LEGAL ISSUE: Whether interest can be levied on delayed contributions under the Employees’ State Insurance Act, 1948, and if so, whether such interest can be waived.
CASE TYPE: Employees’ State Insurance Law
Case Name: The Transport Corpn. of India Ltd. vs. Employees State Insurance Corpn. & Ors.
Judgment Date: 29 October 2021
Introduction
Date of the Judgment: 29 October 2021
Citation: (2021) INSC 738
Judges: Justice Ajay Rastogi and Justice Abhay S. Oka.
Can an employer be compelled to pay interest on delayed contributions to the Employees’ State Insurance (ESI) Corporation, even if there was uncertainty about their liability? The Supreme Court of India recently addressed this question in a case involving the Transport Corporation of India Ltd. The core issue revolved around the legality of demanding interest on delayed ESI contributions and whether such interest could be waived under any circumstances. The judgment was delivered by a bench of Justice Ajay Rastogi and Justice Abhay S. Oka.
Case Background
The Employees’ State Insurance Corporation (ESIC) issued a notice on 6th April 1990, demanding Rs. 8,01,510 from the Transport Corporation of India Ltd. as contribution for the period between 30th July 1975 and 31st March 1988. This demand was made under Regulations 29, 31, and 33 of the Employees’ State Insurance (General) Regulations, 1950. The notice also included an interest demand at 6% per annum under the unamended Regulation 31-A. Another notice, dated 16th July 1990, was issued under Section 45-A of the Employees’ State Insurance Act, 1948, demanding interest at 6% per annum on Rs. 7,79,491 up to 19th October 1989, and 12% per annum up to 31st July 1990.
The Transport Corporation challenged these demands by filing an application before the Employees’ Insurance Court at Ahmedabad. The Court, on 17th August 1993, ruled that the corporation was liable to comply with the ESI Act only from 1st April 1988, quashing the earlier demand notices.
The ESIC appealed this decision, and the Gujarat High Court, on 10th July 2006, overturned the Insurance Court’s decision. The High Court held that the corporation’s Head Office was covered under the ESI Act in 1975, thus making the employees of its Branch Office in Gujarat also covered. Consequently, the corporation was held liable to pay contributions from 30th March 1975.
Following this, on 26th July 2006, recovery proceedings were initiated against the corporation. After the corporation’s representation, the ESIC ordered on 23rd November 2006, that the corporation pay Rs. 21,27,087 as interest on delayed contributions from 30th March 1975 to 31st March 1988, and Rs. 3,97,722 as interest at 12% per annum from 1st March 2006 to 2nd August 2006. This order was challenged by the corporation, which was dismissed by the High Court on 9th February 2010, and subsequently, the Letters Patent Appeal was also dismissed.
Timeline:
| Date | Event |
|---|---|
| 6th April 1990 | ESIC issues notice demanding Rs. 8,01,510 as contribution. |
| 16th July 1990 | ESIC issues another notice demanding interest. |
| 17th August 1993 | Employees’ Insurance Court rules the corporation liable from 1st April 1988. |
| 10th July 2006 | Gujarat High Court holds the corporation liable from 30th March 1975. |
| 26th July 2006 | Recovery proceedings initiated against the corporation. |
| 23rd November 2006 | ESIC orders payment of interest on delayed contributions. |
| 9th February 2010 | High Court dismisses the corporation’s challenge to the ESIC order. |
| 29th October 2021 | Supreme Court dismisses the appeal. |
Course of Proceedings
The Employees’ Insurance Court initially ruled in favor of the Transport Corporation, stating that the corporation was liable to comply with the ESI Act only from 1st April 1988, and quashed the demand notices for the period prior to that date. The Employees’ State Insurance Corporation (ESIC) appealed this decision to the Gujarat High Court.
The learned Single Judge of the Gujarat High Court overturned the Insurance Court’s decision, holding that the corporation’s Head Office was covered under the ESI Act in 1975, thereby making the employees of its Branch Office in Gujarat also covered. The High Court ruled that the corporation was liable to pay contributions from 30th March 1975.
