Parexel International INDIA Safety Services PVT LTD. vs. The Recovery Officer
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Cause title — parties, addresses and appearances
ORDER
The petitioner/Parexel International India Safety Services Private Limited (hereinafter referred to as ‘the Company’ for short) is knocking at the doors of this Court calling in question a show cause notice dated 22-05-2018; an order dated 19.08.2019 passed under Section 45A by the Employees’ State Insurance Act, 1948 (hereinafter referred to as ‘the Act’ for short); a Garnishee order dated 11-08-2022; an application dated 08-01-2020; a notice dated 23-03-2023 and also a further notice dated 19-04-2023. 2. Shorn of unnecessary details, facts in brief, are as follows:-
The petitioner claims to be a private limited company incorporated under the Indian Companies Act, 1956 having its registered office as depicted in the cause title. The petitioner is engaged in the business of providing clinical research and ancillary services and was earlier known as Liquent Software India Private Limited.
The petitioner had applied and was allotted a code under the Act; ESIC Code with PAN number attached to it on NC: 2024:KHC:7175
2014 issued by the Regional Office of the Employees State Insurance Corporation (hereinafter referred to as ‘the Corporation’ for short). The code that was allotted to the petitioner on 28.11.2014 was to be effective from 01-06-2010. This would be referred to as the ‘First Code’ in the course of the order. The wage ceiling under the Act at the time of First Code was Rs.15,000/-. The petitioner had 123 employees. It is the averment in the petition that none of the employees were covered under the Act and therefore, the First Code was not operational.
The subsisting wage ceiling on and from 2017, was increased to Rs.21,000/-, as a result of such increase, some employees of the petitioner then become eligible for the benefits under the Act. In order to comply with the provisions of the Act in respect of the employees who become eligible under the aforesaid increase in wage ceiling, the petitioner was granted a ESIC Code, a different ESIC Code (hereinafter referred to as ‘the Second Code’ for easy reference). The Second Code was allotted for the address that is now depicted in the cause title as the petitioner by then had shifted its registered office from the address which was in the First Code NC: 2024:KHC:7175 to the address which is in the new Code; the Second Code. The petitioner makes contributions under the Act pursuant to enhanced wage ceiling only under the Second Code. The challans so issued for the period from 01-01-2017 to 28-02- 2018 are appended to the petition. Contributions went on under the Second Code.
When things standing thus, a show cause notice is said to have been issued on 22-05-2018 alleging violations of the Act, firstly to the old name Liquent Software India Private Limited and to the old address which was connected to the First Code, which code was not operational is the averment in the petition. The allegation in the show cause notice was that the petitioner had not paid ESI contributions from June 2010 to February 2018 and had failed to furnish particulars of such contributions. The amount payable was determined under Section 45A of the Act as Rs.65,05,533/-. This show cause notice directed the petitioner to appear before the Director of the Corporation on 14-06-2018. It is the averment in the petition that the said notice was never served upon the petitioner as it was sent to old address under the old Company’s name. Every time an endorsement comes about NC: 2024:KHC:7175 that the “addressee left”. Another show cause notice was issued again to the same address.
Thereafter, an order comes about under Section 45A of the Act on 19-08-2019 determining the contribution due from the petitioner to be a sum of Rs.32,71,555/- for the period between 01-07-2014 to 28-02-2018. The amount was directed to be paid, failing which, recovery proceedings would be initiated under the Act. The order under Section 45A of the Act was also returned un-served with an endorsement that the ‘addressee left’. Long thereafter on 08.01.2020 alleging that contributions were not paid, proceedings under Section 45C of the Act were taken up seeking to recover a sum of Rs.46,78,763/-. This was again marked to the old address which was not served.
