects contained it,
except the issue of course with regards the basis on which
the demand raised by the impugned order was arrived at.
In fact, the show cause notice and the impugned order,
clearly delineates the chronology of events that had ensued
and repeated opportunities that had been given to the
petitioner. In view of the same, and considering the order
passed by the Ld. Predecessor at the time, the Court does
not deem it proper to dwell on such aspects afresh, they
clearly lie in favour of the respondent.
18.Coming now to the demand raised, it is seen that in the
show cause notice 21.03.2013 issued initially by the
respondent, based upon the information collected as per
the profit and loss account read with the balance sheet,
taking into account the total under several heads – Salary,
Business Promotion Wages, Overtime, Lab Charges, Staff
Welfare, Accounting Charges, Vehicle Running and
Maintenance, R&M – Machines and Office, Security
charges, Consultancy charges, Director remuneration,
Conveyance, Furniture and Fixtures, Building and Office
Equipment – contribution was calculated straight at @
6.5%. From such amount under each head, the amount
represented by the compliance already made at the
petitioner end was deducted and the final payable amount
of Rs. 1,31,22,192/- was arrived at. Such amount was
varied to 1,29,33,203/- in the impugned order and the said
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 30/38
amount was ultimately demanded from the petitioner as
final assessment amount. This court is constrained to note,
that the respondent is seen to have thrown to the winds as
it were, every notion of the principle of rational and
justified execution of vested power. In both the orders
above, absolutely no basis has been given as to how and
under what circumstances did the respondent arrive at the
number of eligible employees covered under the ESIC Act
within the meaning of Section 2(9)(10) read with Section
2(14) thereof for whom the petitioner was obliged to
deposit contribution. Absolutely no effort has been shown
to have been taken in that regard by the respondent based
on the information it had/gathered as to the exact/probable
number of the eligible employees covered under the ESIC
Act. It is noted in the show cause noted 21.03.2013, that on
08.10.2012 the Insurance Inspector had visited the
petitioner establishment as well. Even if the plea of the the
petitioner were to be taken at face value that it had lost all
the records, still, when the Insurance Inspectors had visited
the petitioner on 08.10.2012, they could have in the least
taken steps to make a head count as to the number of
eligible employees, but not to be. If that be so, there was
absolutely no basis for the respondent to make the
assessment it did since it did not have any idea as to the
number of employees in the petitioner establishment who
were covered under ESIC Act provisions. Petitioner has
examined its employees – PW2, PW4 to PW9 – who all
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 31/38
deposed as to the capacities in which they worked for the
petitioner company and proved on record their salary slips
as per which all of them earned a salary of an amount
taking them outside the purview of the ESIC Act, being
more than the minimum threshold. The respondent could
not assail the validity of any of such documents and
contradict the testimonies of such witnesses. Considering
the same, it stood established on record that not all the
employees of the petitioner establishment were eligible
employees for whom the petitioner was expected to make
contributions. The manner in which the respondent
however has taken into consideration all the amounts as
reflected in the profit and loss account and the balance
sheet, it is clear that they have taken into account the
amounts vis vis all the employees, which may indeed be
including the ones not covered by the ESIC Act as well. It
is a glaring inconsistency which shakes the very
foundation of the assessment made by the respondent vide
the impugned order. Further, the values for some of the
heads taken for computing the petitioner liability – say for
instance Director remuneration, Furniture and Fixtures,
Building and Office Equipment – have absolutely nothing
to do with the wages of the eligible employees, on behalf
of whom the petitioner company was required to make
contributions. The approach to take such amounts taken
into consideration for raising the demand looks patently
erroneous. The respondent has been unable to show to the
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 32/38
court any rational basis for including such amounts in
calculating the petitioner liability vide the impugned order.
Even further, it is also seen that the petitioner, through
PW3 proved on record ESI returns furnished for the
periods 01.04.2008 to 30.09.2008 (Ex. PW3/10),
01.10.2008 to 31.03.2009 (Ex. PW3/11), 01.04.2009 to
30.09.2009 (Ex. PW3/12), 01.10.2009 to 31.03.2010 (Ex.
PW3/13), 01.04.2010 to 30.09.2010 (Ex. PW3/14),
01.10.2010 to 31.03.2011 (Ex. PW3/15) AND 01.04.2011
to 30.09.2011 (Ex. PW3/16). All these reflect the amounts
paid as ESI Contributions by the petitioner and have not
been denied by the respondent. If that be so, such amounts
having been paid stand proved. In such a scenario, the
respondent was unable to explain as to how these amounts
do not match with the ones stated in the show cause notice
dated 21.03.2013 by the respondent as having been paid by
the petitioner. Such a contradiction is indeed damaging for
the respondent and short of any reconciliation made, the
petitioner argument that the respondent has not even
reflected the correct amounts already paid by the petitioner
seems to be fair, making the impugned order even more
unsustainable.
