Does the alternative remedy under Section 45AA of the Employees' State Insurance Act, 1948 bar a writ petition where the circumstances justify entertaining it?

The petitioners before this Court are educational institutions. They have filed these writ petitions, (1) Challenging the demand notices issued under Section 45A of the ESI Act to pay the contribution under the ESI Act; (2) Challenging the garnishee orders passed under Section 45G of the ESI in respect of the bank accounts of the educational institutions; (3) Seeking a direction to consider their request to extend the benefit of write off with regard to the contribution, interest and damages to the educational institutions as per the mandate of the Full Bench of this Court in WP.No.34236 of 2019 dated 29.07.2020; and (4) Seeking a direction to refund the already adjusted amount and repayment of the same to the educational institutions.

Learned Senior Counsel appearing for the petitioners submitted that the petitioners are educational institutions. By notification dated 29.12.2010, the ESI Act was made applicable to educational institutions. It was challenged by the educational institutions and there was an order of interim stay on the operation of the notification since 25.07.2011 in WA.No. 1233 of 2011. This interim stay was subsequently extended by a Division Bench of this Court vide order dated 09.06.2015. Thereafter, this issue was conclusively determined only in the year 2020 by a Full Bench of this Court, vide order dated 29.07.2020, holding that the educational institutions are covered under the ESI Act. The Full Bench, however, directed the authorities to consider the claim for write off under Section 91C in light of the pandemic situation. Even thereafter, the ESI Corporation has claimed huge contributions for this period and paying the same would virtually cripple the educational institutions.

He further submitted that the respondent ESI Corporation has also claimed interest amount, treating as if these contributions were payable for the respective periods as per Section 39 of the Act. However, the notification was not enforced when the matter was pending in Court and contributions could not be paid on account of the interim orders that were passed. Hence the entire arrears as well as the interest are liable to be waived.

On the other hand, learned Standing Counsel for the respondent ESI Corporation made his submissions as follows:- 4.1.When the arrears of contribution has been determined in the exercise of the powers under Section 45A, the petitioners have an appeal remedy under Section 45AA or a remedy to approach the Employees' State Insurance Court (ESI Court), under Section 75 of the Act. Hence, these writ petitions filed under Article 226 are not maintainable before this Court. 4.2.Once the State Government's notification dated 25.07.2011 extending the Act to educational institutions has come into force, then as per Section 2-A of the Act read with Rule 10(b) of the Employees State Insurance (General) Regulations 1950, it is the primary duty of the employer to register themselves and pay the dues. The contribution becomes due from the last date of the wage period and it has to be remitted within 21 days from the last date of the calendar month, in which the contribution fell due. Thereafter, the interest shall accrue automatically and the liability is statutory in nature. The interest is payable as per Section 39 of the Act. These are statutory dues and lack of financial resources cannot be a ground to escape the liability under the ESI Act. 4.3.The validity of G.O.Ms.No.237, Labour and Employment (K1) Department, dated 26.11.2010 has been upheld by the Full Bench of this Court in All India Private Educational Institutions Association's case and hence this Act is applicable to educational institutions. It is the educational institutions who have challenged the above notification. If they are unable to sustain in the challenge, then ultimately when the stay is vacated, they have no other option than to pay the entire arrears as well as the interest. 4.4.The doctrine of restitution would be applicable in the present case. As per the latin maxim egal maxim actus curiae neminem gravabit (the act of the Court shall harm no one), if a party gains an unfair advantage due to an interim order that is later overturned, the Court has an inherent power and duty to undo the same through restitution. This means that if a party has obtained a stay order to retain some benefit or avoid paying some benefit and it is decided in the final determination that the party is liable to pay such benefit, then they cannot escape from such liability. Since it is the educational institutions who have challenged the notification extending the ESI Act to them and obtained a stay order, they cannot escape from that liability now that the issue has been decided against them.

This Court considered the submissions made by the respective parties and perused the materials placed on record.