On the ground that the petitioner has not complied with the orders by making payment, a Garnishee order comes to be passed by way of a demand notice under Section 45G of the Act on 11-08-2022 and the petitioner’s banker/HSBC Bank was directed to transfer the amount of Rs.46,80,339/- from the account of the petitioner. The amount is debited and continues NC: 2024:KHC:7175 to be debited. It is then the petitioner comes to know that there are huge deductions from its account and then files necessary applications to secure all orders that were passed for the last five years. Then a demand notice was issued demanding interest on the contributions that were skipped as alleged hereinabove again in the name of the old software company but to the new address. All subsequent notices demanding damages and interest were posted to the new address. The petitioner then makes a representation for cancellation of the First Code as all the communications have been made to the address attached to the First Code and also represented that the Second Code was generated long ago. The address was attached to the Second Code and ESI contributions were all deposited under the Second Code. All these facts were brought before the Corporation in terms of representations. Those representations having gone unheeded, is what has driven the petitioner to this Court in the subject petition.
Heard Smt. B.G. Nayana Tara, learned counsel appearing for the petitioner and Smt. Geetha Devi M. Papanna, learned counsel appearing for the respondents. NC: 2024:KHC:7175
The learned counsel for the petitioner would vehemently contend that Section 45A of the Act mandates that it should be in compliance with the principles of natural justice. There is admittedly no notice issued to the petitioner before debiting the account or determining the amount or before passing Garnishee order. All the communications are made to the old address which Code had become defunct. The petitioner is not a company which wants to escape payment of ESI contributions. Under the Second Code, when the ESI ceiling was increased to Rs.21,000/-, the petitioner had made the contributions. If a notice had been issued to the appropriate address which the Corporation had with it all the times, these orders would not have arisen or passed. All that the company seeks is issuance of a notice and opportunity to submit a reply to the said notice issued under Section 45A of the Act. The learned counsel would place reliance upon the judgment rendered by the co-ordinate Bench of this Court in AFFINE ANALYTICS PRIVATE LIMITED v. DEPUTY DIRECTOR, ESIC – W.P.No.28396 of 2023 decided on 22nd January, 2024 to buttress the submission that the company is entitled to a NC: 2024:KHC:7175 notice and without hearing an order of the kind could not be passed.
Per contra, the learned counsel for the respondents/ESI would vehemently refute the submissions to contend that the provisions of the Act are very clear as any default in ESI contributions will automatically lead to initiation of proceedings and for issuance of notice and a demand made, no constitutional right of the petitioner is taken away for this Court to entertain the subject petition on that ground notwithstanding existence of a statutory alternative remedy of filing an appeal under Section 45AA of the Act. The learned counsel would submit that the Corporation is in the process of preferring an appeal against the order passed in the case of AFFINE ANALYTICS (P) LTD. (supra) and therefore, it should not be followed.
The learned counsel for the petitioner would join the issue in contending that the violation of the principles of natural justice would be an enough ground and circumstance for this Court to entertain the petition. She would further contend that identical ground was taken by the very learned NC: 2024:KHC:7175 counsel before the Co-ordinate Bench and the Co-ordinate Bench had declined to accept the same by following the judgments of the Apex Court. She would contend that the petition be allowed and an opportunity be rendered to the petitioner as sought for.
I have given my anxious consideration to the submissions made by the respective learned counsel and have perused the material on record.
The afore-narrated facts are not in dispute. Therefore, they would not require any reiteration. It would suffice if the analysis would commence from noticing Section 45A of the Act. Section 45A of the Act reads as follows:
“45-A. Determination of contributions in certain cases.—(1) Where in respect of a factory or establishment no returns, particulars, registers or records are submitted, furnished or maintained in accordance with the provisions of Section 44 or any Social Security Officer or other official of the Corporation referred to in sub-section (2) of Section 45 is prevented in any manner by the principal or immediate employer or any other person, in exercising his functions or discharging his duties under Section 45, the Corporation may, on the basis of information available to it, by order determine the amount of contributions payable in respect of the employees of that factory or establishment: NC: 2024:KHC:7175 Provided that no such order shall be passed by the Corporation unless the principal or immediate employer or the person in charge of the factory or establishment has been given a reasonable opportunity of being heard:
Provided further that no such order shall be passed by the Corporation in respect of the period beyond five years from the date on which the contribution shall become payable.
(2) An order made by the Corporation under sub- section (1) shall be sufficient proof of the claim of the Corporation under Section 75 or for recovery of the amount determined by such order as an arrear of land revenue under Section 45-B or the recovery under Section 45-C to Section 45-I.”
