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CONSEQUENCES OF NON-RECOVERY AND NON-REMITTANCE OF ‘ESIC’ DUES RECOVERED FROM THE EMPLOYEES BYTHE PRINCIPAL EMPLOYER. |
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CONSEQUENCES OF NON-RECOVERY AND NON-REMITTANCE OF ‘ESIC’ DUES RECOVERED FROM THE EMPLOYEES BYTHE PRINCIPAL EMPLOYER. |
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Section 2(17) of the Employees State Insurance Act, 1948 (‘Act’ for short) defines the expression ‘principal employer’ as-
Non-remittance of the contribution deducted from the salary of an employee to the Employees State Insurance Corporation (‘ESIC’ for short) is an offence under Section 85(a) of the Act and punishable under Section 85(i)(a) of the Act which provides for a sentence of not less than one year imprisonment and fine of Rs.10,000/-. The Court may, for any adequate and special reasons to be recorded in the judgment, impose a sentence of imprisonment for a lesser term. If the Principal employer fails to deduct and remit the amount to the Department will be punished under Section 85(1)(a) of the Act. In ‘Anjay Raj Shetty v. Director and Electrix (India) Limited’ – Criminal Appeal No. 2036 of 2025 – Supreme Court, decided on 17.04.2025, the Electrix (India) Limited (‘Company’ for reference) was declared as a sick company on 31.10.2001 by the Board of Industrial and Financial Reconstruction (‘BIFR’ for short). The BIFR on 24.09.2002 ordered for a change in the management of the company. The company, being aggrieved against this order, filed an appeal before the Appellate Authority for Industrial and Financial Reconstruction (‘AAIFR’ for short). The AAIFR dismissed the appeal. The company filed a writ petition before the High Court in which the ESIC was added as a party. The High Court remanded the matter back to BIFR to consider the matters expeditiously and to consider the interests of all the parties. The High Court quashed the orders of BFIR and AAIFR. BFIR directed the company on 01.07.2010 to negotiate with the secured creditors for settlement of their dues. The ESIC officials visited the premises of the company and prepared a report. In the report it was indicated that even though Rs.8,26,926/- from the wages of the employees of the company for the period from 01.02.2010 to 31.12.2010 was recovered the same was not paid with the Department. In the report the company indicated that Anjay Raj Shetty as the General Manager and Principal Employer of the company. The Department filed a complaint, based on the report under Section 85(a) of the Act against the company and the appellant, Anay Raj Shetty, before the Special Court for Economic offences, Bangalore on 11.10.2011. The Court convicted the appellant on 28.09.2013 under Section 85(i)(b) which provides for lesser punishment. The Court sentenced him to undergo imprisonment for 6 months and also imposed penalty of Rs.5000/-. Against this order the company and the appellant in this case, filed an appeal before the Principal City Civil and Sessions Judge, Bangalore. The Appellate Court upheld the lower Court and dismissed the appeal on 14.11.2014. Against this order both filed the revision petition before High Court. The High Court dismissed the Revision petition on 08.12.2023. The High Court held that the evidence clearly showed that the appellant was the General Manager and Principal Employer of the Company. The High Court confirmed that deduction was made from the wages of the employees and not remitted with the Department. Against the order of High Court, the appellant filed the present appeal before the Supreme Court. The appellant submitted the following before the Supreme Court-
The following are submitted by the Department before the Supreme Court-
The Department, therefore, prayed the Supreme Court to dismiss the appeal. The company submitted the following before the Supreme Court-
The Supreme Court heard the submissions of the appellants and respondents to the present appeal. The Supreme Court observed that the appellant had not been appointed as General Manager by the company and he is not the principal employer. But the appellant was not able to show that he did not hold such post on the basis of his appointment letter, pay slips etc. Further the appellant did not deny that he was employed with the company. The Supreme Court analysed the provisions of Section 2(17) of the Act which defines the expression ‘principal employer’. The Supreme Court observed that it is clear from the definition of ‘principal employer’ under the Act ‘the managing agent’ will also include within the definition. The ‘principal employer’ will include any person responsible for the supervision and control of the establishment. Therefore, the designation of a person can be immaterial if such person otherwise is an agent of the Owner/Occupier or supervises and controls the establishment in question. The Supreme Court was of the view that the appellant falls within the ambit of Section 2(17) of the Act, being a ‘managing agent’. The Trial Court could have given a lesser sentence even for an offence under Section 85(i)(a) of the Act under the proviso to Section 85(i) of the Act. Overall, the High Court did not feel the necessity to interfere in the lesser sentence awarded by the Trial Court. Thus, we find that the conviction and the sentence does not require any interference, much less in the present case, despite contributions having been deducted from the employees’ salaries, they were not deposited with the ESIC. The Supreme Court dismissed the appeal being devoid of merits. The Supreme Court directed the appellant to undergo the sentence after setting off the period already undergone, if any and pay the fine, if not already paid, as awarded by the Trial Court.
By: DR.MARIAPPAN GOVINDARAJAN - April 22, 2025
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