The Employees’ State Insurance Act, 1948, was enacted by the Parliament aiming to provide certain benefits to the employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto. Some of the features of the Act are as follows:- i) Chapters II and III of the Act create the ‘Employees State Insurance Corporation’ and provide about its constitution, duties and functions, finance, audit, etc. Chapter IV of the Act deals with contributions. ii) Section 1(5) of the Act provides the appropriate Government with the power, in consultation with the ESIC and with the approval of the Central Government, to extend the provisions of this Act to any other establishment, class of establishment, industrial, commercial, agricultural or otherwise. iii) Section 39 of the Act mandates that the contribution payable under the Act, in respect of an employee shall comprise the contribution payable by the employer, which is referred to as an employer’s contribution and the contribution payable by the employee, which is referred to as an employee’s contribution. Both the sums shall be paid to the ESIC. Under Section 39(4) of the Act, the contributions payable in respect of each period shall ordinarily be due on the last day of the wage period. It is Section 39(5)(a) of the Act which deals with the payment of interest. As per this provision, if the contribution payable under the Act is not paid by the principal employer on the date on which the contribution has become due, the employer is liable to pay simple interest at the rate of 12 % per annum or at such higher rate as may be specified till the date of its actual payment. iv) Section 45 of the Act empowers the ESIC to appoint Inspectors who can inspect the premises and examine any matter relevant to the aforesaid purposes of the Act. If any employee fails to file returns and particulars or fails to maintain the registers and to make payments, the Inspectors who are appointed under Section 45 of the Act or such other officer enabled in this regard, based on the information available, by an order determine the amount of contributions payable in respect of the employees of the factory or establishment. Such an order under Section 45(A) of the Act, determining the amount of contribution payable, shall be made after giving an opportunity to be heard. Section 45(G) of the Act provides for the other modes of recovery whereby a third party - garnishee holding the amount to the employer can be directed to pay the amount to the ESIC as per procedure mentioned under the provision.

The State Government of Tamil Nadu, in exercise of its powers under Section 1(5) of the ESI Act, decided to extend the provisions of the Act to the educational institutions run by the individuals, trustees, societies or other organizations where 20 or more persons are employed or were employed on any day preceding 12 months with effect from the date of publication of the notification, excluding Government and Government aided institutions. The original intention to extend the benefits was published on 04.06.2008 vide notification No.11(2/LE/265/2008). Thereafter, by G.O.Ms.No.237, Labour and Employment (K1) Department, dated 26.11.2010, the provisions of the Act were extended to the educational institutions by a due notification published in the gazette.

Some of the educational institutions challenged the notification and a learned Single Judge of this Court, in W.P.No.2872 of 2011, dated 14.03.2011, upheld the notification dated 26.11.2010. Aggrieved over the same, Writ Appeal Nos.1233 of 2011 etc., batch, were preferred and by an order dated 25.07.2011, an interim order of stay of the notification was granted by the Division Bench of this Court.

In the meanwhile, in the case of State of UP v. Jaibir Singh [(2005) 5 SCC 1], a question as to whether employment in a welfare scheme undertaken by the Social Forestry Department can be termed as an industry or not was referred to a Constitution Bench of the Hon'ble Supreme Court by noting the difference of opinion between the two Judgments of the Hon'ble Supreme Court in Chief Conservator of Forest v. Jagannath Maruthi Kondare [AIR 1996 SC 2898] and in The State of Gujarat v. Pratham Singh Narsing Parmar [(2001) 9 SCC 713]. This Constitution Bench considered the various Judgments of the Hon’ble Supreme Court of India concerning the definition of industry and found that the question arises pursuant to the interpretation of the term ‘industry’ by a larger Bench consisting of Seven Judges in the case of Bangalore Water Supply & Sewerage Board and Others v. R.Rajappa and others [1978 AIR 548]. Hence, the Constitution Bench decided to refer the question to a larger bench of the Supreme Court. The reference was made by the Constitution Bench on 15.05.2005 and the matter is pending before the Hon’ble Supreme Court of India, till date.

