1993 (1) TMI 310 - SC - Indian Laws

Summary

Issues Involved:
1. Applicability of the Employees' State Insurance Act, 1948, to the respondent-establishment.
2. Liability for contribution under the Act for the period from 11.7.85 to 31.3.88.
3. Validity of recovery proceedings initiated after the closure of the establishment.
4. Adequacy of the opportunity provided to the respondent to contest the liability.

Detailed Analysis:

1. Applicability of the Employees' State Insurance Act, 1948:
The respondent, a hotel situated in Kaloor, Cochin, obtained a Bar license in July 1985 and was subsequently closed on 31.3.88. The appellant's Insurance Inspectors verified the records and reported that the employment strength was more than 19 as on 17.7.85, thereby provisionally treating the establishment as covered under the Employees' State Insurance Act, 1948 (the Act) with effect from 11.7.85. The respondent contended that it never employed 20 or more persons during the relevant period. However, the inspections conducted on 8.12.86, September 87, and October 87 contradicted this claim, establishing that the provisions of the Act were indeed applicable to the respondent-establishment.

2. Liability for Contribution:
The primary issue was whether the respondent was liable for contributions under the Act for the period from 11.7.85 to 31.3.88. The appellant argued that the liability arose during this period, and the closure of the establishment on 31.3.88 did not absolve the respondent of this liability. The Court emphasized that under Section 40 of the Act, the principal employer is liable to pay both the employer's and the employee's contributions, which can be deducted from the employees' wages. The Court rejected the respondent's argument that it could not be held liable since it had not deducted the employees' contributions, highlighting that the employer acts as a trustee for these contributions.

3. Validity of Recovery Proceedings Post-Closure:
The High Court had upheld the Insurance Court's finding that the respondent failed to comply with the Act's provisions at the appropriate time but ruled that recovery proceedings initiated after the closure of the establishment were unjustified. The Supreme Court disagreed, stating that accepting such a finding would allow employers to evade their statutory liabilities by closing down their businesses before recovery. The Court clarified that the liability to contribute arose from the commencement of the establishment and continued until its closure. The timing of the notice (23.6.88) after the closure (31.3.88) was deemed irrelevant as the liability pertained to the period before the closure.

4. Adequacy of Opportunity to Contest Liability:
The respondent argued that it was not afforded a reasonable opportunity to contest the liability, as required under Section 45-A of the Act. However, the Court noted that multiple notices and opportunities were provided, including Form C-18 dated 23.6.88, a show cause notice dated 3.8.88, and a reminder dated 22.9.88. The respondent's failure to respond adequately to these notices led to the conclusion that due process was followed.

Conclusion:
The Supreme Court concluded that the respondent was liable for contributions under the Act for the period from 11.7.85 to 31.3.88, irrespective of the establishment's closure on 31.3.88. The Court set aside the High Court's judgment and upheld the appellant's right to proceed with recovery proceedings. The appeal was allowed with costs, reinforcing the principle that statutory liabilities under beneficial social security legislation cannot be circumvented by closing down an establishment.