Case Note & Summary
The High Court allowed the appeal by ESI Corporation officials against Respondent, overturning the ESI Court's decision that had quashed a damages order under Section 85-B of the ESI Act. The Corporation had levied Rs.27,849/- in damages for delayed contributions after proper hearing. The ESI Court found the order mechanical and lacking consideration of various factors. However, the High Court held the ESI Court erred because the employer had not pleaded those factors in their submissions, had malafide intent by maintaining inaccurate records, and was properly notified about consequences. The Court reinstated the original damages order, emphasizing the deterrent purpose of penal provisions.
Headnote
The High Court of Judicature at Bombay allowed the appeal filed by the Appellants Officer of Employees' State Insurance Corporation (Appellants) against M/s. Aashu Engineering Works (Respondent) -- The Court held that the ESI Court erred in quashing the damages order under Section 85-B of the Employees' State Insurance Act, 1948 (ESI Act) -- The Appellants had levied damages of Rs.27,849/- on 10 January 2006 for delayed contributions after giving proper hearing opportunity -- The ESI Court quashed this order on 22 February 2010, finding it mechanical and lacking consideration of factors like number of defaults, extent of delay, and frequency of defaults -- The High Court found the Respondent had malafide intention by maintaining inaccurate wage records that did not reflect actual employment position -- The Respondent's submissions only mentioned payment in installments and lack of awareness about damages consequences -- Since the Respondent did not plead factors like number of defaults or extent of delay, the ESI Court should not have considered them -- The Appellants' Form C-18 had notified the Respondent about Section 85-B consequences -- The High Court reinstated the original damages order, emphasizing penal provisions' deterrent function
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Issue of Consideration: Whether, on admitted facts, the learned Judge of the Employees State Insurance Court (ESI Court) could have set aside the order passed under Section 85-B of the Employees' State Insurance Act, 1948 (ESI Act)
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Final Decision
The High Court allowed the appeal, set aside the ESI Court's order dated 22 February 2010, and reinstated the Appellants' original damages order dated 10 January 2006 under Section 85-B of ESI Act
2026 LawText (BOM) (02) 93
First Appeal No.756 of 2011
Mr. Mayuresh Nagle, Mr. Rutwij Bapat
The Deputy Regional Director, Employees' State Insurance Corporation, Panchdeep Bhavan 689/690, Bibevewadi, Pune – 400 037, The Recovery Officer, Sub-Divisional Office, ESIC Panchdeep Bhavan 689/690, Bibevewadi, Pune – 411 037
M/s. Aashu Engineering Works Sr. No.4A, Salunke Vihar Road, Pune – 411 004
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Nature of Litigation: Appeal against ESI Court's order quashing damages levied under Section 85-B of ESI Act
Remedy Sought
Appellants sought reinstatement of their original damages order of Rs.27,849/- against the Respondent
Filing Reason
Appellants were aggrieved by ESI Court's 22 February 2010 order that quashed their damages order
Previous Decisions
Appellants passed damages order on 10 January 2006 -- ESI Court quashed this order on 22 February 2010 -- Appeal admitted on 23 August 2011
Issues
Whether the ESI Court could have set aside the order passed under Section 85-B of ESI Act on admitted facts
Submissions/Arguments
The ESI Court erred in finding the damages order mechanical without considering Respondent's limited submissions
The Respondent had malafide intention by maintaining inaccurate wage records
The Respondent was properly notified about Section 85-B consequences through Form C-18
The Respondent did not plead factors like number of defaults or extent of delay in their submissions
Ratio Decidendi
The ESI Court cannot consider factors for reducing damages that were not pleaded by the employer in their submissions -- Employers with malafide intent who maintain inaccurate statutory records cannot claim waiver of damages -- Proper notification about consequences under Section 85-B negates claims of unawareness -- Penal provisions under ESI Act serve important deterrent functions beyond mere penalty
Judgment Excerpts
The ESI Court further observed that the order of damages has been passed mechanically without application of mind and merely because the employer fails to pay the contribution, damages should not be imposed because it is lawful to do so
In my view, the observation made by the ESI Court is not correct
If the respondent wanted to take the benefit of these factors, they should have pleaded so in their reply to show cause notice
The fact that wage records did not tally with the actual position clearly shows that the employer deliberately misled the Corporation
Penal provisions have dual effect namely to penalise the offender/defaulter and also to act as deterrent
Procedural History
10 January 2006 -- Appellants passed damages order under Section 85-B -- 22 February 2010 -- ESI Court quashed the damages order -- 23 August 2011 -- Appeal admitted by High Court -- 17 February 2026 -- High Court delivered judgment allowing appeal
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