M/S. Carborandum Universal Ltd vs Esi Corporation

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 14858 OF 2025 (ARISING OUT OF SLP (CIVIL) NO. 12442 OF 2024)

M/S. Carborandum Universal Ltd. APPELLANT(S)

VERSUS

ESI Corporation RESPONDENT(S)

JUDGMENT

UJJAL BHUYAN, J.

Leave granted.

2. This civil appeal by special leave is directed

against the judgment and order dated 12.10.2023 passed

by the High Court of Judicature at Madras (briefly ‘the

High Court’ hereinafter) in C.M.A. No. 1284 of 2017 (M/s.

Carborandum Universal Limited Vs. ESI Corporation). Signature Not Verified

3. Be it stated that appellant had filed the related Digitally signed by KAVITA PAHUJA Date: 2025.12.18 16:35:44 IST Reason:

appeal before the High Court assailing the legality and validity of the order dated 06.07.2015 passed by the

Employees Insurance Court (Principal Labour Court),

Chennai in E.I.O.P. No. 262 of 2001. By the aforesaid

order dated 06.07.2015, the Employees Insurance Court

upheld the order dated 17.04.2000 passed by the

Regional Office (Tamil Nadu), Employees State Insurance

Corporation holding that a sum of Rs. 5,42,575.53 is

statutorily due as arrears of contribution and payable by

the employer i.e. the appellant for the period from

01.08.1988 to 31.03.1992. Appellant was directed to pay

the aforesaid amount with interest at the rate of 12

percent per annum upto 31.08.1994 and at the rate of 15

percent per annum from 01.09.1994. The aforesaid order

dated 17.04.2000 was passed under Section 45A of the

Employees State Insurance Act, 1948 (briefly ‘the Act’

hereinafter).

4. For proper appreciation, relevant facts may be

briefly noted.

5. Appellant is a company and is engaged in the

business of manufacturing various products. It is covered

under the Act. It has been allotted an employers’ code

2 and it is stated that the establishment was regularly

making statutory contributions as required under the Act

for its covered employees.

6. On 27.11.1996, respondent Employees State

Insurance Corporation (for short ‘the corporation’

hereinafter) issued show cause notice alleging that

appellant had neither paid contributions as per

requirement of the Act nor had submitted returns of

contribution for the period from August, 1988 to March,

1992. 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 of Rs. 26,44,695.00 under various heads in

terms of Section 45-A of the Act. Appellant was asked to

show cause within 15 days as to why assessment should

not be made as proposed while affording an opportunity

of personal hearing.

7. Upon receipt of show cause notice, appellant

submitted its explanation and participated in the

personal hearings on various dates. In the course of the

personal hearings, representative of the appellant

3 produced ledgers for the show cause period. That apart,

relevant cash books, bank books, journal vouchers,

relevant bills and contractor’s records as well as returns

of contributions were produced for verification.

8. However, respondent confirmed that a sum of

Rs. 5,42,575.53 was statutorily due as arrears of

contribution and payable by the employer i.e. the

appellant in respect of the claim covered by the show

cause notice. Accordingly, order dated 17.04.2000 was

passed by the corporation under Section 45-A of the Act

ordering that contributions totalling Rs. 5,42,575.53 for

the period from 01.08.1988 to 31.03.1992 were finally

determined and directed to be paid with interest at the

rate of 12 percent per annum upto 31.08.1994 and at the

rate of 15 percent per annum from 01.09.1994 failing

which it was stated that the aforesaid amount would be

recovered under Sections 45-C to 45-I of the Act.

9. Being aggrieved, appellant filed a petition

under Section 75(1)(g) of the Act before the Employees

Insurance Court which was registered as E.I.O.P. No.

262/2001. The Employees Insurance Court after due

4 consideration framed the following questions for

consideration:

(i) whether the order of the respondent dated

17.04.2000 was liable to be set aside?

(ii) whether the petitioner was liable to pay

contribution, if so, to what extent?

(iii) to what relief?

9.1. Documents were exhibited and evidence

adduced by both the sides. After hearing the matter, the

Employees Insurance Court rejected the contention of the

appellant that it was not liable to pay the contribution as

demanded. Claim of the appellant that the impugned

order was passed on wrong calculation and therefore the

same was liable to be set aside was repelled. The

Employees Insurance Court also recorded that appellant

did not produce necessary documents either during the

personal hearings before the corporation or before it.

Therefore, it accepted the contention of the respondent

that the petitioner did not place before it necessary

documents. Objections as to limitation and jurisdiction

were rejected. Accordingly, the petition was dismissed by

5 the Employees Insurance Court vide the order dated

06.07.2015.

10. Assailing the aforesaid order dated 06.07.2015,

appellant preferred appeal before the High Court under

Section 82 of the Act. Vide the judgment and order dated

12.10.2023, the High Court recorded the facts as under:

Admittedly, the respondent by invoking the power under Section 45-A of the ESI Act issued show cause notice dated 27.11.1996 to the appellant seeking to show cause as to why a sum of Rs. 26,44,695.00 be not recovered from the appellant, pursuant to which, the appellant appeared for personal hearings through authorized representative and produced relevant records. Thereafter, the respondent passed an order dated 17.04.2000, directing the appellant to pay a sum of Rs. 5,42,575.53 as contribution for the period from 01.08.1988 to 31.03.1992 together with interest at the rate of 12% upto 31.08.1994 and at 15% from 01.09.1994. Challenging the same, the appellant filed E.I.O.P. No. 262 of 2001 before the Employees State Insurance Court at Chennai under Section 75(1)(g) of the Act.

