2025 INSC 500
SUPREME COURT OF INDIA
(HON’BLE
SUDHANSHU DHULIA, J. AND HON’BLE AHSANUDDIN AMANULLAH, JJ.)
AJAY RAJ SHETTY
Appellant
VERSUS
DIRECTOR AND ANR.
Respondent
Criminal
Appeal No. OF 2025 [@ Special Leave Petition (Criminal) No.3743 OF 2024] –Decided
on 17-04-2025
Criminal,
ESI
Employees’ State
Insurance Act, 1948, Section 2(17), 85(i)(b) – Employees’ State Insurance
(General) Regulations, 1950, Regulation 31C - Sick Industrial Companies
(Special Provisions) Act, 1986, Sections 22(1) or 22A - Employee State
Insurance -
Failure
to pay contributions of ESI
– Appeal against conviction - Basic point canvassed by the Appellant is
that he neither held the post of General Manager nor was he the ‘Principal
Employer’ during the relevant period, therefore, he could not be charged, much
less convicted, for an offence under the Act repelled - Trial Court, the First
Appellate Court as well as the High Court have returned concurrent findings of
fact that the Appellant was liable, as in the record of Respondent No.2/Company
he was described as General Manager, which could not be controverted by him - Further,
there is also a finding that except for a stand taken before the
authorities/Court, the Appellant was not able to show that he was not holding
such a post or was not designated as General Manager, on the basis of his
appointment letter, pay-slips etc. - Moreover, the Appellant does not deny that
he was under the employment of Respondent No.2/Company has not disclosed as to
who was/were the person(s) holding such positions during the relevant period of
time, about which he could not have been ignorant.
From
the materials available on record, find that the Appellant falls within the
ambit of Section 2(17) of the Act, being a ‘managing agent’ - 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 - 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 – Held that the conviction and the sentence
does not require any interference - Appeal liable to be dismissed.
(Para
18, 19, 20 and 23 to 26)
JUDGMENT
Ahsanuddin Amanullah,
J:- Leave
granted.
2.
This appeal has been preferred by the Appellant against the Final Judgment and
Order dated 08.12.2023 (hereinafter referred to as the ‘Impugned Order’) passed
by the High Court of Karnataka at Bengaluru
(hereinafter referred to as the ‘High Court’), by which Criminal Revision
Petition No.164 of 2015 filed by the Appellant and Respondent No.2 has been
dismissed.
BRIEF
FACTS:
3.
M/s Electriex (India) Limited (hereinafter referred to as ‘Respondent No.2’ or
‘Company’) was declared as a sick industry by the Board for Industrial and
Financial Reconstruction (hereinafter referred to as the ‘BIFR’) on 31.10.2001
in Case No.49/2000. On 24.09.2002, the BIFR ordered for a change in the
management of Respondent No.2. Aggrieved by this Order, Respondent No.2 preferred
Appeal No.340/2002 before the Appellate Authority for Industrial and Financial
Reconstruction (hereinafter to referred to as the ‘AAIFR’). Such appeal was
dismissed vide AAIFR’s Order dated 15.01.2003. Following this, Respondent No.2
filed Writ Petition No.20033/2003 before the High Court and it is relevant to note
that the Employees’ State Insurance Corporation (hereinafter referred to as
‘ESIC’) was also a party to the said writ petition, wherein the High Court on
03.03.2008 remanded the matter back to the BIFR to consider the matter
expeditiously keeping in view the the interest of all the parties concerned and
quashed the Orders of BIFR and AAIFR dated 24.09.2002 and 15.01.2003,
respectively.
4.