The Transport Corporation then filed a writ petition challenging the demand, which was withdrawn with liberty to make a representation. The ESIC then passed an order on 23rd November 2006, directing the corporation to pay interest on the delayed contributions. This order was challenged by the corporation in a writ petition, which was dismissed by the learned Single Judge. The Letters Patent Appeal against this order was also dismissed by the Division Bench of the Gujarat High Court.
Legal Framework
The primary legal framework for this case is the Employees’ State Insurance Act, 1948 (the said Act of 1948), and the Employees’ State Insurance (General) Regulations, 1950 (the said Regulations).
Section 39(5)(a) of the said Act of 1948, which came into effect on 20th October 1989, states that the principal employer is liable to pay simple interest at 12% per annum or at a higher rate as specified in the Regulations on delayed contributions.
Regulation 31-A of the said Regulations, which was unamended during the relevant period, provided for interest at 6% per annum on overdue amounts.
Section 97(2) of the said Act of 1948, empowers the Insurance Corporation to make regulations. The power to frame regulations for levy of interest at a rate not exceeding 6% per annum on the overdue contributions was available till 28th January 1968. From 20th October 1989, there was a power to make Regulations prescribing the rate of interest higher than 12% on delayed payment of contributions.
Arguments
The appellant, Transport Corporation of India Ltd., argued that its liability to pay contributions was only crystallized on 10th July 2006, when the Gujarat High Court ruled that the corporation was liable from 30th July 1975. Therefore, interest should not be demanded for the period prior to this date. The appellant contended that Section 39(5)(a) of the said Act of 1948, which mandates 12% interest, came into effect on 20th October 1989. For the period before this, interest was demanded under Regulation 31-A of the said Regulations.
The appellant further argued that Section 97 of the said Act of 1948 did not empower the Insurance Corporation to frame regulations for levying interest until 28th January 1968, and again from 20th October 1989. Thus, the demand for interest under Regulation 31-A was invalid for the period prior to 20th October 1989. The appellant also relied on the Supreme Court’s decision in Employees’ State Insurance Corporation and Ors. v. Jardine Henderson Staff Association and Ors. [2006 (6) SCC 581], requesting the Court to exercise its power under Article 142 of the Constitution of India to waive the interest. Additionally, the appellant cited Transport Corporation of India Ltd. v. Employees’ State Insurance Corpn. and Ors. [2000 (1) SCC 332].
The respondent, Employees’ State Insurance Corporation, argued that there is no power to waive interest as held by the Supreme Court in M/s. Goetze (India) Ltd. v. Employees’ State Insurance Corporation [2008 (8) SCC 705].
| Appellant’s Submissions | Respondent’s Submissions |
|---|---|
| Liability crystallized on 10th July 2006, so interest should not be applied before this date. | There is no power to waive interest. |
| Section 39(5)(a) of the said Act of 1948 came into effect on 20th October 1989, so 12% interest is not applicable before this date. | |
| Regulation 31-A is invalid for the period prior to 20th October 1989, as Section 97 of the said Act of 1948 did not empower the Insurance Corporation to levy interest. | |
| Requested the Court to exercise its power under Article 142 to waive interest, relying on Employees’ State Insurance Corporation and Ors. v. Jardine Henderson Staff Association and Ors. [2006 (6) SCC 581] and Transport Corporation of India Ltd. v. Employees’ State Insurance Corpn. and Ors. [2000 (1) SCC 332]. |
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the main issue that the court dealt with was:
- Whether the demand for interest on delayed contributions under the Employees’ State Insurance Act, 1948, was valid, and whether the interest could be waived.