On 09.06.2015, in Writ Appeal Nos.1233 of 2011, etc., batch, by citing the above judgment of the Constitution Bench, arguments were made whether a labour welfare legislation can be extended to an educational institution by terming it as an industry. Therefore, the Division Bench, considering the fact that the matter had been referred to a larger Bench and that since the interim orders were in operation, passed an order, upon the consent of both the parties, disposing all the matters that the interim order would continue till the disposal of the issue by the Larger Bench of the Hon’ble Supreme Court and that the parties would remain bound by the legal position that is to be enunciated by the Larger Bench of the Hon’ble Supreme Court.

However, in the meantime, writ petitions came to be filed by the educational institutions and by separate orders, several Single Benches of this Court had upheld the notification. In this situation, in All India Private Educational Institutions Association represented by its State General Secretary v. State of Tamil Nadu and Others [WP.No.34236 of 2019 etc., batch, dated 29.07.2020], a Division Bench of this Court referred the matter to the Full Bench of this Court and the Full Bench answered the reference vide order dated 29.07.2020, holding that the decision as to the validity of the Government Order passed by the State of Tamil Nadu need not await the decision of the Hon’ble Supreme Court of India answering the reference to a Larger Bench in Jaibir Singh's Case. The Full Bench also considered the notification issued by the State Government extending the provisions of the Act to the educational institutions and upheld its validity. Apart from answering the reference, while dealing with the Contempt Petitions and considering the consequential orders that were passed by ESIC, the Full Bench held that the final orders which are passed by the Division Bench, granting interim stay till the Larger Bench of the Hon'ble Supreme Court settles the issue, shall be treated as in the nature of an interim order. The Full Bench also considered the hardship which was pleaded on behalf of the educational institutions and also held that the authorities can consider the waiver of past arrears as per Section 91 (c) of the Act.

As against the decision of the Full Bench, ESIC has preferred Appeals before the Hon’ble Supreme Court of India. But, the Special Leave Petition preferred on behalf of ESIC in S.L.P.Nos.19410 of 2021 etc., was with regard to paragraph Nos.131 to 133 of the decision of the Full Bench of this Court, which reads as under:- “131. Section 91 C of the ESI Act comes to aid. Section 91 C provides for the writing off of loss and states as follows: “91C. Writing off of losses Subject to the conditions as may be prescribed by the Central Government, where the Corporation is of opinion that the amount of contribution, interest and damages due to the Corporation is irrecoverable, the Corporation may sanction the writing off finally of the said amount.” 132. A provision is, thus, made for the Corporation to sanction the writing off of the contribution, interest and damages due to it if the Corporation is of the opinion that such amounts are irrecoverable from the Educational Institutions concerned. The pandemic has resulted in a situation where several Educational Institutions are reportedly unable to even pay regular salaries to their employees. The financial crunch faced by them, at this juncture, is a matter of public knowledge. The impugned Notification no doubt mandates certain contributions to be made and we have upheld the validity of the same. The contributions to be made under the Notification enure to the coffers of the Corporation and it is not the Corporation’s case that there are claims that have been made by the employees of the Educational Institutions that remain unfulfilled on account of the failure of the Institutions to make the contributions in the first place. No prejudice has thus been caused to the employees per se for the periods till date on account of such failure by the Educational Institutions. 133. We, thus, strongly recommend that the provisions of Section 91C be applied in letter and spirit by the Corporation in considering the case for reduction/waiver of pending arrears, if and when made by the Educational Institutions. Such requests, if and when made, shall be considered by the Corporation in line with the object and spirit of Section 91 C, particularly in the light of the present economic conditions.”

By order dated 29.11.2022, the Hon'ble Supreme Court passed an order of interim stay of the Judgment of the Full Bench, with reference to those portions alone.