On 01.07.2010, BIFR directed the Company to negotiate with the secured
creditors for settlement of their dues. On 01.02.2011, ESIC officials visited
the factory premises of Respondent No.2 to ascertain and verify about its
deductions towards the Employees' State Insurance (hereinafter to referred to
as ‘ESI’) contribution for the period from 01.02.2010 to 31.12.2010. Pursuant
thereto, a Report was prepared which disclosed that even though deductions of
Rs.8,26,696/- (Rupees Eight Lakhs Twenty-Six Thousand Six Hundred and
Ninety-Six) from the wages of Respondent No.2’s employees were made for the
above-mentioned period, the same was not deposited with the ESIC. In the
Report, the authorized signatory of Respondent No.2 had mentioned the
Appellant’s name as the ‘General Manager’ and ‘Principal Employer’ of the
Company. On the basis of the Report, a private complaint was filed by the Respondent
No.1 for offence(s) under Section 85(a)
[‘85. Punishment for failure to pay contributions, etc.—If any person—
(a) fails to pay any
contribution which under this Act he is liable to pay, or
(b) xxx
(c) xxx
(d) xxx
(e) xxx
(f) xxx
(g) xxx
he shall be
punishable—
(i) where he commits
an offence under clause (a), with imprisonment for a term which may extend to
three years but—
(a) which shall not be
less than one year, in case of failure to pay the employee's contribution which
has been deducted by him from the employee's wages and shall also be liable to
fine of ten thousand rupees;
(b) which shall not be
less than six months, in any other case and shall also be liable to fine of
five thousand rupees:
Provided that the
Court may, for any adequate and special reasons to be recorded in the judgment,
impose a sentence of imprisonment for a lesser term;
(ii) where he commits
an offence under any of the clauses (b) to (g) (both inclusive), with
imprisonment for a term which may extend to one year or with fine which may
extend to four thousand rupees, or with both.’] of the Employees’ State Insurance Act, 1948
(hereinafter to referred to as the ‘Act’) against the Appellant and Respondent
No.2 before the Special Court for Economic Offences, Bangalore (hereinafter referred
to as the “Trial Court”) namely, CC No.326/2011 on 11.10.2011.
5.
The Trial Court on 28.09.2013 convicted the Appellant under Section 85(i)(b) of
the Act and sentenced him to undergo imprisonment for six months along with a
fine of Rs.5000/- (Rupees Five Thousand). Aggrieved, the Appellant and
Respondent No.2 filed Criminal Appeal No.553/2013, before the Principal City
Civil and Sessions Judge, Bangalore which was subsequently transferred to the
Fast Track Court VI, Bangalore (hereinafter referred to as the ‘First Appellate
Court’). The First Appellate Court on
14.11.2014 upheld the order of conviction and sentence passed by the Trial
Court and dismissed Criminal Appeal No.553/2013. Aggrieved by such Order of the
First Appellate Court, the Appellant and Respondent No.2 filed Criminal
Revision Petition No.164 of 2015 before the High Court.
6.
The High Court by the Impugned Order dated 08.12.2023 dismissed the Revision
Petition of the Appellant and Respondent No.2 on the ground that the evidence
on record clearly established that the Appellant was General Manager and
Principal Employer of Respondent No.2 and it was also established that a
contribution of Rs.8,26,696/- (Rupees Eight Lakhs Twenty-Six Thousand Six Hundred
and Ninety-Six) was deducted during the period 01.02.2010 to 31.12.2010 from
the employees of Respondent No.2, but not remitted to the ESIC.
APPELLANT’S
SUBMISSIONS:
7.
The learned senior counsel for the Appellant submitted that the appointment of
the appellant was in July, 2009, to the post of Technical Coordinator in
Respondent No.2. This Court’s attention was also drawn to the fact that
proceedings before the BIFR was instituted in 2001, long before the Appellant’s
appointment and further that appointment order was not given as the Company was
sick and salary was also not paid. It was also contended that the burden is on
the prosecution to show that the Appellant was appointed as General Manager,
which they have only done by referring to the Report produced by the ESIC. The
Report also cannot be relied upon as the official who prepared it was not brought
before the Court for the Appellant to cross-examine him.
8.
