2025 (4) TMI 1178 - SC - Indian Laws

Liability under the Employees State Insurance Act 1948 - post of General Manager or Principal Employer - case of appellant is that the liability was on the Company for making payments to the ESIC therefore he could not be charged much less convicted for an offence under the Act - HELD THAT - The High Court rightly indicated that non-remittance of the contribution deducted from the salary of an employee to the ESIC is a offence under Section 85(a) of the Act and punishable under Section 85(i)(a) of the Act but the Trial Court had imposed a lesser sentence as provided under Section 85(i)(b) of the Act. This is clearly borne out by 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/- since the amount had been deducted from the salaries of the employees and not paid which is the fact in the present case whereas under Section 85(i)(b) of the Act sentence of imprisonment is not less than six months and with fine of Rs.5, 000/- in other cases. Of course 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 where despite contributions having been deducted from the employees salaries they were not deposited with the ESIC. In A K Abdul Samad 2016 (3) TMI 1488 - SUPREME COURT the question before the Court was as to whether discretion had been granted only to reduce the sentence of imprisonment for a term lesser than six months or whether it encompassed discretion to levy no fine or a fine of less than five thousand rupees. Answering the said question the Court held that There is no discretion of awarding less than the specified fee under the main provision. It is only the proviso which is in the nature of an exception whereunder the court is vested with discretion limited to imposition of imprisonment for a lesser term. Conspicuously no words are found in the proviso for imposing a lesser fine than that of five thousand rupees. In such a situation the intention of the legislature is clear and brooks no interpretation. The law is well settled that when the wordings of the statute are clear no interpretation is required unless there is a requirement of saving the provisions from vice of unconstitutionality or absurdity. Neither of the twin situations is attracted herein. The decision in A K Abdul Samad thus is of no help to the Appellant. While the fine awarded and affirmed by the Courts below is upheld we are not convinced to substitute the term of imprisonment to be operative only for a day till the rising of the Court. The Appellant is directed 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. The exemption from surrendering granted by order dated 18.03.2024 stands withdrawn. The appellant shall surrender before the Trial Court within two weeks from today. Conclusion - i) The Appellant is rightly held liable as the General Manager and Principal Employer under the Act. ii) The Appellant s conviction under Section 85(i)(b) of the Act for failure to remit deducted ESI contributions is justified and sustained. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Appellant held the position of 'General Manager' and/or 'Principal Employer' of the Respondent Company during the relevant period, thereby attracting liability under the Employees' State Insurance Act, 1948 (hereinafter 'the Act').

- Whether the Appellant was criminally liable for failure to deposit Employees' State Insurance (ESI) contributions deducted from employees' wages with the Employees' State Insurance Corporation (ESIC) under Section 85(a) of the Act.

- Whether the evidence on record sufficiently established the Appellant's designation and responsibility to remit the deducted contributions.

- Whether the prosecution was justified in initiating criminal proceedings against the Appellant despite the Respondent Company being declared a sick industry and the availability of regulatory provisions for recovery and waiver of dues.

- The applicability and interpretation of Section 85(i)(a) and Section 85(i)(b) of the Act regarding sentencing for failure to pay contributions deducted from employees' wages.

- The relevance and effect of the Appellant's subsequent payment of dues on his criminal liability.

- Whether the Appellant was entitled to any leniency or reduction in sentence, including the possibility of substituting imprisonment for a nominal period.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Appellant's Designation and Liability as 'General Manager' and 'Principal Employer'

The legal framework centers on the definition of 'principal employer' under Section 2(17) of the Act, which includes, inter alia, the owner or occupier of a factory, managing agent of such owner or occupier, or any person responsible for supervision and control of the establishment. The designation of a person as 'General Manager' or 'Principal Employer' is material but not decisive if the person exercises supervisory control or acts as managing agent.

The Court noted concurrent findings by the Trial Court, First Appellate Court, and High Court that the Appellant was described in the Respondent Company's records as General Manager and Principal Employer. The Appellant failed to produce documentary evidence such as appointment letters or pay slips to contradict this status. Furthermore, the Appellant did not disclose who else held these positions during the relevant period, undermining his claim of non-liability.

The Appellant's reliance on judgments distinguishing liability of directors under the Factories Act was rejected. The Court clarified that those precedents do not override the specific provisions of the Employees' State Insurance Act. The residuary clause in Section 2(17)(iii) applies to any person responsible for supervision and control, thus encompassing the Appellant's role.

The Court held that, based on the evidence, the Appellant fell within the ambit of 'principal employer' and was liable for compliance with the Act.

