For conviction under ESI Act, 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.
In a recent judgment, the Hon’ble Supreme Court has upheld the conviction and fine of the General Manager for not depositing ESI contributions of employees with ESIC holding that under ESI Act 1948, 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.
ABCAUS Case Law Citation:
4520 (2025) (04) abcaus.in SC
Important Case Laws relied upon by Parties:
Pentafour Products Ltd. v. Union of India
ESI Corpn. v A K Abdul Samad,
In the instant case, appeal was preferred by the Appellant against the judgment of the High Court of Karnataka confirming conviction of the appellant for non deposit of employee’s ESI contributions with ESIC.
Respondent company was declared as a sick industry by the Board for Industrial and Financial Reconstruction (BIFR). As a result, the BIFR ordered for a change in the management of the company.
Aggrieved, the company preferred Appeal before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). However, the appeal was dismissed. Following this, the company filed a Writ Petition before the High Court and made Employees’ State Insurance Corporation (ESIC) also a party to the said writ petition.
The High Court remanded the matter back to the BIFR to consider the matter expeditiously keeping in view the interest of all the parties concerned and quashed the Orders of BIFR and AAIFR.
The BIFR directed the Company to negotiate with the secured creditors for settlement of their dues. The ESIC officials visited the company to ascertain and verify about its deductions towards the Employees’ State Insurance (ESI) contribution for the given period. A report was made and it transpired that even though deductions were made from the wages of the said company’s employees, the same was not deposited with the ESIC.
The Report was prepared by the authorized signatory of the company in the capacity of the ‘General Manager’ and ‘Principal Employer’ of the Company.
On the basis of the Report, a private complaint was filed by the ESIC under Section 85(a)1 of the Employees’ State Insurance Act, 1948 (the Act) against the Appellant and the company before the Special Court for Economic Offences (Trial Court).
The Trial Court 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/- Aggrieved, the appellant and the company filed Appeal before the Sessions Judge/First Appellate Court).
The First Appellate Court upheld the order of conviction and sentence passed by the Trial Court and dismissed the appeal. Aggrieved by such Order of the First Appellate Court, the Appellant and the company filed Criminal Revision Petition before the High Court.
The High Court by the impugned order dismissed the Revision Petition of the Appellant and the company on the ground that the evidence on record clearly established that the appellant was General Manager and Principal Employer of the company and it was also established that a contribution was deducted from the employees of the company, but not remitted to the ESIC.
Before the Hon’ble Supreme Court, the appellant contended that proceedings before the BIFR was instituted long before his 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 was 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.
It was also submitted that there was 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 ESIC.
The appellant further submitted that in he was working only as a ‘Technical Coordinator’ in the Company and the Principal Employer of the company was a different person at the relevant time.
In other words, the basic point canvassed by the appellant was 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.
The Hon’ble Supreme Court observed that the Trial Court, the First Appellate Court as well as the High Court had returned concurrent findings of fact that the appellant was liable, as in the record of ESIC/Company he was described as General Manager, which could not be controverted by him. Further, there was 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.
The Hon’ble Supreme Court further noted that Section 2(17) of the Act which defines ‘principal employer’, 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’ (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. Thus, from the materials available on record, the Hon’ble Supreme Court came to the conclusion that the appellant fell within the ambit of Section 2(17) of the Act, being a ‘managing agent’.
The Hon’ble Supreme Court opined 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/- (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/- in other cases.
Therefore, the Hon’ble Supreme Court opined that 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. The High Court did not feel the necessity to interfere in the lesser sentence awarded by the Trial Court.
In view of the above, the Hon’ble Supreme Court opined that there was no need to interfere with the conviction and the sentence where despite contributions having been deducted from the employees’ salaries, they were not deposited with the ESIC.
Accordingly, the appeal, was dismissed.
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