It was further submitted that 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 Respondent No.1. The other fact pointed out
by the Appellant was that under Regulation 10-C[‘10-C. Intimation regarding change in particulars submitted at the
time of registration of factory/establishment.—The employer in respect of a
factory/establishment to which this Act applies and to whom a code number has
already been allotted, shall intimate to the appropriate Regional Office,
Sub-Regional Office, Divisional Office or Branch Office, any change in the
particulars furnished in Form 01 at the time of registration of the
factory/establishment within two weeks of such change.’] of the
Employees’ State Insurance (General) Regulations,
1950 (hereinafter referred to as the ‘Regulations’), the Principal Employer is
required to submit Form 01(A) to the ESIC, but the same was not produced.
9.
Learned senior counsel submitted that the Appellant paid the entire dues to the
Respondent No.1 after the Impugned Order and at the time of filing Petition for
Special Leave to Appeal before this Court, hence prayed for his acquittal.
10.
With regard to his designation, it is pointed out that in the counter-affidavit
of the Respondent No.2 filed before this Court, Paragraph 5 explicitly provides
that the Appellant was working only as a ‘Technical Coordinator’ in the Company
and one Mr. Ajit Hegde was the Principal Employer of Respondent No.2 at the
relevant time.
11.
The Appellant raised another leg of argument by contending that the guilt of
the accused has to be kept in mind while imposing liability under the Act. It
was submitted that the Act essentially criminalizes a civil wrong. This is
evident by perusing Regulation 31C[‘31-C.
Damages on contributions or any other amount due, but not paid in time.—If an
employer fails to pay contribution within the periods specified under
Regulation 31, or any other amount payable under the Act, the Corporation may
recover damages, not exceeding the rates mentioned below, by way of penalty:—
Period of delay
Provided that the
Corporation in relation to a company in respect of which a Resolution Plan has
been sanctioned by the National Company Law Tribunal under the Insolvency and
Bankruptcy Code, 2016 may:
(a) Waive up to 50 per
cent of the damages levied or leviable depending upon merits of the case.
(b) in exceptional
hard cases, waive either totally or partially the damages levied or leviable.’
The Proviso above, prior to its substitution
[Notification No.N-12/13/1/2016-P&D dated 17-10- 2018], read as under:
‘Provided that the
Corporation, in relation to a factory or establishment which is declared as
sick industrial company and in respect of which a rehabilitation scheme has
been sanctioned by the Board for Industrial and Financial Reconstruction, may:
(a) in case of change
of management including transfer of undertaking(s) to workers' cooperative(s)
or in case of merger or amalgamation of sick industrial company with a healthy
company, completely waive the damages levied or leviable;
(b) in other cases,
depending on its merits, waive up to 60 per cent damages levied or leviable;
(c) in exceptional
hard cases, waive either totally or partially the damages levied or leviable.’] of the Regulations, wherein it is provided
that the ESIC has the power to recover unpaid contributions from the defaulting
employer by way of a penalty and it is at the discretion of the ESIC to either
waive off such damages or to reduce the same by up to 50%. This is contingent
on the Company being declared as a ‘sick company’, which Respondent No.2 was in
this case. Therefore, ESIC ought to have adopted a more liberal approach
instead of pressing for criminal prosecution.
12.
Learned senior counsel summed up his argument stating that, if at all the
appellant is to be convicted, it can be for a day till the rising of the Court.
He relied on the judgment of this Court in ESI Corpn. v A K Abdul Samad, (2016)
4 SCC 785.
SUBMISSIONS
BY RESPONDENT NO.1:
13.
Learned counsel for Respondent No.1 submitted that the Appellant had a chance
to produce documents to show that he was only a ‘Technical Coordinator’.
Furthermore, the High Court made an observation that the Appellant also had an
opportunity to produce wage-slips or pay-slips to show his status, and the same
was not done. The Appellant also made no efforts to summon any relevant
documents from Respondent No.2.
14.