10.1. Thereafter, the High Court held that there is

no limitation for initiating proceedings under Section 45-

A of the Act. Appellant was given show cause notice and

6 was also afforded opportunity of personal hearing. It was

only after considering the record produced by the

appellant that the corporation passed the order dated

17.04.2000. Employees Insurance Court had properly

appreciated the factual aspects and had rightly dismissed the

petition filed by the appellant. Hence, the order dated

17.04.2000 as well as the order of the Employees Insurance

Court dated 06.07.2015 required no interference.

Consequently, the appeal filed by the appellant was dismissed.

11. Learned counsel for the appellant submits

that appellant has one of its factories at Thiruvottiyur,

Tamil Nadu. All the eligible employees are covered

under the Act. Their respective contributions are

remitted from time to time without any default.

11.1. Notwithstanding the above, appellant received

show cause notice dated 27.11.1996 from the respondent

claiming employees state insurance (ESI) contributions of

Rs. 26,44,695.00 for the period from 1988 to 1992

under Section 45 of the Act.

11.2. Appellant submitted reply and also attended

the personal hearings. In the hearings, it had produced

7 all the relevant and relatable records. Respondent vide

the order dated 17.04.2000 reduced the claim from Rs.

26,44,695.00 to Rs. 5,42,573.53 together with interest

at the rate of 12% per annum upto 31.08.1994 and at

the rate of 15% per annum thereafter from 01.09.1994.

11.3. Aggrieved by the aforesaid order dated

17.04.2000, appellant moved the Employees Insurance

Court under Section 75(1)(g) of the Act.

11.4. Learned counsel for the appellant submits

that the main ground urged before the Employees

Insurance Court was that respondent was not

competent to invoke the jurisdiction under Section 45A

of the Act. Remedy available to the respondent was

under Section 77 (1-A) of the Act but the said provision

had a limitation of five years. To circumvent the

limitation, recourse was taken to Section 45A. However,

the Employees Insurance Court dismissed the

challenge of the appellant vide the order dated

06.07.2015. Contention of the appellant that

respondent could not have initiated any proceeding

8 under Section 45A of the Act was not considered by the

Employees Insurance Court.

11.5. Thereafter, appellant filed appeal before the

High Court which was however dismissed vide the

impugned judgment and order dated 12.10.2023. Here

also, the question of jurisdiction and limitation was not

considered by the High Court though specifically raised.

11.6. Learned counsel for the appellant submits

that Section 45A of the Act which provides for

determination of contribution applies to cases where

records are not maintained or are not produced by the

factory or establishment before the corporation and

there is no cooperation. In other words, provisions of

Section 45A of the Act can be invoked only in respect of

a factory or an establishment where no returns,

particulars, registers or records are submitted or

furnished or maintained in accordance with the

provisions of Section 44 of the Act; or there is

obstruction to the discharge of duty by officials of the

corporation under Section 45.

9 11.7. It is the submission of the appellant that it

had produced the record before the corporation during

the course of the hearings. Whether such records were

adequate or not cannot be the subject-matter of Section

45A proceedings which are summary in nature.

11.8. Adverting to Section 77(1-A)(b) of the Act,

learned counsel submits that the said provision would

kick-in with respect to the proceedings to be initiated

by the corporation for recovery of contribution,

including interest and damages, from the employer.

This provision has a limitation period of five years.

11.9. In the instant case, alleged recovery is for the

period from 1988 to 1992. Show cause notice was

issued on 27.11.1996. Claim made by the respondent

would be clearly barred by limitation prescribed under

the proviso to Section 77 (1-A)(b) of the Act inasmuch

as the claim pertaining to the aforesaid period

crystallized only on 17.04.2000 which is clearly

inadmissible being barred by limitation. To overcome

the bar of limitation, respondent deliberately chose to

invoke Section 45A of the Act which is not available in

10 the facts and circumstances of the case. In this

connection, appellant has placed reliance on the

following decisions:

1. Masco (Private) Ltd. Vs. Employees’ State Insurance Corporation, Delhi1;

2. EID Parry (India) Ltd. Vs. Employees’ State Insurance Corporation2;

3. Cosmopolitan Club, Chennai Vs. Deputy Director3;

4. Srikantam Talkies Vs. Employees’ State Insurance Corporation4;

5. ESI Corpn. Vs. C.C. Santhakumar5;

6. India Pistons Ltd. Vs. Deputy Director6

11.10. Summing up his arguments, learned counsel

for the appellant submits that the impugned judgment

and order cannot be sustained inasmuch as the High

Court overlooked the fact that the respondent had passed

the order dated 17.04.2000 without jurisdiction.

Impugned orders of the High Court, Employees Insurance

Court and that of the corporation are thus liable to be set

1 1975 (II) LLJ 29 2 2002 (3) LLN 164 3 2006 (2) LLN 878 4 2006 SCC OnLine AP 769 5 (2007) 1 SCC 584 6 2010 SCC OnLine Mad 6510

11 aside and quashed. Consequently, the appeal should be

allowed.