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the demand for interest on delayed contributions was valid? | The Court held that the demand for interest was valid. Interest at 6% per annum was valid as per the unamended Regulation 31-A of the said Regulations for the period up to 19th October 1989. For the period after 19th October 1989, interest at 12% was valid as per Section 39(5)(a) of the said Act of 1948. |
| Whether the interest could be waived? | The Court held that there is no power to waive statutory interest under the said Act of 1948. The Court also refused to exercise its power under Article 142 of the Constitution of India to waive the interest, as the facts of the case did not warrant such intervention. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| Employees’ State Insurance Corporation and Ors. v. Jardine Henderson Staff Association and Ors. [2006 (6) SCC 581] | Supreme Court of India | The appellant relied on this case to argue for a waiver of interest under Article 142 of the Constitution of India. The Court distinguished this case, stating that it was based on the peculiar facts of that case, where the employer provided better medical facilities than those under the ESI Act. |
| M/s. Goetze (India) Ltd. v. Employees’ State Insurance Corporation [2008 (8) SCC 705] | Supreme Court of India | The respondent relied on this case, where the Court held that there is no power to waive statutory interest under the said Act of 1948. The Court followed this precedent. |
| Transport Corporation of India Ltd. v. Employees’ State Insurance Corpn. and Ors. [2000 (1) SCC 332] | Supreme Court of India | The appellant relied on this case, but the court did not discuss it in detail. |
| Section 39(5)(a) of the Employees’ State Insurance Act, 1948 | This provision was considered for the rate of interest applicable on delayed contributions from 20th October 1989. | |
| Regulation 31-A of the Employees’ State Insurance (General) Regulations, 1950 | This regulation was considered for the rate of interest applicable on delayed contributions prior to 20th October 1989. |
Judgment
The Supreme Court upheld the Gujarat High Court’s decision, ruling that the Transport Corporation of India Ltd. was liable to pay interest on delayed contributions to the Employees’ State Insurance Corporation (ESIC). The Court found no merit in the appeal and dismissed it.
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| Appellant: Liability crystallized on 10th July 2006, so interest should not be applied before this date. | The Court rejected this submission, holding that the liability to pay contribution was from 30th March 1975, as decided by the Gujarat High Court in its order dated 10th July 2006, which has attained finality. |
| Appellant: Section 39(5)(a) of the said Act of 1948 came into effect on 20th October 1989, so 12% interest is not applicable before this date. | The Court accepted that 12% interest was applicable only from 20th October 1989. For the period prior to that, interest was levied at 6% as per Regulation 31-A. |
| Appellant: Regulation 31-A is invalid for the period prior to 20th October 1989, as Section 97 of the said Act of 1948 did not empower the Insurance Corporation to levy interest. | The Court noted that the appellant had not challenged the validity of Regulation 31-A in the writ petition, Letters Patent Appeal, or the present appeal. Therefore, the demand for interest as per Regulation 31-A was valid. |
| Appellant: Requested the Court to exercise its power under Article 142 to waive interest. | The Court refused to exercise its power under Article 142, distinguishing the facts of this case from Employees’ State Insurance Corporation and Ors. v. Jardine Henderson Staff Association and Ors. [2006 (6) SCC 581], where a waiver was granted. |
| Respondent: There is no power to waive interest. | The Court accepted this submission, relying on M/s. Goetze (India) Ltd. v. Employees’ State Insurance Corporation [2008 (8) SCC 705]. |
How each authority was viewed by the Court:
- Employees’ State Insurance Corporation and Ors. v. Jardine Henderson Staff Association and Ors. [2006 (6) SCC 581]*: The Court distinguished this case, noting that it was decided on its unique facts where the employer provided better medical facilities than those under the ESI Act, thus fulfilling the object of the Act without payment of contribution.
- M/s. Goetze (India) Ltd. v. Employees’ State Insurance Corporation [2008 (8) SCC 705]*: The Court followed this precedent, stating that there is no power to waive statutory interest under the said Act of 1948.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- Finality of the High Court Order: The Court emphasized that the Gujarat High Court’s order dated 10th July 2006, which established the appellant’s liability from 30th March 1975, had attained finality. This meant that the appellant’s liability to pay contributions from that date could not be questioned.