The learned counsel for ESIC also drew the Court’s attention to a judgment of
the Madras High Court in Pentafour Products Ltd. v. Union of India, 2005 SCC
Online Mad 841, wherein the issue pertained to the applicability of Section 138
of the Negotiable Instruments Act, 1881 vis-à-vis Sections 22(1) [‘22. Suspension of legal proceedings, contracts,
etc.—(1) Where in respect of an industrial company, an inquiry under Section 16
is pending or any scheme referred to under Section 17 is under preparation or
consideration or a sanctioned scheme is under implementation or where an appeal
under Section 25 relating to an industrial company is pending, then,
notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or
any other law or the memorandum and articles of association of the industrial
company or any other instrument having effect under the said Act or other law,
no proceedings for the winding up of the industrial company or for execution,
distress or the like against any of the properties of the industrial company or
for the appointment of a receiver in respect thereof and no suit for the
recovery of money or for the enforcement of any security against the industrial
company or of any guarantee in respect of any loans or advance granted to the
industrial company shall lie or be proceeded with further, except with the
consent of the Board or, as the case may be, the Appellate Authority. xxx’] and 22A[‘22-A. Direction not to dispose of
assets.—The Board may, if it is of opinion that any direction is necessary in
the interest of the sick industrial company or creditors or shareholders or in
the public interest, by order in writing, direct the sick industrial company
not to dispose of, except with the consent of the Board, any of its assets— (a)
during the period of preparation or consideration of the scheme under Section
18; and (b) during the period beginning with the recording of opinion by the
Board for winding up of the company under sub-section (1) of Section 20 and up
to commencement of the proceedings relating to the winding up before the
concerned High Court.’] of the Sick Industrial Companies (Special
Provisions) Act, 1986. The Madras High Court ruled that 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.
15.
It was submitted by learned counsel that the High Court observed that 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. In
this backdrop, he sought dismissal of the appeal.
SUBMISSIONS
BY RESPONDENT NO.2:
16.
Learned counsel for Respondent No.2 submitted that the Appellant after
completing Engineering course without any industrial experience joined as
‘Technical Coordinator’ in the Company in July, 2009. He worked from July, 2009
to April, 2011 with the Company. He was only a Technical Coordinator and never
acted as Principal Employer nor as General Manager.
17.
Learned counsel also submitted that one of the promoters of the Company is the
Principal Employer, namely Mr. Ajit Hegde. It was further submitted that the
Appellant cleared the balance amount of Rs. 6,86,696/- (Rupees Six Lakhs
Eighty-Six Thousand Six Hundred and Ninety-Six) of ESIC dues on 22.12.2023,
though he was not the Principal Employer or General Manager of Respondent No.2
and counsel submitted that after the BIFR was dissolved by the Central
Government (in 2016), the Company cleared the Provident Fund Account dues and
made a one-time full and final settlement with all its employees.
ANALYSIS,
REASONING AND CONCLUSION:
18.
The basic point canvassed by the Appellant is that he neither held the post of
General Manager nor was he the ‘Principal Employer’ during the relevant period.
The submission urged was 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.
19.
The Trial Court, the First Appellate Court as well as the High Court have
returned concurrent findings of fact that the Appellant was liable, as in the
record of Respondent No.2/Company he was described as General Manager, which
could not be controverted by him. Further, there is also a finding that except
for a stand taken before the authorities/Court, the Appellant was not able to
show that he was not holding such a post or was not designated as General Manager,
on the basis of his appointment letter, pay-slips etc. Moreover, the Appellant
who, be it noted, does not deny that he was under the employment of Respondent
No.2/Company has not disclosed as to who was/were the person(s) holding such
positions during the relevant period of time, about which he could not have been
ignorant. Section 2(17) of the Act, which defines ‘principal employer’, reads
as under:
‘(17) “principal employer” means—
(i) in a factory, the
owner or occupier of the factory and includes the managing agent of such owner
or occupier, the legal representative of a deceased owner or occupier, and
where a person has been named as the manager of the factory under the Factories
Act, 1948 (63 of 1948), the person so named;
(ii) in any establishment
under the control of any department of any Government in India, the authority appointed
by such Government in this behalf or where no authority is so appointed, the
head of the department;
(iii) in any other
establishment, any person responsible for the supervision and control of the
establishment;’
20.
From the above, it is clear that the definition also includes a ‘managing
agent’ of the Owner/Occupier in the case of a factory or ‘named as the manager
of the factory under the Factories Act, 1948’ (hereinafter referred to as the
“Factories Act”) and for ‘any other establishment’, ‘principal employer’ would
include ‘any person responsible for the supervision and control of the establishment’.