Issue 2: Criminal Liability for Non-Remittance of Deducted Contributions

Section 85(a) of the Act criminalizes failure to pay any contribution which a person is liable to pay, particularly when the contribution has been deducted from employees' wages. The Trial Court convicted the Appellant under Section 85(i)(b) of the Act, which prescribes imprisonment of not less than six months and a fine of Rs.5,000 for such offences.

The prosecution's evidence included the ESIC officials' report confirming that Rs.8,26,696/- was deducted from employee wages but not deposited with ESIC. The Appellant's name appeared as General Manager and Principal Employer in the report.

The Appellant contested the reliability of the ESIC report, noting that the official who prepared it was not produced for cross-examination. However, the Court found no merit in this objection, as the report was corroborated by other evidence and the Appellant had ample opportunity to challenge it or produce contrary documents, which he failed to do.

The Court affirmed that the offence was established beyond reasonable doubt, given the admitted deduction and non-remittance of contributions.

Issue 3: Effect of the Company's Sick Status and Regulatory Provisions on Criminal Proceedings

The Appellant argued that as the Respondent Company was declared a sick industry by the Board for Industrial and Financial Reconstruction (BIFR), and given the provisions under Regulation 31-C of the Employees' State Insurance (General) Regulations, 1950, the ESIC should have pursued recovery through civil penalties or waivers rather than criminal prosecution.

The Court acknowledged the regulatory scheme allowing ESIC discretion to waive or reduce damages in cases of sick companies but held that such provisions do not preclude criminal prosecution for non-payment of deducted contributions. Reliance was placed on a Madras High Court decision confirming that declaration of sickness under the Sick Industrial Companies Act does not bar criminal proceedings under other statutes.

The Court emphasized that the Act's penal provisions are designed to create deterrence and protect employees' interests, and criminal liability is not negated by the company's financial distress or regulatory status.

Issue 4: Sentencing under Sections 85(i)(a) and 85(i)(b) of the Act

Section 85(i)(a) prescribes a minimum imprisonment of one year and a fine of Rs.10,000 where the failure to pay relates to employees' contributions deducted from wages, while Section 85(i)(b) prescribes a lesser sentence of six months and Rs.5,000 fine for other cases.

The Trial Court convicted the Appellant under Section 85(i)(b), imposing six months' imprisonment and Rs.5,000 fine, which was upheld by the appellate courts. The High Court noted this was a lenient sentence given the facts.

The Appellant sought further leniency, requesting that the imprisonment be substituted by a nominal period, citing a Supreme Court precedent. The Court analyzed the precedent and clarified that while courts have discretion to reduce imprisonment terms under the proviso, the fine prescribed is mandatory and cannot be reduced.

The Court declined to reduce the imprisonment term to a nominal period, underscoring the seriousness of the offence and the need for deterrence.

Issue 5: Effect of Subsequent Payment of Dues by the Appellant

The Appellant contended that he paid the entire ESIC dues after the Impugned Order and before filing the Special Leave Petition, which should mitigate his criminal liability.

The Court noted the payment but held that subsequent payment of dues does not absolve criminal liability already established for the offence committed during the relevant period. The payment may be relevant for sentencing but does not negate the conviction.

3. SIGNIFICANT HOLDINGS

"Section 2(17) of the Employees' State Insurance Act, 1948 defines 'principal employer' to include not only the owner or occupier of the factory but also the managing agent or any person responsible for the supervision and control of the establishment. Therefore, designation alone is not determinative; the actual control and responsibility are crucial."

"Non-remittance of contributions deducted from employees' wages to the ESIC is a criminal offence under Section 85(a) of the Act. The prosecution must establish deduction and failure to remit, which was clearly done in this case."

"The provisions of the Employees' State Insurance (General) Regulations, 1950 allowing for waiver or reduction of damages in cases of sick companies do not bar criminal prosecution for failure to remit deducted contributions."

"The minimum fine prescribed under Section 85(i) of the Act is mandatory and courts have no discretion to impose a lesser fine once the offence is established. However, courts may exercise discretion to reduce the term of imprisonment under the proviso to Section 85(i)."

"Subsequent payment of dues does not absolve the accused of criminal liability for the offence committed during the relevant period."

"Concurrent findings of fact by the Trial Court, First Appellate Court, and High Court that the Appellant was the General Manager and Principal Employer, and liable for non-payment of ESI contributions, are entitled to deference and do not warrant interference."

Final determinations:

- The Appellant was rightly held liable as the General Manager and Principal Employer under the Act.

- The Appellant's conviction under Section 85(i)(b) of the Act for failure to remit deducted ESI contributions was justified and sustained.

- The sentence of six months imprisonment and Rs.5,000 fine was appropriate; no reduction in fine was permissible, and no substitution of imprisonment for a nominal period was warranted.

- The appeal was dismissed, and the Appellant was directed to serve the sentence and pay the fine as awarded.