12. Per contra, learned counsel for the respondent

submits that the Act is a welfare and beneficial piece of

social security legislation, intended to provide benefits to

the employees in cases of sickness, maternity and

employment injury. Therefore, provisions of the Act must

receive a liberal and purposive construction to advance

its beneficient objective. In this connection, reliance is

placed on a decision of this Court in Bangalore Turf Club

Limited Vs. Employees’ State Insurance Corporation7.

12.1. He submits that the present case arose out of

a detailed inspection of the appellant’s establishment at

Thiruvottiyur conducted by the Inspectors of the

respondent on multiple occasions from 12.08.1991 to

08.07.1992. During such inspections, significant

omissions in the recording of wages by the appellant were

found. Those were immediately brought to the notice of

the appellant pointing out instances where amounts paid

as wages were clubbed with non-wage expenditure under

7 (2014) 9 SCC 657

12 various accounting heads, such as, repairs and

maintenance, extraordinary revenue and general

services.

12.2. According to learned counsel for the

respondent, despite repeated directions to segregate the

wage component of employees from other expense heads,

appellant failed to produce the complete and proper

record, vouchers or supporting bills that would have

enabled the corporation to identify the precise wage

component reliable for contribution. As many as fifteen

opportunities were granted to the appellant yet there was

no compliance. In such circumstances, respondent was

left with no other option but to invoke Section 45-A of the

Act and determine the contribution required to be paid

by the employer i.e. the appellant on the basis of the

information available.

12.3. Appellant had failed to produce supporting

documents making it impossible to segregate wage

related expenses. Therefore, the determination made by

the authorized officer on 17.04.2000 was in strict

conformity with Section 45A of the Act.

13 12.4. Learned counsel further points out that the

Employees Insurance Court had specifically recorded a

finding that the appellant had not produced any

supporting bills or vouchers to substantiate its claim. The

Employees Insurance Court had noted that the witness

produced by the appellant had admitted in cross-

examination that no such documents were produced and

that there was no evidence to show that those were

produced even before the authority during the personal

hearings. Hence, the contention of the corporation that

relevant records were not furnished stood established

before both the fora.

12.5. Learned counsel submits that Section 45-A

can be invoked not only in cases of complete absence of

records but also when the employer fails to maintain

accurate or adequate particulars or obstructs the

inspection process. Learned counsel has referred to

Section 44 of the Act which mandates every employer to

furnish returns and maintain registers and records as

may be prescribed. Section 45 empowers Inspectors to

verify the correctness of such returns and to call for any

14 necessary information. Where such officers are

prevented, either by non-production or partial production

of records, the corporation is entitled under Section 45-A

to make a best judgment determination.

12.6. With respect to limitation, it is submitted

that Section 77(1A)(b) applies only to claims filed by the

corporation before the Employees Insurance Court

and not to determination made under Section 45A.

In so far Section 45A is concerned, there is no

limitation prescribed for the corporation to determine

contributions. In this connection, reliance is placed on

Santhakumar.

12.7. Learned counsel submits that non-production

of record by an employer is a continuing default and that

the liability to pay contribution continues until payment

is made. The limitation prescribed under Section

77(1A)(b) is, therefore, wholly irrelevant to proceedings

under Section 45A. In the circumstances, learned

counsel for the respondent prays for dismissal of the

appeal.

15

13. Submissions made by learned counsel for the

parties have received the due consideration of the Court.

14. There is no doubt that the Employees’ State

Insurance Act, 1948 (already referred to as ‘the Act’

hereinabove) is a beneficial piece of legislation. It has

been enacted to provide for certain benefits to employees

in case of sickness, maternity and employment injury

and to make provision for certain other matters in

relation thereto.

14.1. Section 38 of the Act mandates that all

employees in factories or establishments to which the Act

applies shall be insured in the manner provided by the

Act. Section 39 deals with contributions. As per sub-

section (1), the contribution payable under the Act in

respect of an employee shall comprise contribution

payable by the employer i.e. the employer’s contribution,

and contribution payable by the employee i.e. the

employee’s contribution, and shall be paid to the

corporation. As per sub-section (2), the contribution shall

be paid at such rates as may be prescribed by the Central

Government and in terms of sub-section (3), the wage

16 period in relation to an employee shall be the unit in

respect of which all contributions shall be payable under

the Act. Sub-section (4) provides that contributions

payable in respect of each wage period shall ordinarily fall

due on the last day of the wage period. Consequences of

non-payment or late payment of contributions are

provided for in sub-section (5). Clause (a) of sub-section

(5) says that if any contribution payable under the Act is

not paid by the principal employer on the date on which

such contribution has become due, he shall be liable to

pay simple interest at the rate of 12% per annum or at

such higher rate as may be specified in the regulations

till the date of its actual payment. The proviso, however,

clarifies that higher interest specified in the regulations

shall not exceed the lending rate of interest charged by

any scheduled bank. Clause (b) says that any interest

recoverable under clause (a) may be recovered as an

arrear of land revenue or under Section 45C to Section

45I of the Act.