Therefore, 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. From the materials available on record, we find that the Appellant
falls within the ambit of Section 2(17) of the Act, being a ‘managing agent’.
21.
Before the High Court, two decisions were relied upon by the Appellant viz.
Employees’ State Insurance Corpn., Chandigarh v Gurdial Singh, AIR 1991 SC 1741
and J K Industries Limited v Chief Inspector of Factories and Boilers, (1996) 6
SCC 665. In our view, these are clearly distinguishable. In Gurdial Singh (supra),
it was held that when a factory had an Occupier, who would fall within Section
2(17)(i) of the Act, the Directors of the company concerned could not be roped
in by resorting to Section 2(17)(iii) of the Act, which was in the nature of a
residuary clause. It was laid down that in the absence of factual proof and of
actual position, Directors could not be treated as owners ipso facto. While holding
that the High Court therein was right in affixing liability on the company, in
the event of an ‘occupier’, the occupier was liable to meet the demand, despite
some other person being named as a ‘manager’. To our mind, J K Industries
Limited (supra) operates in a different field i.e., in the context of liability
under the Factories Act and the interpretation accorded to, on whom liability
falls on under the Factories Act, cannot be simpliciter accorded also to liability
under the Act, as the Act has specific provisions thereon. Ultimately, the
Court concluded:
‘62. To sum up our conclusions are:
(1) In the case of a
company, which owns a factory, it is only one of the directors of the company who
can be notified as the occupier of the
factory for the purposes of the Act and the company cannot nominate any other employee
to be the occupier of the factory;
(2) Where the company
fails to nominate one of its directors
as the occupier of the factory, the Inspector of Factories shall be at liberty
to proceed against any one of the
directors of the company, treating him as the deemed occupier of the factory, for
prosecution and punishment in case of any breach or contravention of the provisions
of the Act or for offences committed under the Act.
…’
(emphasis
supplied)
22.
Therefore, J K Industries Limited (supra) dealt only with the Factories Act and
do not aid the Appellant in the instant context.
23.
Further, 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/- (Rupees Ten Thousand), 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/- (Rupees Five Thousand) 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.
24.
In A K Abdul Samad (supra), 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:
‘9. In our considered
view, the clause “shall also be liable to fine”, in the context of the Penal
Code may be capable of being treated as directory and thus, conferring on the court,
a discretion to impose sentence of fine also in addition to imprisonment
although such discretion stands somewhat impaired as per the view taken by this
Court in Zunjarrao Bhikaji Nagarkar [Zunjarrao Bhikaji Nagarkar v. Union of
India, (1999) 7 SCC 409: 1999 SCC (L&S) 1299]. But clearly no minimum fine
is prescribed for the offences under IPC nor that the Act was enacted with the
special purpose of preventing economic offences as was the case in Chern Taong Shang
[Chern Taong Shang v. Commander S.D. Baijal, (1988) 1 SCC 507: 1988 SCC (Cri)
162]. The object of creating offence and penalty under the Employees' State Insurance
Act, 1948 is clearly to create deterrence against violation of provisions of
the Act which are beneficial for the employees. Non-payment of contributions is
an economic offence and therefore the legislature has not only fixed a minimum
term of imprisonment but also a fixed amount of fine of five thousand rupees
under Section 85(a)(i)(b) of the Act. 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 where under 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.
10. Hence, the
question is answered in favour of the appellant and it is held that the amount
of fine has to be rupees five thousand and the courts have no discretion to
reduce the same once the offence has been established. The discretion as per
the proviso is confined only in respect of the term of imprisonment.’
(emphasis
supplied)
25.
The decision in A K Abdul Samad (supra), 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
26.
Accordingly, the appeal, being devoid of merit, stands dismissed. 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.
27.
Registry is directed to send a copy of this order to the Trial Court.
28.
No order as to costs.
29.
I.A. No.20317/2024 is allowed.
30.
I.A. No.20329/2024 is disposed of.
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