ESIC can’t invoke Section 45A on the allegation of inadequacy of record but only in case of non-production of the record – SC
In a recent judgment, Hon’ble Supreme Court has held that the statutory scheme of ESI Act does not allow the ESIC to invoke Section 45A where allegation are not non-production of the record but inadequacy of the record. Section 75 can’t be bypassed merely because verification is inconvenient or time consuming.
ABCAUS Case Law Citation:
4945 (2025) (12) abcaus.in SC
Section 45A of the ESI Act empowers the Employees’ State Insurance Corporation (ESIC) to determine contributions when an employer fails to submit records, obstructs officials, or isn’t cooperating, allowing ESIC to make a “best judgment assessment” based on available info and demand payment.
In the instant case, the ESIC issued show cause notice alleging that appellant company had neither paid contributions as per requirement of the Act nor had submitted returns of contribution for the four years. The show cause notice alleged non-submission of returns and non-production of complete record during earlier inspections and on that basis, proposed an assessment under various heads in terms of Section 45-A of the Act.
In the course of the personal hearings before ESIC, appellant produced ledgers for the show cause period. Relevant cash books, bank books, journal vouchers, relevant bills and contractor’s records as well as returns of contributions were produced for verification.
However, the Corporation passed an order under section 45A of the ESI Act confirming the alleged demand as per the show cause notice.
The challenged to the above said order was dismissed by Employees Insurance Court and High Court.
The Hon’ble Supreme Court observed that provisions of section 45A would come into effect when no returns, particulars, registers or records are submitted, furnished or maintained in accordance with the provisions of Section 44. It would also come into play if any Inspector or other official of the corporation is prevented in any manner by the principal or immediate employer or any other person exercising his functions or discharging his duties under Section 45. In such an eventuality, the corporation may, on the basis of information available to it, pass an order determining the amount of contributions payable.
The Hon’ble Supreme Court noted that in other words, there are two pre-conditions which must be satisfied before Section 45A can be invoked. Firstly, no returns, particulars, registers or records in respect of a factory or establishment are submitted, furnished or maintained in accordance with the provisions of Section 44. Secondly, any Inspector or other official of the corporation is prevented by the employer in exercising his functions or discharging his duties under Section 45.
The Hon’ble Supreme Court noted that the materials placed would show that the appellant had produced ledgers, cash books, journal vouchers, contractor records and returns of contribution for the period in question. Personal hearings were granted on numerous dates and the appellant had appeared through its authorised representative in such hearings. The corporation had itself recorded in its order that records were produced but certain supporting bills were not furnished in respect of some heads of expenditure. This finding, even if accepted at face value, does not bring the case within the ambit of Section 45A. The statutory threshold is not inadequate production but non-production. The statute does not permit a best judgment determination merely because the record produced is inadequate.
The Hon’ble Supreme Court opined that both the Employees Insurance Court and the High Court, did not advert to this essential jurisdictional requirement. Both courts accepted that records were produced, that the appellant participated in personal hearings and that the basic books of account were available. Yet, by treating the matter purely as one of limitation, the courts overlooked the statutory pre-conditions embedded in Section 45A. The statutory scheme does not allow the corporation to bypass Section 75 merely because it finds verification inconvenient or time consuming.
The Hon’ble Supreme Court noted that in the instant case, the ESIC was not obstructed from inspection; nor was there non-production of records. The appellant furnished ledgers, cash books, vouchers and returns, and had attended personal hearings repeatedly. The respondent’s allegation was not non-production of the record but inadequacy of the record. In such a case, the proper statutory course for the respondent, once records had been produced, was to examine the correctness thereof under Section 75 and if any dispute persisted, to initiate proceedings within the period of limitation prescribed by the proviso to Section 77(1A)(b). Invocation of Section 45A in such circumstances was misconceived
The Hon’ble Supreme Court held that invocation of power under Section 45A of the Act by ESIC was unsustainable. Accordingly, the order of ESIC, was set aside and resultantly, the order passed by the Employees Insurance Court and the impugned judgment and order of the High Court were also set aside.
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