17 14.2. Section 44 is relevant. It deals with the

requirement of employers to furnish returns and maintain

registers in certain cases. Section 44 reads thus:

44. Employers to furnish returns and maintain registers in certain cases.—(1) Every principal and immediate employer shall submit to the corporation or to such officer of the corporation as it may direct such returns in such form and containing such particulars relating to persons employed by him or to any factory or establishment in respect of which he is the principal or immediate employer as may be specified in regulations made in this behalf.

(2) Where in respect of any factory or establishment the corporation has reason to believe that a return should have been submitted under sub-section (1) but has not been so submitted, the corporation may require any person in charge of the factory or establishment to furnish such particulars as it may consider necessary for the purpose of enabling the corporation to decide whether the factory or establishment is a factory or establishment to which this Act applies.

(3) Every principal and immediate employer shall maintain such registers or records in respect of his factory or establishment as may be required by regulations made in this behalf.

18 14.3. From an analysis of Section 44, it is seen that

every employer is under a mandate to submit to the

corporation returns in the prescribed form containing

such particulars relating to persons employed by him in

his factory or establishment. If the corporation has

reasons to believe that such a return has not been

submitted, it may call upon the employer to furnish such

particulars as may be considered necessary for the

purpose of enabling the corporation to decide whether the

factory or establishment is covered under the Act.

Further, every employer is bound to maintain such

registers or records in respect of his factory or

establishment as may be required by the regulations

framed in this regard.

14.4. Under Section 45, the corporation may

appoint persons as Social Security Officers (prior to

01.06.2010, these officers were referred to as ‘Inspectors’)

for the purpose of enquiring into the correctness of any

of the particulars stated in any return referred to in

Section 44 or for the purpose of ascertaining whether any

of the provisions of the Act has been complied with. For

19 this purpose, such officers are empowered to enter into

any office, establishment, factory or other premises of the

employer and to require any person found in charge

thereof to produce the relevant records or to furnish such

information as may be considered necessary. Such

officers also have the power to examine the principal or

immediate employer, his agent or servant or any person

found in such factory etc. with respect to any matter

relevant to the purpose aforesaid. He also has the

authority to make copies of or to take extracts from such

record.

14.5. Section 45A provides for determination of

contributions in certain cases. Section 45A as it stood at

the relevant point of time reads thus:

45A. Determination of contributions in certain cases.—(1) Where in respect of a factory or establishment no returns, particulars, registers or records are submitted, furnished or maintained in accordance with the provisions of Section 44 or any Inspector or other official of the corporation referred to in sub-section (2) of Section 45 is prevented in any manner by the principal or immediate employer or any other person, in exercising his functions or discharging his duties under Section 45, the corporation may, on the basis

20 of information available to it, by order determine the amount of contributions payable in respect of the employees of that factory or establishment:

Provided that no such order shall be passed by the corporation unless the principal or immediate employer or the person in charge of the factory or establishment has been given a reasonable opportunity of being heard.

(2) An order made by the corporation under sub-

section (1) shall be sufficient proof of the claim of the corporation under section 75 or for recovery of the amount determined by such order as an arrear of land revenue under section 45B or the recovery under sections 45C to 45I.

14.6. From an analysis of the provisions contained

in Section 45A, it is seen that the said provision 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

21 amount of contributions payable in respect of the

employees of that factory or establishment. As per the

proviso to sub-section (1), no such order shall be passed

by the corporation without giving a reasonable

opportunity of being heard to the employer.

14.7. 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.

14.8. While Section 45-B says that any contribution

payable under the Act may be recovered as an arrear of

land revenue, Sections 45-C to Section 45-I lays down the

procedure for such recovery.

14.9. Chapter VI deals with adjudication of dispute

and claims. Sections 74 to 83 form part of Chapter VI.

Constitution of Employees Insurance Court is provided

22 for in Section 74. Section 75 mentions the matters which

can be decided by an Employees Insurance Court.

Section 75(1)(g) is relevant. It says that if any question or

dispute arises as to any other matter which is in dispute

between a principal employer and the corporation or

between a principal employer and an immediate employer

or between a person and the corporation or between an

employee and a principal or immediate employer in

respect of any contribution or benefit or other dues

payable or recoverable under the Act or any other matter

required to be or which may be decided by the Employees

Insurance Court under the Act, such question or dispute

shall be decided by the Employees Insurance Court in

accordance with the provisions of the Act. Sub-section (2)

is more specific. It says that claims, such as, claim for

the recovery of contributions from the principal employer

etc. shall be decided by the Employees Insurance Court.

Both sub-sections (1) and (2) are subject to provisions of

sub-section (2A) which deals with a situation where a

question of disablement arises in a proceeding before the

Employees Insurance Court. As per sub-section (3), no

civil court shall have jurisdiction to decide or deal with

23 any question or dispute as aforesaid or to adjudicate on

any liability which by or under the Act is to be decided by

the Employees Insurance Court or by other fora like a

medical board or by a medical appeal tribunal.

14.10. Section 77 deals with commencement of

proceedings. As per sub-section (1), the proceedings

before an Employees Insurance Court shall be

commenced by application. Sub-section (1A)(b) including

the proviso thereto is relevant and the same reads thus:

(1A) Every such application shall be made within a period of three years from the date on which the cause of action arose.