19.It is be noted that the procedure for assessment under
Section 45A of the ESI Act is for assessing the dues
payable under the Act which is for the benefit of
eligible/identified individuals within the meaning of
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 33/38
Section 2(9)(10) read with Section 2(14) of ESI Act,
whose wages are below the maximum prescribed
threshold. The first question would be whether those
individuals would be treated as employees of the
establishment for the purposes of compliances of the Act
or not. That is the first finding that is to be recorded by the
authorities. Then the amounts due, vis-à-vis each
employee, has to be quantified. Unless the nature of
employment and the names of employees are identified
with certainty, the assessment cannot be said to be in
accordance with law. The impugned order in the case at
hand also suffers from the said irregularity and is seen to
be laconic/oracular or delphic. Not only the blanket taking
into account of the amounts under various heads of the
profit and loss account and the balance sheet has not been
explained but also, it has not been specified therein as to
the number of employees which were found in the
petitioner establishment to be eligible/covered for being
afforded the benefit under the ESIC Act. It is true that the
respondent need not give detailed reasons as a Court of
law. But briefly, it must indicate how it arrived at the
amounts claimed from a party. In the present case in fact,
from the show cause notice issued earlier to the final
impugned order that came to be issued later, no reason has
been given for variation in the amounts as well. If the
respondent could not care less for stating clearly with
regards change in its own assessment amounts as
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 34/38
contained in the show cause notice and the impugned
order, it certainly would have been a rather tall order on its
part to explain the basis of the assessment made as a whole
in a proper manner. The conduct of the respondent is
therefore seen to be totally without any element of
determinative prudence that an authority of its kind is
expected to exercise. The least the respondent could do is
to disclose its mind. The compulsion of disclosure
guarantees consideration. The condition to give reasons
introduces clarity and excludes or at any rate minimises
arbitrariness; it gives satisfaction to the party against
whom the order is made; and it also enables the
Courts/Appellate or Supervisory Court to keep the
authorities such as the respondent within bounds. A
reasoned order is a desirable condition of judicial disposal.
When the Courts insist upon reasons, they do not prescribe
any particular form or the scale of reasons. The extent or
nature of the reasons depend upon each case. In the present
case however, the respondent is seen to have given no
reasons at all as to why all the amounts under various
heads were considered en masse to arrive at the demand
raised from the petitioner vide the impugned order, without
giving any number as to eligible employees and the
contributions attributable to them only. In view of the
same, the procedure adopted by the respondent did not
match with what justice demanded.
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 35/38
20.The ESIC Act itself is a piece of social legislation and as
the preamble to the Act would show it was meant to
provide for certain benefits to employees in case of
sickness, maternity and employment injury. Detailed
regulations have been framed under the Act to identify the
employees who would be entitled to the benefits under the
Act. They are to be registered and their contribution card
and identity card are to be prepared. An employee has,
therefore, to be identified in the records of the ESIC so that
he is entitled to claim various benefits. The amount of
contribution is not demanded merely to fill the coffers of
the ESIC. From the impugned order however, this Court is
unable to find the particulars of the employees on whom
the benefits under the Act were presumed to be bestowed.
There are no names and no amounts of wages payable to
them mentioned by the respondent or at least, no exercise
has been undertaken to find out such particulars either.
21.The words “on the basis of information available to it”, as
used in Section 45A, ESIC Act are also pregnant with
meaning as to how should the ESIC proceed for raising
demand. It has been held that these words no doubt would
appear to be of wide import but these have to be
understood in the context in which they have been used.
The determination of the contribution by the department
cannot be without any basis. The words “determine the
amount of contributions payable in respect of the
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 36/38
employees” appearing after the words “on the basis of
information available to it” are quite significant. To
determine the amount of contribution and to fix the
liability, three things are essential: (1) the employee, (2)
the employer whether principal or immediate, and (3) the
wages payable to an employee. Contribution is payable by
the employer at the rate specified in the First Schedule in
respect of the employees covered under the Act under
Section 39 of the Act. Rates are to be calculated with
reference to the wages payable to an employee. The
information on the basis of which contribution is to be
determined by the ESIC under Section 45A of the Act
must therefore, correlate to Section 39 of the Act.
(Hindustan Times Ltd. vs Employees State Insurance
Corporation 36 (1988) DLT 135) In the present case, the
respondent has determined the amount of contribution
payable by the petitioner without any reference to the
employees and the wages payable to them. The sum total
of the amounts mentioned under the profit and loss account
and the balance sheet as a whole cannot be taken as such
amounts by any stretch of the imagination, since by virtue
of the evidence led by the petitioner, there were obviously
some employees in the petitioner company, in the range of
100-150, who were outside the scope of the ESIC Act. The
respondent witnesses examined also had no idea as to how
the assessment amount was calculated in the manner that it
was as they were merely formal witnesses. Even they
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 37/38
could therefore not come to the aid of the respondent case
which faltered at each step.
RELIEF
22.All in all therefore, this Court is of the view that the
impugned order passed by the respondent has not adopted
the proper course vis a vis the procedure adopted for
computing the demand amount. The same is indeed
arbitrary and hence, not sustainable. Accordingly, it is set
aside and Issue No. 1 is decided in favour of the petitioner
against the respondent.
23.Needless to say, the respondent shall be at liberty to make
assessment afresh in accordance with law based upon the
principles highlighted above.
24.No costs.
Decree-sheet be prepared accordingly.
File be consigned to Record Room after necessary
compliance.
Digitally signed
by GAURAV
SHARMA
Announced in the open Court GAURAV Date:
SHARMA 2025.04.30
on 30.04.2025 16:49:09
+0530
(Gaurav Sharma)
JSCC-cum-ASCJ-cum-Guardian Judge
East/KKD Courts/Delhi
30.04.2025
ESIC 12/2023
G.L. Management Services Pvt. Ltd. Vs. Employees State Insurance Corporation
Pg. No. 38/38
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