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TMI BlogCONSEQUENCES OF NON-RECOVERY AND NON-REMITTANCE OF ‘ESIC’ DUES RECOVERED FROM THE EMPLOYEES BYTHE PRINCIPAL EMPLOYER.X X X X Extracts X X X X X X X X Extracts X X X X ..... CONSEQUENCES OF NON-RECOVERY AND NON-REMITTANCE OF ‘ESIC’ DUES RECOVERED FROM THE EMPLOYEES BYTHE PRINCIPAL EMPLOYER. X X X X Extracts X X X X X X X X Extracts X X X X ..... or where no authority is so appointed, the head of the department; * in any other establishment, any person responsible for the supervision and control of the establishment. 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed 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 appellant was appointed during the year 2009 to the post of Technical Co-ordinator, whereas the BFIR proceedings were started during 2001. * The appointment order was not given by the company. * Being the company was sick, salary was not drawn to the appellant. * The burden is on the prosecution side to prove that the appellant was appointed as General Manager which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on the report given by ESIC. * The said report cannot be relied since the persons preparing the report was not produced before the Court for cross examination by him. * The prosecution lodging case against the Appellant for contravening Section 85(a) of the Act is erroneous as there is no such averment, either in the complaint or in the evidence that it was the Appellant who had deducted the contribution from the wages of the employees and had failed to deposit the same with the Department. * The Appellant paid the entire dues to the Department after the Impugned Order and at the time of filing Petition for Special Leave to Appeal before the Supreme Court, hence prayed for his acquittal. * In the Counter affidavit the depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment said that the Appellant was working only as a 'Technical Coordinator' in the Company and one Ajit Hegde was the Principal Employer of the company at the relevant time. * It is at the discretion of the ESIC to either waive off such damages or to reduce the same by up to 50%. * Being the company was declared as a sick company the Department ought to have adopted a more liberal approach instead of pressing for criminal prosecution. The following are submitted by the Department before the Supreme Court- * The Appellant had a chance to produce documents to show that he was only a 'Technical Coordinator'. * The Appellant also had an opportunity to produce wage-slips or pay-slips to show his status, and the same was not done. * T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant also made no efforts to summon any relevant documents from Respondent No.2. * An order declaring a company sick under the Sick Industrial Companies (Special Provisions) Act, 1986 did not prohibit criminal proceedings against such company, under Sections 22(1) or 22A thereof. * Despite there being sufficient evidence against the Appellant, he was convicted under Section 85(i)(b) of the Act and not under Section 85(i)(a) of the Act, thereby giving him a lesser sentence. The Department, therefore, prayed the Supreme Court to dismiss the appeal. The company submitted the following before the Supreme Court- * The Appellant after completing Engineering course without any industrial experience joined as 'Technical Coor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinator' in the Company in July, 2009 and worked up to April 2011. * He was only a Technical Coordinator and never acted as Principal Employer nor as General Manager. * One of the promoters of the Company is the Principal Employer, namely Mr. Ajit Hegde. * After the BIFR was dissolved by the Central Government (in 2016), the Company cleared the dues and made a one-time full and final settlement with all its employees. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny and pay the fine, if not already paid, as awarded by the Trial Court. X X X X Extracts X X X X X X X X Extracts X X X X
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