Explanation.—For the purpose of this sub-

section,—

(a) * * * * *

(b) the cause of action in respect of a claim by the corporation for recovering contributions (including interest and damages) from the principal employer shall be deemed to have arisen on the date on which such claim is made by the corporation for the first time:

Provided that no claim shall be made by the corporation after five years of the period to which the claim relates;

(c) * * * * *

24 14.11. Thus, Section 77(1A) provides for two periods

of limitation. At the first instance, an application for

initiation of proceedings by the employer before the

Employees Insurance Court contesting or disputing a

claim has a limitation period of three years from the date

of the demand. However, the second instance of limitation

is for the corporation. As per the proviso to sub-section

(1A), no claim shall be made by the corporation after five

years of the period to which the claim relates.

14.12. Section 78 clarifies that the Employees Insurance

Court shall have all the powers of a civil court for the

purposes of summoning and enforcing the attendance of

witnesses, compelling the discovery and production of

documents etc. and for recording of evidence. The

Employees Insurance Court shall follow such procedure

as may be prescribed by rules made by the State

Government.

14.13. Section 82 provides for appeal. As per sub-

section (2), an appeal shall lie to the High Court from an

order of an Employees Insurance Court if it involves a

substantial question of law.

25

15. Having noted the relevant legal provisions, we

may now deal with the judgments cited at the bar.

16. In Bangalore Turf Club Limited, this Court was

considering the question as to whether a ‘race club’ would

fall under the scope of the definition of the word ‘shop’ for

the purposes of a notification issued under sub-section

(1) of Section 5 of the Act. It was in that context that

this Court examined the ambit of the Act and declared

that it is a welfare legislation enacted by the Central

Government as a consequence of the urgent need for a

scheme of health insurance for workers. It is a beneficial

legislation which seeks to provide social security for those

workers which it encompasses. Taking into consideration

the nature and purpose of the Act, it would be more

preferable to adopt a liberal rule of interpretation to

ensure that the benefits extend to those workers who

need to be covered, based on the intention of the

legislature. Applying the liberal rule of interpretation, this

Court held that a Turf Club would fall within the meaning

of the word ‘shop’ as mentioned in the notification issued

26 under the Act and, therefore, the provisions of the Act

would extend to the Turf Club as well.

17. There can be no two views on the aforesaid

proposition. Question is whether in the fact situation of

the case, invocation of jurisdiction under Section 45A

would be justified or not.

18. The scope and ambit of Section 45A of the Act

came up for consideration before the Delhi High Court in

Masco (Private) Ltd. In that case, appellant had

challenged the demand raised by the corporation under

Section 45A of the Act on the ground that the appellant

had requested the corporation on a number of occasions

to inspect the records of the appellant but officials of the

corporation declined to inspect the relevant records. In

the factual backdrop of that case, the question which

came up for consideration before the Delhi High Court

was whether, having regard to its true meaning and

correct interpretation, the resort by the corporation to the

provisions of Section 45A of the Act for the purpose of an

adhoc determination of the special contribution and the

employees contribution payable by the appellant was

27 justified? After analyzing the provisions of Section 45A,

Delhi High Court observed that the materials on record

did not justify the conclusion that the first condition was

satisfied. Section 45A provides for an exception and deals

with a situation in which none of the records provided in

the various other provisions of the Act are available to the

corporation and lays down an extraordinary procedure

for the determination of contribution on the basis of

material that may be available with the corporation in the

absence of any returns, particulars, registers or records.

Delhi High Court held that the first condition of Section

45A would be satisfied only if the employer neither

submitted the returns nor furnished the particulars nor

maintained registers or records required by law. It went

on to declare that it would be equally difficult to hold that

even after the returns, particulars, registers or records

were submitted, furnished or maintained but did not

conform strictly to the norms or were incorrect or

incomplete or mere discrepant or otherwise unreliable,

the first condition of Section 45A would still be attracted.

28 18.1. Explaining further, Delhi High Court held that

application of Section 45A would depend on if either of

the two conditions envisaged by it have been satisfied.

The first condition relates to failure to submit, furnish or

maintain returns, particulars, registers or records as

required under Section 44 and the other relates to

obstruction to any officer in exercising his functions or

discharging his duties under Section 45 of the Act. The

satisfaction of either of the conditions involves a question

of fact. In one case, whether there has been any failure to

submit, furnish or maintain the returns, particulars,

registers or records and in the other where the employer

caused any obstruction to the officers of the corporation.

The two pre-conditions have been explained by the Delhi

High Court as under:

33. ……… While Section 44 obliges an employer to submit such returns as may be prescribed and where returns had not been filed, to furnish such particulars as the corporation may requisition and to maintain certain registers or records, Section 45 empowers the Inspector or any other officer specially authorized in that behalf to require an employer to furnish information, to enter any office or establishment, to produce records to examine

