Read Time: 07 minutes

Synopsis

The Supreme Court recently upheld conviction and sentence of six months imprisonment imposed upon a General Manager and principal employer of a sick company for making deduction to the tune of Rs 8,26,696 from the salary of employees and failing to deposit the same with the Employees State Insurance Corporation (ESIC).

The court held that the designation of a person stands irrelevant if he is otherwise an agent of the owner/occupier or supervises and controls the establishment in question. 

A division bench of Justices Sudhanshu Dhulia and Ahsanuddin Amanullah noted the authorised signatory of company, M/s Electrix (I) Ltd had mentioned the appellant Ajay Raj Shetty’s name as the ‘General Manager’ and ‘Principal Employer’ of the company, finding no substance in his contention that he worked only as Technical Coordinator in the company.

"While the fine awarded and affirmed by the courts below is upheld, we are not convinced to substitute the term of imprisonment to be operative only for a day till the rising of the court," the bench said.

Upholding the findings of the High Court, the bench reiterated that non-remittance of the contribution deducted from the salary of an employee to the ESIC is an offence under Section 85(a) of the Employees’ State Insurance Act, 1948 and punishable under Section 85(i)(a) of the Act.

Further, referring to the definition of principal employer under Section 2(17) of the Act, the bench pointed out, it is clear that the definition also includes a ‘managing agent’ of the Owner/Occupier in the case of a factory or ‘named as the manager of the factory under the Factories Act, 1948’ and for ‘any other establishment’, ‘principal employer’ would include ‘any person responsible for the supervision and control of the establishment’. 

"...the appellant who, be it noted, does not deny that he was under the employment of the company has not disclosed as to who was/were the person(s) holding such positions during the relevant period of time, about which he could not have been ignorant," the bench emphasized. 

Brief Background

Before the apex court, the appellant contended that he neither held the post of General Manager nor was he the ‘Principal Employer’ during the relevant period. Therefore, the liability was on the Company for making payments to the ESIC, and he could not be charged, much less convicted, for an offence under the ESIC Act.

The Bengaluru Trial Court, the First Appellate Court as well as the High Court returned concurrent findings of fact that the appellant was liable, as in the record of the company he was described as General Manager, which could not be controverted by him.

It was further submitted that the prosecution lodging case against the Appellant for contravening Section 85(a) of the Act is erroneous as there is no such averment, either in the complaint or in the evidence that it was the Appellant who had deducted the contribution from the wages of the employees and had failed to deposit the same with Respondent No.1. 

The counsel for the company, submitted the appellant after completing Engineering course without any industrial experience joined as ‘Technical Coordinator’ in the company in July, 2009.

He worked from July, 2009 to April, 2011 with the company. He was only a Technical Coordinator and never acted as Principal Employer nor as General Manager.

Case Title: Ajay Rej Shetty v. Director and Anr.