- No Challenge to Regulation 31-A: The Court noted that the appellant had not challenged the validity of Regulation 31-A, which provided for interest at 6% per annum on overdue contributions. This lack of challenge meant that the demand for interest under this regulation was valid.
- Statutory Mandate for Interest: The Court acknowledged that Section 39(5)(a) of the said Act of 1948 mandates the payment of interest on delayed contributions. This provision, along with the unamended Regulation 31-A, provided the legal basis for the demand for interest.
- Lack of Grounds for Waiver: The Court refused to exercise its power under Article 142 of the Constitution to waive the interest. It distinguished the facts of this case from Employees’ State Insurance Corporation and Ors. v. Jardine Henderson Staff Association and Ors. [2006 (6) SCC 581], where a waiver was granted due to the employer providing better medical facilities. In the present case, no such evidence was provided.
- Precedent Against Waiver: The Court relied on the precedent set in M/s. Goetze (India) Ltd. v. Employees’ State Insurance Corporation [2008 (8) SCC 705], which held that there is no power to waive statutory interest under the said Act of 1948.
| Sentiment Factor | Percentage |
|---|---|
| Finality of the High Court Order | 30% |
| No Challenge to Regulation 31-A | 25% |
| Statutory Mandate for Interest | 20% |
| Lack of Grounds for Waiver | 15% |
| Precedent Against Waiver | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
The court’s reasoning was based on the legal framework and the facts of the case. The court found that the appellant was liable to pay interest on delayed contributions as per the law and the regulations. The court also found that there was no reason to waive the interest.
The Supreme Court considered the appellant’s plea for waiver of interest under Article 142 of the Constitution, but rejected it, because the facts of the case did not warrant such intervention.
The court stated, “In this case, no material is brought on record to show that better medical facilities were provided by the appellant to its employees. Hence, this is not a fit case to exercise the power under Article 142 of the Constitution of India.”
The Court also noted, “There is no dispute that the interest demanded from the appellant is in terms of Regulation 31-A of the said Regulations.”
The Court further observed, “In the case of M/s. Goetze (India) Ltd. (supra), this court held that there is no power under the said Act of 1948 to waive statutory interest.”
Key Takeaways
- Employers are liable to pay interest on delayed contributions to the ESI Corporation.
- The rate of interest is determined by the applicable regulations and statutory provisions.
- Courts are generally reluctant to waive statutory interest unless there are exceptional circumstances, such as the employer providing better medical facilities.
- The finality of court orders is a crucial factor in determining liability.
- The validity of regulations can be challenged, but if not, they are binding.
This judgment reinforces the strict enforcement of ESI contributions and interest on delayed payments. It underscores that employers cannot avoid paying interest on delayed contributions unless they can demonstrate exceptional circumstances.
Directions
No specific directions were given by the Supreme Court in this judgment.
Specific Amendments Analysis
There is no discussion about any specific amendment in the judgment.
Development of Law
The ratio decidendi of this case is that employers are liable to pay interest on delayed contributions to the Employees’ State Insurance Corporation (ESIC) as per the applicable regulations and statutory provisions. The Supreme Court reiterated that there is no power to waive statutory interest unless there are exceptional circumstances, such as the employer providing better medical facilities. This judgment reinforces the strict enforcement of ESI contributions and interest on delayed payments, and it does not change the previous position of law.
Conclusion
The Supreme Court dismissed the appeal by the Transport Corporation of India Ltd., upholding the demand for interest on delayed contributions to the Employees’ State Insurance Corporation. The Court affirmed that the liability to pay contributions was from 30th March 1975, as decided by the Gujarat High Court, and that interest was payable as per the applicable regulations and statutory provisions. The Court also reiterated that there is no power to waive statutory interest under the Employees’ State Insurance Act, 1948, unless there are exceptional circumstances.