29 the employer or any employee, to make copies of or take extracts from the records and to exercise other powers as may be prescribed if such official considers that such a direction is necessary for the purpose of enquiring into the correctness of any of the particulars stated in any returns or for the purpose of ascertaining whether any provisions of the Act had been complied with. The two parts of sub-section (1) of Section 45A, therefore, operate in distinct spheres and do not overlap. It further appears that while mere failure to submit, furnish or maintain returns, particulars, registers or records may attract the application of sub-section (1) of Section 45-A of the Act, the other alternative condition requires that the Inspector or the other official must have been obstructed in exercising his functions or discharging his duties under Section 45 of the Act and if the intention of the Legislature by using the expression “obstructed” was to make the second condition applicable even if there was a mere failure to comply with the direction that may be made by the officer pursuant to his powers under sub-section (2) of Section 45 of the Act as distinct from causing a physical obstruction or placing a deliberate hurdle, there was nothing to prevent the Legislature from using in relation to the direction under Section 45 of the Act the same phraseology as was used in relation to the first condition. The only reasonable way to explain the distinguishable phraseology used in the two parts of sub-section (1) of S. 45A is to construe the

30 expression “obstructed” so as to confine it to cases of physical obstacle, use of force, or threatened use of force and as excluding a mere failure to comply with any direction.

19. The Andhra Pradesh High Court in EID Parry

(India) Ltd. examined the provisions of Section 77 (1A) of

the Act to consider as to whether the appellant was not

liable to pay the contribution demanded. Adverting to the

proviso to the Explanation to sub-section (1A) of Section

77 of the Act, Andhra Pradesh High Court held as under:

11. ……..By the proviso to Explanation to sub-

section (1A) of Section 77 of the Act, incorporated in the Act by Act 29 of 1989, an embargo is placed on the corporation for making a claim after five years of the period to which the claim relates. The intention of the Parliament probably is to arrest the corporation reviving stale claims. As urged by the learned counsel for respondents it is no doubt true that Section 45B of the Act lays down that contribution payable can be recovered as arrears of land revenue. But that does not mean as contended by the learned counsel for respondent that respondent at anytime can enforce the claim without reference to limitation. The phrase:

“Contribution payable under this Act” used in Section 45B of the Act means the “contribution as determined under Section 45-A” of the Act. Sub- section (2) of Section 45-A of the Act lays down that

31 order made under sub-section (1) is sufficient proof of the claim under Section 75 of the Act, which relates to the matters to be decided by the Employees' Insurance Court. Sub-section (1A) of Section 77 of the Act lays down that application before Employees' State Insurance Court (under Section 75 of the Act) has to be made within three years from the date on which the cause of action arose. Clause (b) to Explanation to sub-section (1A) of Section 77 of the Act says that cause of action would be deemed to have arisen on the day on which the claim was made by the corporation. So, it is clear that the person from whom the demand is made has to move the Employees' Insurance Court within three years from the date of demand. For what period such demand can be made by the corporation is laid down by the proviso to clause (b) of Explanation to sub-section (1A) of Section 77 of the Act.

19.1. Thereafter, the High Court concluded as

under:

11. ……….Therefore, it is clear that the corporation can make a claim in respect of arrears due only for a period of five years prior to the date of demand, and those arrears only can be recovered as amounts of land revenue under Section 45-B of the Act.

32 19.2. In the facts of that case, it was held that claim

for contribution from the appellant was unsustainable,

and, was accordingly, set aside.

20. The question as to whether the proviso to

Section 77(1A)(b) of the Act providing limitation of five

years for claiming contribution, debar the corporation

from recovering the contribution arrears as arrears of

land revenue under Section 45B in pursuance of the

order under Section 45A of the Act confronted the Madras

High Court in Cosmopolitan Club. The High Court

observed that from a reading of Chapter IV of the Act

which includes Sections 45A and 45B, it is clear that

there is no limitation prescribed. The purpose of

introduction of these sections is to curb default by the

employers by providing for an efficient method of recovery

but where the records are produced, the assessment has

to be made under Section 75(2) of the Act. Only when

there is a failure in production of records or when there

is no cooperation, the corporation can determine the

amount due under Section 45A and recover the same as

arrears of land revenue under Section 45B. But if the

33 records are produced and if there is cooperation, the

assessment has to be made under Section 75(2)(a) It was

held thus:

28. Section 45A of the Employees State Insurance Act would provide for determination of contributions in certain cases. A reading of the above section would reveal that when the records are not produced by the establishment to the corporation and when there is no cooperation, the corporation has got the power to make assessment and determine the amount under Section 45A and recover the said amount as arrears of land revenue under Section 45B of the Act. When the corporation passed an order under Section 45A, the said order is final as far as the corporation is concerned.

Under Section 45A(1), the corporation, by an order, can determine the amount of contributions payable in respect of the employees indulged in preventing the corporation from exercising its functions or discharging its duties under Section 45, on the basis of the material available to it, after giving reasonable opportunity. But, where the records are produced, the assessment has to be made under Section 75(2)(a) of the Act. Section 45A(2) would provide that the order under Section 45A(1) shall be used as sufficient proof of the claim of the corporation under Section 75 or for recovery of the amount determined by such order as arrears of land revenue under Section 45B. In other words, when there is a failure in production of records and

34 when there is no co-operation, the corporation can determine the amount and recover the same as arrears of land revenue under Section 45B. But, on the other hand, if the records are produced and if there is cooperation, the assessment has to be made and it can be used as a sufficient proof of the claim of the corporation under Section 75 before the E.S.I. Court. So, the limitation of three years for filing an application before the Court, introduced by Act 44 of 1966, would relate only to the application under Section 75 read with 77(1A). The order under Section 45A need not be executed by the corporation before the E.S.I. Court under Section

77. As such, the amendment to Section 77(1A)(b) proviso by Act 29 of 1989 providing five year limitation has no impact on the orders passed by the corporation under Section 45A.

