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The Factories Act, 1948
Section 2 in The Factories Act, 1948
The Insurance Act, 1938
Section 2(n) in The Factories Act, 1948
Section 85 in The Insurance Act, 1938

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Calcutta High Court
Kanoria Jute And Industries Ltd. ... vs Employees' State Insurance ... on 16 June, 1999
Equivalent citations: (2003) ILLJ 364 Cal
Author: P K Samanta
Bench: P K Samanta

JUDGMENT

Prabir Kumar Samanta, J.

1. Through this writ petition, the writ petitioners have challenged the taking of cognizance by the learned Chief Metropolitan Magistrate on the complaints filed by the Employees' State Insurance Corporation and have accordingly prayed for quashing of the same.

2. Undisputedly three complaints were filed before the learned Chief Metropolitan Magistrate by the Employees' State Insurance Corporation for taking cognizance of the offence committed under Section 85(a) of the Employees' State Insurance Act, 1948 (hereinafter referred to as E. S. I. Act, 1948) for three different periods. On the basis of the aforesaid three complaints three criminal cases bearing No. C/1108/94, C/1109/94 and C/1110/94 were registered some time in the month of July, 1994 and summons were issued by the learned Metropolitan Magistrate in the name of the petitioners who are company, Managing Director and a Director of the petitioner/company respectively.

3. The points raised in this writ petition are that Sub-section g(i) of Section 85 having made the offence under Sub-section (a) of Section 85 punishable with compulsory imprisonment, the petitioner/company, a juristic person cannot be asked to suffer imprisonment and again if the company cannot be made liable for the offence since it prescribed compulsory imprisonment, its Managing Director and a Director respectively being not the principal employers as per the definition under Section 2(17) of E.S.I. Act, 1948 the complaints against them are not maintainable and lastly the complaints lack ingredients as to the liability and responsibility of the Managing Director and a Director of the said company to comply with the provisions of E.S.I. Act, 1948.

4. It is the undisputed position in law that under Section 85(a) of the E.S.I. Act, 1948 a person who is liable to make contribution under the said Act can be prosecuted for failure to make payment of such contribution in compliance with the provisions of the said Act. Section 40 fastens the liability to make such payment of contribution under the Act upon the principal employer. Again principal employer has been defined in Section 2(17) of the said E.S.I. Act, 1948 as under:

Section 2(17) "Principal employer" means-

(i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under (the Factories Act, 1948 (63 of 1948), the person so named;

(ii) in any establishment under the control of any department of any Government in India, the authority appointed by such Government in this behalf or where no authority is so appointed, the head of the department;

(iii) in any other establishment, any person responsible for the supervision and control of the establishment.

5. Thus under the aforesaid provision a complaint could be filed against one and all whoever comes within the definition of "principal employer."

6. Mr. Ghosh, learned Senior Counsel relying upon the decision reported in Adding Machines India (Pvt.) Ltd. v. State, 1987 (1) CHN 359, East India Jute and Hessian Exchange Ltd. v. Amulya Krishna Mondal 1989 C Cr. LR (Calcutta) 171, Kusum Products Ltd. v. S.K. Sinha I.T.O. 1980 (II) CHN 326, A.K. Khosla and Ors. v. T.S. Venkatesan, 1991(II) CHN 321 contended in the first place that a body corporate cannot be prosecuted for an offence for which the punishment is compulsory imprisonment. Those cases of course dealt with the complaints filed against either a body corporate or a company or a juristic person in respect of an offence which is punishable with compulsory imprisonment. It was held in those cases that essential ingredient of mens rea of the offence alleged in the complaint against a juristic person was absent and offence alleged being punishable with compulsory imprisonment, a juristic person, since cannot be made to undergo an imprisonment, the prosecution must fail. In the case in hand, the complaints were lodged beside the petitioner/company a juristic person, against the Managing Director and a Director of the company for the alleged offence under Section 85(a) of the E.S.I Act, 1948, The Managing Director and a Director of the company being the petitioner Nos. 2 and 3 herein if liable for the offence alleged can very well be prosecuted and made to suffer imprisonment for the alleged offence committed by them in due discharge of their duties towards the company. The company being a juristic person though no mens rea could be imputed against such a juristic person but the complaint against an establishment along with the person liable for the offence committed by them in respect of their liabilities arising out of such an establishment cannot be said to be incompetent only on the plea that the complaint against such juristic person alone is incompetent. In other words the complaint only against the person so liable without the juristic person will have the effect of a complaint against them in personal capacities as no liabilities of such person would arise without reference to an establishment, in relation to which the alleged offence was committed.

