The Bombay High Court has held that an order levying damages under Section 85-B of the Employees’ State Insurance Act, 1948 (ESI Act) cannot be set aside on the grounds of being ‘mechanical’ if the adjudicating authority has considered the specific submissions made by the employer in response to the show cause notice. The Court clarified that the onus is on the employer to plead specific mitigating factors (such as the number of defaults, extent of delay, etc.) before the authority.
The Court emphasised that it cannot subsequently fault the authority for not considering factors that were never raised, and that the judicial power to interfere with the quantum of damages is discretionary and should not be exercised in cases where the employer has not provided compelling reasons for the default and where there is evidence of malafide intention.
A Single Judge Bench of Justice Jitendra Jain found the Employees State Insurance Court’s (ESI Court) observation that the order under Section 85-B was passed mechanically to be incorrect. The Bench noted that the original order had provided detailed reasons for not accepting the submissions made by the respondent.
The Bench observed that the respondent had not raised factors such as the number of defaults, extent of delay, or frequency of defaults in its reply to the show cause notice. Therefore, the ESI Court could not expect the appellant to have considered these factors, and the respondent should have pleaded these points if they wanted the benefit of such considerations.
The Bench noted clear evidence of malafide intention on the part of the respondent, as an inspection revealed that the wage and attendance records were manipulated and did not reflect the correct employment position. Further investigation showed that a wage register for the year 1997 was prepared in 2001 on forms bearing a 7-digit phone number, which was only introduced in 1999.
The Bench opined that the appellant had exercised its discretion judiciously, and the damages levied of Rs. 27,849 were significantly lower than the maximum permissible amount, which could be up to the amount of arrears of Rs. 96,705. Further, the appellant had already taken a liberal view by considering the due date of contribution from the date of the visit notice rather than the actual due date.
Therefore, while acknowledging that a court can interfere with the quantum of damages, the Bench clarified that such discretion must be exercised based on the specific facts of the case and the reasons advanced by the employer.
Briefly, the appellant, the Employees’ State Insurance Corporation (ESIC), passed an order under Section 85-B of the Employees’ State Insurance Act, 1948 (ESI Act), levying damages of Rs.27,849 against the respondent. This was done in response to the respondent’s failure to pay arrears of contribution amounting to Rs. 96,705. Before levying the damages, the respondent was given an opportunity to be heard, during which they made a verbal request for payment in instalments and claimed that they would have taken a loan to pay the entire contribution at once had they known damages would be levied.
Later, an inspection by the appellant revealed that the respondent’s attendance and wage records did not reflect the actual employment position, indicating a deliberate attempt to mislead the Corporation. The respondent challenged the appellant’s order before the Employees State Insurance Court (ESI Court), which quashed the order levying damages. The ESI Court held that the order was passed in a mechanical manner without applying mind to factors such as the number of defaults, extent of delay, and frequency of defaults.
Appearances:
Advocate Mayuresh Nagle, for the Appellants
Advocate Rutwij Bapat, for the Respondent