It is pertinent to note in the context of these writ petitions that during the period from the date of notification from 27.11.2010 upto 30.09.2019, no contributions were paid and the returns were also not filed. After this period, the position of law has become clear that the ESI contributions have to be paid by the educational institutions. In this background, three issues arose for determination in this case, viz., (1) Whether these writ petitions are liable to dismissed with regard to maintainability as the educational institutions have alternate remedy under Section 45 AA of the ESI Act? (2) Whether the Demand Notices issued by the ESI Corporation are valid? (3) Whether the waiver as claimed by the educational institutions can be granted?

With regard to the first issue, there is no doubt that a determination of liability under Section 45A of the Act has been made. Against the determination, there is an alternative remedy of filing an appeal under Section 45AA of the Act or approaching the ESI Court under Section 75 of the Act and normally this Court does not entertain the Writ Petitions under Article 226. However, considering the circumstances of the present case, the writ petitions can be entertained under Article 226 for the following reasons:-

With regard to the second issue, it can be seen that the Division Bench's order dated 09.06.2015, was passed upon the consent of both the parties that they would be bound by the outcome of the decision by the Hon'ble Supreme Court of India in the larger bench reference in the Jaibir Singh's case and that till such reference was answered, the order of stay shall continue. Therefore, the educational institutions contend that the ESIC could not issue the impugned demand notices. This contention could not be accepted, inasmuch as the Full Bench Judgment in All India Private Educational Institutions Association's case (supra) has held that the decision regarding the validity of the Government Order could be independently taken up, and there was no justification to await the decision of the Hon’ble Supreme Court. The Full Bench has concluded that the notification extending the Act to educational institutions was valid and constitutional. It further held that the earlier orders of the Division Bench were merely interim in nature, without adjudicating the rights of the parties. In light of the same, the ESIC certainly had the right to proceed further, regardless of the earlier order dated 09.06.2015 to await the larger bench judgment of the Hon’ble Supreme Court of India.

It is a settled position that the Judgment between parties would bind both sides, even if the law is settled otherwise in other matters subsequently. In the present case, though there was an order dated 09.06.2015 between the educational institutions and the ESIC, that order did not decide any issue. The decision itself was not to decide the matter at that juncture. However, the Full Bench has held that the reference to the larger Bench of the Hon'ble Supreme Court was concerning the term 'industry' as contained in the Industrial Disputes Act and in the context of whether the welfare measures performed regarding the sovereign functions can also be termed as an industry or not. It does not consider any question directly arising from the Act. Therefore, the Full Bench opined that the earlier orders should, at best, be considered as interim in nature. There is no stay by the Hon'ble Supreme Court with regard to these portions of the Judgment of the Hon’ble Full Bench.

Hence, the ESI Corporation is justified in determining the contributions as well as taking up the recovery proceedings. The demand notices made by the ESI Corporation, therefore, cannot be set aside.

With regard to the third issue as to whether the waiver of claims can be considered, it is pertinent to note that the directions of the Full Bench of this Court to consider waiver under Section 91C have been stayed by the Hon'ble Supreme Court. Hence, the waiver has to be considered in light of Article 226 of the Constitution of India and the principles of equity.

The principle of restitution is that if a party gains an unfair advantage due to an interim order that is later overturned, the Court has an inherent power and duty to undo the same through restitution. This is applicable only when the interim order is obtained by one party, where the other party can claim restitution.

In Indore Development Authority vs. Manoharlal and Others [(2020) 8 SCC 129], the Hon'ble Supreme Court has held that the principle of restitution should be applied to ensure that a party who obtains benefits in favour through orders of the Court cannot be allowed to take permanent advantage of the same and the relevant portion is extracted hereunder:- “338. A wrong-doer or in the present context, a litigant who takes his chances, cannot be permitted to gain by delaying tactics. It is the duty of the judicial system to discourage undue enrichment or drawing of undue advantage, by using the court as a tool. In Kalabharati Advertising v. Hemant Vimalnath Narichania (2010) 9 SCC 437, it was observed that courts should be careful in neutralizing the effect of consequential orders passed pursuant to interim orders. Such directions are necessary to check the rising trend among the litigants to secure reliefs as an interim measure and avoid adjudication of the case on merits. Thus, the restitutionary principle recognizes and gives shape to the idea that advantages secured by a litigant, on account of orders of court, at his behest, should not be perpetuated; this would encourage the prolific or serial litigant, to approach courts time and again and defeat rights of others-including undermining of public purposes underlying acquisition proceedings ... ”