7. The question therefore falls for consideration is whether the petitioner Nos. 2 and 3 namely the Managing Director and a Director of the petitioner No. 1/company were liable for the alleged offence. In view of Section 40 of E.S.I. Act, the principal employers of an establishment are under liability to make payment of both employer's and employees' contribution with the authority. In the ease in hand payment of such contribution was related to the employees engaged in the factory of the petitioner/company. It was urged that in relation to a factory the principal employer would be the owner or occupier which includes the Managing Agent of such owner and occupier and since the petitioner Nos. 2 and 3 neither the owners or occupiers of the factory of the petitioner/company nor the Managing Agent of the owner of the factory namely the petitioner/company nor responsible for the management of the affairs of the said factory or the control and supervision thereof, there cannot be any liability for the petitioner Nos. 2 and 3 to make such contributions in respect of employees of the said factory. This argument is also of no significance in view of the definition of "principal employer" as quoted in Section 2(17) and "occupier" as given in Section 2(15) of E.S.I. Act, 1948 read with Section 2(n) of the Factories Act, 1948. Section 2(15) of E.S.I. Act, 1948 and Section 2(n) of Factories Act, 1948 are quoted hereunder:

Section 2(15): "occupier" of the factory shall have meaning assigned to it in the Factories Act, (1948) (63 of 1948).

Section 2(n): "occupier" of a factory means the person who has ultimate control over the affairs of the factory (***); provided that:

(i) in the case of a firm or other association of individuals, any one of the individual partners or members thereof shall be deemed to be the occupier;

(ii) in the case of a company, any one of the directors shall be deemed to be the occupier;

(iii) in the case of a factory owned or controlled by the Central Government or any State Government or any local authority, the person or persons appointed to manage the affairs of the factory by the Central Government, the State Government or the local authority, as the case may be, shall be deemed to be the occupier:

(Provided further that) in the case of a ship which is being repaired, or on which maintenance work is being carried out, in a dry dock which is available for hire,-

(1) the owner of the dock shall be deemed to be the occupier for the purposes of any matter provided for by or under :

(a) Section 6, Section 7 (Section 7-A, Section 7-B) Section 11 or Section 12;

(b) Section 17, in so far as it relates to the providing and maintenance of sufficient and suitable lighting in or around the dock;

(c) Section 18, Section 19, Section 42, Section 46, Section 47 or Section 49, in relation to the workers employed on such repair or maintenance;

(2) the owner of the ship or his agent or master or other officer-in-charge of the ship or any person who contracts with such owner, agent or master or other officer-in-charge to carry out the repair or maintenance work shall be deemed to be the occupier for the purposes of any matter provided for by or under Section 13, Section 14, Section 16 or Section 17 (save as otherwise provided in this proviso) or Chapter IV (except Section 27) or Section 43, Section 44 or Section 45, Chapter VI, Chapter VII, Chapter VIII or Chapter IX of Section 108, Section 109 or Section 110, in relation to-

(a) the workers employed directly by him, or by or through any agency, and

(b) the machinery, plan or premises in use for the purpose of carrying out such repair or maintenance work by such owner, agent, master or other officer-in-charge or person.

8. The definition of "the principal employer" as given in Section 2 (17) of the E.S.I. Act, 1948 is an inclusive definition bringing within its fold the Managing Agent of owner or occupier of a factory. The petitioner/company is admittedly the owner of the factory. The petitioner No. 2 being the Managing Director of the petitioner company was in ultimate control over the affairs of the petitioner/company and has the ultimate responsibility of managing the affairs of the owner of a factory. Therefore, the Managing Director is the Managing Agent of the owner of the factory who has been brought within the fold of the principal employer by such definition.

9. That again Clause (ii) of Section 2(n) of the Factories Act brings within its fold any one of the directors of a company who by such deeming provision shall be an occupier of the factory of the company. Such definition of "occupier" in the E.S.I. Act has been borrowed from the definition of "occupier" in the Factories Act, 1948. The petitioner No. 3 being a director of the petitioner/company shall therefore be deemed to be the occupier of the factory of the petitioner/company. It therefore, cannot be said that the petitioners No. 2 and 3 were not liable to be prosecuted and punished accordingly under the provisions of Section 85(i) of the E.S.I Act, 1948.

10. The plea that the petitioner Nos. 2 and 3 cannot be made accused of an offence committed by the company for which they were vicariously liable is also of no consequence.

11. Because it is not that the petitioners were sought to be prosecuted only because they were vicariously liable for the alleged offence committed by the Company under Section 85(a) of the E.S.I. Act, 1948 but because, as held they fell within the meaning of "principal employer" as defined in the E.S.I Act, 1948. Again Section 86-A of the said Act, 1948 provides as under:

Offence by Companies :-(1) If the person committing an offence under this Act is a company, every person who at the time the offence was committed was incharge of, and was responsible to, the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any person liable to any punishment, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in Sub-section (1), where an offence under this Act has been committed with the consent or connivance of, or is attributable to, any neglect on the part of, any director or manager, secretary or other officer of the company, such director, manager, secretary or other officer shall be deemed to be guilty of that offence and shall be liable to be prosecuted against and punished accordingly.

