M/S SRINIVASA RICE MILL versus EMPLOYEES STATE INSURANCE CORPORATION

Citation: [2006] SUPP. 8 S.C.R. 955 · Decided: 10-11-2006 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Case Partly allowed

Judgment (excerpt)

MIS SRINIV ASA RICE MILL 
A 
v. 
EMPWYEES STATE INSURANCE CORPORATION 
NOVEMBER 10, 2006 
[S.B. SINHA AND DAL VEER BHANDARI, JJ.] 
B 
Employees' State Insurance Act, 1948-Sections 44, 45 and 85-
Inspection carried out on employer mill before coming into force of the Act-
Notice issued to the employer for initiating criminal proceedings under the C 
Act-Petition filed by the employer before Employees' Insurance Court 
challenging the notice was dismissed-Appeal filed before High Court was 
also dismissed~orrectness of-Held, action taken on an inspection carried 
out prior to the coming into force of the Act, is ultra vires the Act-Hence, 
the criminal proceedings initiated against the employer is void and illegal. 
D 
Employees' State Insurance Act, 1948 was made applicable to appellant-
rice mill with effect from 1st August 2000. Respondent c:uried out inspections 
on the appellant prior to the applicability of the Act and found that the 
appellant employed more than 10 employees. The respondent, after the act 
came into force, issued a show cause notice to the appellant as to why criminal· 
proceedings should not be initiated under section 85 (g) of the act. The E 
appellant filed a petition under section 75(1) (g) of the Act before Employees' 
Insurance Court, which was dismissed. The appellant then filed an appeal 
before High Court under section 82 of the Act, which was also dismissed. 
Iri appeal to this Court, the appellant contended that it was obligatory 
for the respondent under the Act to determine whether the appellant is covered F 
under the Act of not; that the respondent has not complied with the principles 
of natural justice as required under sections 44 and 45 of the Act; and that 
the respondent has not complied with Regulation lOB of the Employee's State 
Insurance (General) Regulations, 1950 in not disclosing the details of the 
employees and the wages drawn by them and hence the show-cause notice was G 
liable to be set aside. 
The respondent contended that the appellant is liable to pay the 
insurance and furnish the details under the Act and that the show-cause notice 
is legal since the appellant had failed to carry out the statutory obligations; 
955 
II 
956 
SUPREME COURT REPORTS [.2006] SUPP. 8 S.C.R. 
A that the appellant is required to disclose the details of the employees and the 
wages drawn by them; and that both the Courts have correctly arrived at a 
finding that the rice mill run by the appellant is a 'factory' under section 2 
(12) of the Act. 
B 
Allowing the appeals, the Court 
HELD: 1.1. Before an Act is made applicable, in the event, a dispute is 
raised, the authorities exercising statutory power must determine the 
jurisdictional fact. Applicability of the Act would be a jurisdictional question. 
The employer is entitled to raise such a question before the appropriate. 
C authority. Such a question can also be raised for the first time before a court 
exercising the power of judicial review although ordinarily the same should 
be raised before the concerned authority as a preliminary issue. (965-A, B] 
Management of the Express Newspapers (P) Ltd, Madras v. Workers & 
Ors., AIR (1963) SC 569 and Arun Kumar & Ors. v. Union of India & Ors., JT 
D (2006) 12 SC 121 referred to. 
1.2. The inspection of the factories of the appellant was carried out prior 
to the date of coming into force of the Employees' State InsuranceAct, 1948. 
Such inspections could have been carried out only in terms of the provisions 
contained in section 45 of the Act, which could mean that the Inspector would 
E be appointed for the purpose of the Act. He is authorized under the Act to 
enquire into the correctness of any of the particulars stated in any return 
referred to in section 44 of the Act or for the purpose of ascertaining whether 
any of the provisions has been complied with. It is, therefore, evident that any 
action taken prior to or in furtherance of a report made on an inspection, 
prion to coming into force of the Act, would be ultra vires section 45(2) of the 
F Act. Once the inspection is held to be illegal, the respondent could not have 
taken any statutory action for imposition of penalty. A notice was required to 
be issued directly in terms of section 44 (2) of the Act. Having regard to the 
facts and circumstances of the case, the interest of justice would be sub-
served, if appellant is given an opportunity of hearing. 
G 
(966-A, B, C; 967-F; 970-F, GJ 
H 
Employees' State Insura

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