20.1. Section 45A contemplates a summary method

to determine contribution in case of deliberate default on

the part of the employer or there is no co-operation by the

employer. There is no doubt that the area and the field

covered by Section 45A and Section 75 are quite different.

Section 45A is a special provision for expeditious action

against an employer who commits default. This special

provision has been enacted only in order to weed out

unscrupulous employers committing default in the

35 maintenance of the records and submission of correct

returns for payment of contributions. If the period of

limitation prescribed under the proviso to Clause (b) of

Section 77(1A) is read into provisions of Section 45A, it

would defeat the very purpose of Sections 45A and 45B. The

prescription of limitation under Section 77(1A)(b) of the Act

is deliberately not made applicable to the adjudication

proceedings under Section 45A by the legislature since such

a restriction would restrict the right of the corporation to

determine the claims under Section 45A and the right of

recovery under Section 45B. Thus, Section 45A does not

prescribe any period of limitation. Finally, Madras High

Court declared as under:

Having regard to the scheme and object of the Act, while interpreting the provisions so as to advance the remedy and not to defeat and also in keeping with the principles enunciated in the decisions rendered by the Supreme Court, we are of the considered opinion, that the period of limitation, prescribed under Section 77(1A)(b) of the Employees’ State Insurance Act, 1948, would not apply to the recovery proceedings under S.45B of the Act, in pursuance of an order under Section 45A.

36 21. In C.C. Santhakumar, this Court examined the

contours of Sections 45A, 45B, 75 and 77 of the Act and

on a combined reading of the aforesaid provisions, it is

observed that no claim shall be made by the corporation

beyond five years to which the claim relates as per the

proviso to clause (b) of Section 77(1A). On the other hand,

a reading of Chapter IV as a whole makes it clear that

there is no limitation prescribed. Explaining the

difference between Section 45A and Section 77(1A), this

Court held as under:

15. Section 45A provides for determination of contributions in certain cases. When the records are not produced by the establishment before the corporation and when there is no co-operation, the corporation has got the power to make assessment and determine the amount under Section 45A and recover the said amount as arrears of land revenue under Section 45B of the Act. This is in the nature of a best-judgment assessment as is known in taxing statutes. When the corporation passes an order under Section 45A, the said order is final as far as the corporation is concerned. Under Section 45A(1), the corporation, by an order, can determine the amount of contributions payable in respect of the employees where the employer prevents the corporation from exercising its functions or discharging its duties under Section 45, on the

37 basis of the material available to it, after giving reasonable opportunity. But, where the records are produced, the assessment has to be made under Section 75(2)(a) of the Act. Section 45A(2) provides that the order under Section 45A(1) shall be used as sufficient proof of the claim of the corporation under Section 75 or for recovery of the amount determined by such order as arrears of land revenue under Section 45B. In other words, when there is a failure in production of records and when there is no cooperation, the corporation can determine the amount and recover the same as arrears of land revenue under Section 45B. But, on the other hand, if the records are produced and if there is cooperation, the assessment has to be made and it can be used as a sufficient proof of the claim of the corporation under Section 75 before the ESI Court. So, the limitation of three years for filing an application before the court, introduced by Act 44 of 1966, can only relate to the application under Section 75 read with Section 77(1A). The order under Section 45A need not be executed by the corporation before the ESI Court under Section 77.

As such, the amendment to Section 77(1A)(b) proviso by Act 29 of 1989 providing five-year limitation has no relevance so far as orders passed by the corporation under Section 45A are concerned.

22. Thus as noticed supra, Sections 45A and 45B

on the one hand and Sections 75 and 77 on the other

38 hand operate in different fields. There cannot be any

doubt that the area and the scope and ambit of Sections

45A and 75 are quite different. We have already

discussed about the pre-conditions which are required to

be satisfied before the jurisdiction under Section 45A can

be invoked. Subject to fulfillment of the above pre-

conditions, an order passed under Section 45A is final. It

need not be executed by the corporation by filing an

application under Section 77 before the Employees

Insurance Court. Section 45A therefore does not

prescribe any period of limitation and the limitation

prescribed under Section 77 does not get attracted. As

noticed supra, there is a reason for this. A defaulting

employer or an obstructionist employer should not be

allowed to avoid contributions required to be paid by

them. However, where an order is passed under Section

45-A, it is for the employer to approach the Employees

Insurance Court if he wants to challenge the same. In

such an eventuality, the limitation prescribed is three

years. On the other hand, ordinarily if the corporation

disputes any contribution of the employer, it has to take

recourse to Section 75 in which event, it has to move the

39 Employees Insurance Court for recovery of the amounts

due. For that, corporation has to invoke Section 77 for

initiation of proceedings before the Employees Insurance

Court. However, to ensure that stale claims are not

agitated, legislature has prescribed a limitation of five

years for raising of such claims or disputes by the

corporation. The limitation for institution of claims by the

corporation before the Employees Insurance Court, as

noticed supra, is prescribed under the proviso to Section

77(1A)(b) which mandates that no claim shall be made by

the corporation after five years of the period to which the

claim relates.