Explanation- For the purpose of this Section-

(i) "Company" means any body corporate and includes a firm and other association of individuals, and

(ii) "director" in relation to -

(a) a company, other than a firm, means the managing director or a whole time director,

(b) a firm means a partner in the firm.

12. Said Section 86-A though in substance imposes a liability of the company upon the persons named therein, which is in the form of vicarious liability but because of such provisions of the statute it could no longer be called as vicarious liability but a liability under Section 86-A is a statutory liability fastened upon the persons named therein.

13. In this connection reference may be made to the decision of the Supreme Court in the case of Srikanta Dutta, Narasima Raja Wodiyar v. Enforcement Officer, Mysore . The said case deals with Employees' Provident Funds and Miscellaneous Provisions Act, 1952. Section 2(e) of the said Act defined "principal employer" which is pari-materia with the definition of "the principal employer" in Section 2(17) of E.S.I. Act. In paragraphs 4 and 5 of the said report it was held as under at p. 532 of LLJ:

"4. The Act and the Scheme are self contained code for deduction from the salary of the employees and the responsibility to contribute in equal proportion of the employer's share and deposit thereof in the account within the specified time under the Act and the Scheme into the account. It is a welfare legislation to provide benefits to the employees as per the Scheme. They need mandatory compliance therewith and violation thereof visits with penal action. Section 2(e) of the Act defines 'employer' which means in relation to an establishment which is a factory, the owner or occupier of the factory, including the Agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a Manager of the factory under Clause (f) of Sub-section (1) of Section 7 of Factories Act, 1948, the person so named....

5. The definition is an inclusive definition bringing within its ambit the owner or occupier as well as its Manager. Section 2(k) defines 'occupier' which means the person who has ultimate control over the affairs of the factory, and where the said affairs are entrusted to a Managing Agent, such Agent shall be deemed to be the occupier of the factory. Therefore, by its extended definition its sweep is enlarged bringing within its scope the person who is in charge or responsible for in management or ultimate control over the affairs of the factory or establishment. In the event of entrustment to a Managing Agent, such Managing Agent shall also be deemed 'to be the occupier of the factory'. Section 6 fastens the obligation on the employer in this behalf. It postulates that the contribution shall be made by the employee to the Fund and shall be 81/3% of the basic wages, dearness allowances and retaining allowances, if any, for the payment being payable to each of the employees, whether employed by him directly or through a Contractor. The employee's contribution shall be equal to the contribution payable by the employer in respect of him, etc., in its application to any establishment or class of establishments. Other provisions are not relevant, hence they are omitted. Under para 30 of the Employee's Provided Funds Scheme, 1952 and the other Scheme, the employer shall deposit the contribution to the Fund."

14. In the said decision it was held that the definition is an exclusive definition bringing within its ambit owner or occupier as well as its manager. Section 2(k) defines occupier which means the person who has ultimate control over the affairs of the factory and where the said affairs are entrusted to a managing agent, shall be deemed to be the occupier of the factory, therefore, by its extended definition its sweep is enlarged bringing within its scope the person who is in charge or responsible for any management or ultimate control over the affairs of the factory or establishment.

15. Here in this case owner of the factory being admittedly the petitioner/company, the petitioner No. 2 the Managing Director of the petitioner/company is therefore a managing agent of such owner and a principal employer as per Section 2(17) of the Act, 1948. The definition of the term "occupier" of the factory having been borrowed from the definition given in the Factories Act and by deeming provision made therein any one of the directors of a company becomes an occupier of the factory. Thus the petitioner No. 3, a director of the petitioner/company comes within the fold of the definition of the principal employer as provided in Section 2(17) of E.S.I Act, 1948. Thus; the complaints against the petitioners Nos. 2 and 3 are quite competent and the cognizance taken by the learned Chief Metropolitan Magistrate on the said complaints cannot be said to be unlawful.

16. In view of the observation made hereinabove the complaints against the petitioners alleging that they being the principal employers have failed to pay contribution for the periods mentioned in the complaints within the specific time as required under the provisions of E.S.I. Act, 1948 (as amended) and E.S.I. (General) Regulations, 1950 (as amended) contained the ingredients of the offence committed by them under the provisions of the said Act and therefore the plea of lack of the ingredients of the offence committed by the petitioners is also not tenable.

17. In all these views, this writ petition must fail. Hence, the same is dismissed and all interim orders made therein shall also stand vacated.