2006 (7) TMI 580 - SC - Companies Law

Notification dated 23.12.1996 challenged which was issued by the Union of India by which the Central Government amended Rules 50, 51 and 54 of the Employees State Insurance (Central) Rules, 1950, pursuant to which the wage limit for coverage of an employee under Section 2(9)(b) of the Employees State Insurance Act was enhanced from Rs.3,000/- to Rs.6,500/- instead of the existing wage ceiling of Rs.3,000/- p.m. Held that - The ESI Act has enacted to provide for certain benefits to employees in case of sickness, maternity and employment injury. Under the scheme of the Act, function of the ESI Corporation is to derive insurance fund from the contribution from employees and workmen. The employer is entitled to recover workmen s share from the wages of the workmen concerned. The act of Court can prejudice no party either the ESI or the respondent-companies. We, therefore, relieve the respondents from making any contributions for the period in question and direct them to make the contribution as directed by the Division Bench of the High Court. It is stated that some of the respondents have already filed exemption applications and that the appellant-Corporation has also granted them necessary relief. We also permit the other respondents who have not filed any exemption application may now file the same and if such application for exemption is filed, it is for the authorities to consider the same on merits and in accordance with law. For the foregoing reasons, we dismiss all the appeals filed by the appellant-Corporation in the peculiar facts and circumstances of the cases. The High Court while upholding the Notification has held that the same would apply from the date of the judgment.

Issues Involved:
1. Validity of the Notification dated 23.12.1996 enhancing the wage limit for coverage under the Employees State Insurance Act.
2. Applicability of the Notification from its date of enforcement or from the date of the High Court judgment.
3. Principle of prospective overruling and its applicability to the case.
4. Hardship to employers due to retrospective application of the Notification.
5. Compliance with interim orders and provision of medical benefits by employers.
6. Exemption applications filed by employers under the Act.

Issue-wise Detailed Analysis:

1. Validity of the Notification dated 23.12.1996:
The Notification issued by the Union of India amended Rules 50, 51, and 54 of the Employees State Insurance (Central) Rules, 1950, enhancing the wage limit for coverage under Section 2(9)(b) of the Employees State Insurance Act from Rs. 3,000 to Rs. 6,500. Various Employees Associations challenged the Notification, seeking its quashing and declaring the Amended Rules as ultra vires. The learned Single Judge of the High Court quashed the amendment, but the Division Bench of the High Court upheld the Notification, stating that the enhancement could not be termed as ultra vires or inconsistent with the Act.

2. Applicability of the Notification:
The Division Bench directed that the employers implement the amendment only from the date of the High Court judgment (16.03.2004) despite the amendment coming into operation on 01.01.1997. The Corporation argued that the Notification should be applicable from its date of enforcement, citing the case of Employees' State Insurance Corpn. Vs. Kerala State Handloom Development Corpn. Employees Union (1994) 1 SCC 268, which supports the retrospective application of such notifications.

3. Principle of Prospective Overruling:
The Corporation contended that the principle of prospective overruling, first laid down in I.C. Golak Nath & Ors. vs. State of Punjab & Anrs., [1967] 2 SCR 762 and reiterated in Managing Director, ECIL, Hyderabad vs. B. Karunakar and Others, (1993) 4 SCC 727, does not apply to the present case. The High Court, however, applied this principle to avoid unsettling the settled positions and to prevent administrative chaos. The Supreme Court has also applied this principle in various cases to ensure justice and equity.

4. Hardship to Employers:
Employers argued that they had already provided medical facilities to employees during the period of the interim stay and that making them pay ESI contributions retrospectively would cause undue hardship. The High Court considered these submissions and directed that contributions be made prospectively from the date of the judgment, thus preventing undue hardship to employers who had complied with the Court's interim orders.

5. Compliance with Interim Orders:
Employers complied with the interim orders of the High Court, which restrained them from deducting ESI contributions from employees' wages. They provided medical benefits to employees during this period, as evidenced by statements of expenditure and affidavits submitted by various companies. The Supreme Court acknowledged that employers should not suffer due to compliance with Court orders and that it would be unfair to impose retrospective liability on them.

6. Exemption Applications:
Several employers had filed exemption applications under Sections 87 to 91A of the Act, seeking relief from the provisions of the ESI Act. The High Court directed the State Government to dispose of these applications within two months. The Supreme Court upheld this direction, allowing employers to seek exemptions and ensuring that the authorities consider such applications on merits and in accordance with law.

Conclusion:
The Supreme Court dismissed the appeals filed by the Corporation, upholding the High Court's judgment that directed the implementation of the Notification prospectively from the date of the judgment. The Court recognized the undue hardship that would be caused by retrospective application and acknowledged the compliance of employers with interim orders. The decision emphasized the principles of justice, equity, and good conscience, ensuring that no party suffers due to the acts of the Court. The Court also allowed employers to file exemption applications and directed the authorities to consider them on merits.

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