23. As explained in Santhakumar the limitation

prescribed in the proviso to Section 77(1A)(b) applies only

to claims made by the corporation before the Employees’

Insurance Court and not to proceedings undertaken

under Section 45A. It has been explained that if the five-

year bar is read into Section 45A, it would defeat the very

purpose for which Sections 45A and 45B were enacted,

since such a restriction would curtail the corporation’s

authority to make a best-judgment determination in

40 cases of non-production of records or obstruction to

inspection and would undeservedly benefit employers

who evade statutory obligations.

24. Thus, Section 45A is designed as a mechanism

which the corporation may employ only when there is a

default qua Section 44 or when statutory inspection

under Section 45 becomes impossible on account of the

conduct of the employer. The foundation for exercise of

the power under Section 45A, as explained in

Santhakumar, is either non-production of records or

absence of cooperation or obstruction of inspection. The

power is conceived as a best judgment determination akin

to similar provisions in taxing statutes. What is equally

significant is the clear statement of law that when records

are produced and cooperation is forthcoming,

assessment must be carried out under Section 75(2)(a)

and not under Section 45A. The distinction drawn is

therefore fundamental to the statutory architecture.

Section 45 A is not meant to be an alternative mode of

computation at the option of the corporation. It is a

residuary power available only when the employer makes

41 a default under Section 44 or disables the corporation

from carrying out inspection under Section 45.

25. In so far the impugned judgment and order of

the High Court is concerned, we find that the High Court

itself recorded that the appellant had appeared before the

corporation through its authorized representative(s) and

that relevant records were produced during the course of

personal hearings. If the records were produced and the

appellant had participated in the personal hearings

which indicates that there was no non co-operation or

obstruction, the conditions precedent for invoking

jurisdiction under Section 45A were clearly absent. While

it is true that there is no limitation under Section 45A of

the Act, it is equally true that invocation of the said

provision is dependent upon fulfillment of the aforesaid

two conditions which are the functional requirement for

invoking Section 45A viz non-production of records or

obstruction of inspection. Mere inadequacy of the record

would not confer jurisdiction upon the corporation to

invoke Section 45A. The legislative intent is clear:

summary determination under Section 45A would be

42 permissible only in exceptional situations as alluded to

hereinabove. The Act does not contemplate Section 45A

as an alternative assessment mechanism available at the

option of the corporation whenever the employer’s records

are perceived as deficient or inadequate.

26. Once Santhakumar is read and understood in

its factual setting, its ratio becomes clear. In that case,

the employer had failed to produce records and had not

cooperated with the inspection. Invocation of Section

45A, therefore, rested squarely on the statutory pre-

conditions. It would not be appropriate to extend the

rationale of Santhakumar to cases where records have in

fact been produced and where repeated personal hearings

have been attended by the employer. Dissatisfaction with

the completeness or quality of documents does not

convert production into non-production, nor does it

permit the corporation to invoke a power meant for

exceptional situations. If the corporation, after examining

the materials produced, believes that the computation

made by the employer is incorrect or that further evidence

is needed to decide the true nature of particular entries,

43 the proper course is to raise a dispute under Section 75.

To enlarge Section 45A so as to cover situations of

partial dissatisfaction or perceived inadequacy would

tantamount to rewriting the statute in a manner plainly

contrary to its text and structure.

27. In the present case, the materials placed before

us shows 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 has

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.

44

28. It is not in dispute that the demand in this case

pertains to the period from August 1988 to March 1992.

Show cause notice was issued on 27.11.1996 and the

final order under Section 45A was passed on 17.04.2000.

Appellant was consistent in contending both before the

Employees Insurance Court as well as before the High

Court that the exercise undertaken by the respondent

was beyond the statutory period of limitation and that the

respondent sought to overcome the bar under Section

77(1A)(b) by resorting to Section 45A notwithstanding the

fact that records were duly produced and that there was

cooperation to inspection by the employer i.e. by the

appellant.

29. The Employees Insurance Court and the High

Court, in our view, 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 reasoning

45 suffers from the omission to examine whether invocation

of Section 45A was permissible at all in the background

of admitted production of records and cooperation. The

statutory scheme does not allow the corporation to

bypass Section 75 merely because it finds verification

inconvenient or time consuming.

30. In so far the instant case is concerned, it is

clear that the respondent 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 Employees’ Insurance Court and the

High Court, in our considered opinion, while affirming the

46 order passed under Section 45A without examining this

jurisdictional deficiency, fell into a grave and palpable

error.

31. This being the position, we have no hesitation

in holding that invocation of power under Section 45A of

the Act by the respondent was unsustainable in the facts

and circumstances of the case rendering the order passed

thereunder by the corporation on 17.04.2000 wholly

untenable. Accordingly, the said order dated 17.04.2000

is set aside. Resultantly, the order passed by the

Employees Insurance Court dated 06.07.2015 and the

impugned judgment and order of the High Court dated

12.10.2023 are also set aside.

32. Consequently, the appeal is allowed. However,

there shall be no order as to cost.

……………………………J. [MANOJ MISRA]

……………………………J. [UJJAL BHUYAN] NEW DELHI;

DECEMBER 18, 2025.

47