PROBABLE PERCENTAGE THEORY

[Mr. M. GOVINDARAJAN]

In ‘S.P. Saraswathy Traders, Rep. B. its Proprietor P. Periasamy, Erode and others V. Regional Director, ESI Corporation, Chennai – 34’ – 2016 (1) TMI 905 - MADRAS HIGH COURT the 20^th petitioner is M/s Seshasayee Paper and Board Limited who is the principal employer and manufacturing papers and board at Pallipalayam.    There were 1700 permanent workers covered under the ESI Act.  The Principal employer used to engage independent contractors for various activities and the contractors used to engage their own men to carry out the jobs.  The petitioners 1 to 19 are the contractors engaged by the 20^th petitioner.  The said contracts  are registered under the Contract Labor Regulation and Abolition Act.

The Principal employer used to effect contribution to ESI on the quantum of labor employed and the wages paid to them based on the information given by the contractors and the section officers of the principal employer.  The Principal employer was served with the notice dated 27.01.1998 by the Department as to why ESI contribution should not be recovered on ₹ 1,45,09,700/- representing feeding charges relating to the period from October 1986 to March 1992 paid by the Principal employer @ 7.25% which comes to ₹ 10,51,953/-.  The Principal employer contended the case.  The Deputy Director of ESI Corporation passed an order under Section 45-A of the ESTI Act stating that the contribution payable by the principal employer is 90% of the amount paid to the contractors treating the balance 10% as margin for the contractors and incidental expenses.  The Department demanded contribution of ₹ 9,46,758/- less ₹ 4,96,268.15 together with interest, on the ground that the calculation of the principal employer was based on the theory of probable percentage of labor charges.

Aggrieved against the order appeal was filed before the Labor Court.  After due contest the Labor Court found that the circular dated 26.06.1982 issued by the respondent was not applicable to the principal employer and the principal employer though has been maintaining separate records for the amount paid under different headings to the contracts not produced the same before the Department and the appeal was dismissed.

Against this order the petitioners approached the High Court.   The petitioners contended that the contribution payable by the principal employer is only upon 25% of the total amount paid by wages to the contractors as per the guidelines issued by ESI on 26.06.1982.  The High Court framed the issue to be decided in this case as to whether the guidelines dated 26.06.1982  is applicable to the facts of the present case.  The High Court found that the memorandum dt 26.06.1982 is in the nature of clarification of the memo  dated 16.11.1981.  According to this where the employer is unable to give the details separately for the payment made towards labor charges, cost of material, share of profit etc., the Regional Director may assume 25% of such bills towards labor charges and recover contribution thereon.  This is applicable only in cases of relating to the payment relating to repair/maintenance etc., of the factory/establishment building.  The memorandum dated 26.06.1982 would clarify that the bill includes apart from labor charges, cost of material, profit etc of the contractor or the person  doing the job and this adoption of 25% is applicable only when the principal employer is not in a position to produce any relevant records in regard to wage elements in the bills.

During the course of  argument the Department contended that while claiming contribution according to these instructions, the employer may be specifically told that the assessment has been made as a special case and he should in future cover all such employees and pay contributions in accordance with ESI Act and regulations, otherwise the contributions  will be charged on the full amount booked in the accounts books.  The High Court is of the opinion that the applicability of the memorandum dated 26.06.1982 is applicable for one time and not for every year.

The High Court held that the Labor Court  has after duly analyzing and appreciating the pleadings raised on both sides and the proof adduced by way of oral and documentary evidence, rightly arrived at the conclusion that the petitioners case is not one where the employer is enable to give the details about the payment made towards labor charges, material costs etc., so as to attract the circular dated 26.06.1982 and the petitioners case is not covered under the memorandum dated 26.06.1982.  But it is the case wherein the principal employer is maintaining records relating to the payments made and split up details but failed to produce the same before the ESI Corporation during enquiry.  Though the petitioners would rely on the earlier orders made by the High Court for adopting 25% theory for the same company, the theory cannot be adopted for contribution payable for every year as clarified in the memorandum dated 26.06.1982.  That being so, the High Court held, that the adoption of 25% on the total bill amount for assessing the quantum of contribution payable is not applicable to the present case and it is a fit case wherein probable percentage is rightly applied.

The High Court held that there is no fault in probable percentage theory applied by the labor court for want of particulars about the exact payments made and the impugned order hence calls for no interference.