The notification extending the ESI Act to educational institutions came into force on 29.12.2010. There were litigations and interim orders were also granted staying the operation of the notification itself. The notification was upheld and it was also clarified that the Courts need not await the larger bench decision of the Hon’ble Supreme Court of India by the Judgment of the Full Bench only on 29.07.2020. Thus, it is clear that the interim orders were operating and the law was settled almost after a period of 10 long years.

While the initial litigation was filed on the side of the employer, the writ petition was disposed of on 09.06.2015 by the consent of both sides, that is, the educational institutions and the ESI Corporation. The relevant portions of the order is extracted as under:- “Learned counsel for the parties state that as recorded in the order dated 05.05.2005 reported in 2005(5) SCC 1 (State of U.P vs. Jai Bir Singh), the question of law has been referred to the Larger Bench of the Honourable Supreme Court, i.e. whether the Employees' State Insurance Act, 1948, would apply to educational institutions. Interim orders have been operating in the present matter. 2. In view of the aforesaid position, the writ appeals and the writ petitions are disposed of by agreement that the interim orders would continue till the disposal of the matter by the Honourable Supreme Court and the parties would naturally remain bound by the legal position enunciated by the Honourable Supreme Court on such decision being rendered. No costs. Consequently, connected miscellaneous petitions are closed.”

A reading of the above order makes it clear that it is an order passed by the consent of both the parties. Thus, ESI Corporation also contributed to the grant of the interim order. While granting the interim stay, it was felt that the law was yet to be decided and that the parties can wait till the larger bench decision of the Hon’ble Supreme Court of India. This is not a situation wherein the educational institutions are the sole cause for obtaining interim orders and they have to face the consequences once the order is vacated and have to pay all the arrears along with statutory interest. Hence, the principle of restitution is not applicable in the facts of the present case as both the parties have contributed to the stay. However, the entire arrears cannot be waived as it is the educational institutions who initially filed the litigation and not any employee, or trade union or third party.

The special facts of this case, require the exercise of power under Article 226 of the Constitution of India to ensure equity. Since the litigation was initiated by the educational institutions, they should pay the contribution for the entire period 29.12.2010 to 30.09.2019. Since the ESIC itself agreed to await the larger bench decision of the Hon'ble Supreme Court and not to go by the dates on which the ‘contributions fell due’ as per the Regulation - 31, it cannot now claim a huge amount as interest from the above said date, as per Regulation 31-A, as if it is the employee who failed to pay on the respective dates.

Since these are educational institutions, the interest of the parties will be better served that the interest portion is not recovered by the Respondent ESI Corporation. After the Respondent ESI Corporation has agreed to postpone the implementation of the notification extending the Act till the pronouncement of the larger bench decision of the Hon’ble Supreme Court of India, it would be fair and equitable that the contributions due is collected without interest.

In light of the above discussion, this Court issues the following directions:- (1)The orders passed under Section 45A of the Act, in all these cases, assessing the contribution payable are upheld. However, the consequential orders enforcing the arrears shall remain set aside, inasmuch as they seek to recover interest for the period from 29.12.2010 till 30.09.2019. (2)The ESI Corporation is entitled to recover the entire contributions and the other claims made, except the interest portion for the period specified above and accordingly the total amount due shall be reworked. (3)As per the rework, the petitioners shall pay the entire demand, within a period of six months from the date of receipt of a copy of this order, in installments. On such payment, all the garnishee orders, etc., freezing their bank accounts shall come to an end and the educational institutions would be free to operate those accounts. (4)If the entire amount is already realised and if there is an excess as per the above calculation, the same shall be refunded to the educational institutions within eight weeks from today. With the above directions, these writ petitions are disposed. No costs.