EMPWYEES STATE INSURANCE CORPORATION versus HOTEL KALPAKA INTERNATIONAL

Citation: [1993] 1 S.C.R. 219 · Decided: 15-01-1993 · Supreme Court of India · Bench: P.B. SAWANT · Disposal: Appeal(s) allowed

Judgment (excerpt)

,,--,( 
EMPWYEES STATE INSURANCE CORPORATION 
A 
v. 
HOTEL KALPAKA INTERNATIONAL 
JANUARY 15, 1993 
(P.B. SAWANT ANDS. MOHAN, JJ.) 
B 
_of 
Employees State Insurance Ac4 1948: 
Sections 1(4), 26, 28, 38, 40 and 45-A-Contribution under the 
Act-Liability of Employei-Closure of establishmenHiability prior to c 
closure-Commencement of recovery proceedings after closure-Validity of. 
The Respondent-Hotd which was also running a Bar for sometime, 
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closed down its business after several years. The Inspectors or the appel· 
!ant-Corporation verified the records or the establishment and reported 
that at certain. point of time the employment strength or the establishment D 
includi!ll! the bar was more than 19. Therefore, the establishment was 
treated as covered provisionally under the Employees State Insurance 
(ESI) Act, 1948. Since the ftoal date of coverage could be decided only 
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after verifying all the records, the Respondent was asked to produce them • 
The Responeot did not avail the opportunity afforded to It. Though the E 
Respondent sent its explanation, it was not acceptable to the appellant-
Corporation and so it passed a detailed order under S.45-A calling upon 
the Respondent to pay the contribution with interest at 6% failing which 
it would be recovered as arrears of land revenue. Since this order and the 
reminder thereto, did not evoke any response from the Respondent, the 
appellant sent a claim in Form-19 to the District Collector requesting him 
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. 
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to recover the said amount. 
The Respondent challenged the proceedings by riling an application 
under S.75 of the Act before the ESI Court, which upheld the assessment 
made by the appdlant-Corporation, but stated that recovery steps were G 
not justified after the closure of the establishment, and only prosecution 
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as contemplated u/s. 85 of the Act was attracted. 
The appellant-Corporation preferred an appeal against the said 
decision or ESI Court. The High Court dismissed the appeal and held that 
since the ·scheme was made after the closure of the establisment, the H 
219 
220 
SUJ1REME COURT REPORTS 
(1993] 1 S.C.R. 
A appellant was nol Justified iii pl"ucttding against the Respondent. 
h 
Being aggrieved by the judgment of the High Court, the appellant· 
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Corporation preferred the present appeal contending that so long as the 
establishment was covered by the provisions of the Act, the Respondent 
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could not circumvent·its liability by claiming that before actual recovery 
proceedings, it had closed down the establishment. 
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Allowing the appeal, this Court, 
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HELD : 1.1. Admittedly the hotel industry like that of the respondent 
c has been. notified by the Government thus extending the provisions of the 
Employees State Insurance Act to hotel industry. Therefore, on the date of 
commencement of its business, namely, 11.7.85, there was a liability on the 
Respondent to contribute to the ESI fund. Under section 40 the primary 
liability is on the employer to pay, not only his contribution but also the 
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employees contribution. As such the employer cannot plead that since he bad 
D not deducted the employees' contribution from their wages, he could not be 
made liable for the same. After all when he makes employees' contribution he 
is entitled to deduct from the wages. Thus by force of the application of the 
statutory provisions, the liablity to contribute during the relevant period, 
namely, ll.7.85to31.3.88,arose. [226E·G] 
E 
1.2. The Insurance Court as well as the High Court have correctly 
upheld the demand for contribution. But it is rather strange to conclude 
that the demand could not be enforced against a closed business. If this 
finding were.to be accepted it would not promote the scheme and avoid the 
mischief. On the contrary, it would perpetrate the mischief. Any employer 
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can easily avoid his statutory liability and deny the beneficial piece of 
social security legislation to the employees, by closing down the business 
before recovery. That certainly is not the indentment of the Act. It is 
equally fallacious to conclude that because the employees had gone away 
there is no liability to 'contribute. It has to be carefully remembered that 
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the liability to contribute arose from the date of commencement of the 
establishment and is a continuing liability till the closure. The very object 
of establishing a common fund under section 26 for the benefit of all the 
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employees will again

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