(Emphasis supplied)
Section 45A of the Act mandates that wherein respect of a factory or establishment no returns, particulars, registers or records are maintained. The proceedings under the provisions, on the basis of information available with the Corporation, would ensue for determining the amount payable in respect of employees of that establishment. The proviso makes it clear that no such order would be passed by the Corporation unless the principal or immediate employer or the person in charge of the factory or establishment has been given a reasonable opportunity of being heard. Section 45AA of the Act which provides appeal reads as follows: NC: 2024:KHC:7175 "45-AA. Appellate Authority.—If an employer is not satisfied with the order referred to in Section 45-A, he may prefer an appeal to an appellate authority as may be provided by regulation, within sixty days of the date of such order after depositing twenty-five per cent, of the contribution so ordered or the contribution as per his own calculation, whichever is higher, with the Corporation:
Provided that if the employer finally succeeds in the appeal, the Corporation shall refund such deposit to the employer together with such interest as may be specified in the regulation.”
The Section permits preferring an appeal within 60 days from the date of passing of the order under Section 45A with deposit of 25% of the contribution. The issue now would be whether the writ petition would be maintainable in the teeth of existence of statutory alternate remedy under the Act.
The narration hereinabove is that proceedings against the petitioner were all communicated to the old address under the First Code which was in operation in the year 2014. As observed hereinabove, the ceiling limit between 2014 and 2017 was at Rs.15,000/- and it is the averment that none of the employee stood covered at that time. When the ceiling limit got increased in the year 2017, the petitioner was allotted the Second Code, a new code. The Second Code was allotted to the new address of the establishment. Contributions are being NC: 2024:KHC:7175 made by the establishment which by then also changed its name diligently. This is a matter of record. Notices were issued by the Corporation alleging that no contributions were made under the First Code which after 2017 or even before that was in operation. Before 2017, it could not have had any operation as the ceiling limit was only Rs.15,000/-. Post 2017 when the ceiling limit was increased to Rs.21,000/-, employees were brought under the ambit of the Act and a Second Code was generated for which contributions are made. These are undisputed facts. The proceedings for non-payment are initiated by making communications to the old address. The learned counsel for the petitioner has demonstrated that the new address was available with the Corporation as contributions are paid only under the Second Code. It is also an admitted fact that all the notices are sent to the old address and attaching to the First Code. This is also a matter of record.
The defence is that the new address was never communicated to the Corporation. This statement is belied by the very fact that communications are being made to the new address by the Corporation and the Company deposited the amount of contributions under the Act quoting the new NC: 2024:KHC:7175 address. Therefore, it appears to be a case of non-coordination between the wings of the Corporation. The learned counsel for the Corporation would submit that they are two different offices, the First Code and the Second Code being generated by different offices and the name of the company being different with change in address, how the Corporation would get to know all those without communication. This submission in the first blush would have become acceptable but on a deeper delving with the documents appended to the petition, it is unsustainable as the Second Code did have a new address. There was no warrant to communicate with the old address. Therefore, direction of determination of amount under Section 45A of the Act is without hearing the petitioner. Without hearing the petitioner is admitted as no reply is furnished by the petitioner till 2023. If it is contrary to the proviso to Section 45A of the Act that order should be passed after affording a reasonable opportunity to the establishment, the same has admittedly not been provided by the Corporation to the petitioner. In such circumstances, whether the petitioner should be relegated to the filing of an appeal before the Appellate Authority under Section 45AA of the Act is to be NC: 2024:KHC:7175 considered and if considered on the touchstone of the aforesaid facts, the answer would be an unequivocal and emphatic “no”.
Entertainment of a petition under Article 226 of the Constitution of India or otherwise is a discretion vested with this Court. A discretionary remedy in certain cases to advance the cause of justice can always be taken note of and be placed on a higher pedestal than that of relegating to the Appellate Authority. Mere existence of an alternative remedy under the statute would not tie the hands of this Court to exercise juri iction under Article 226 of the Constitution of India. The Apex Court in plethora of cases has held that rule of alternative remedy is a rule of discretion. It need not be exercised in few cases and can be exercised in few depending upon certain circumstances, those circumstances bear explanation by the Apex Court in the case of RADHA KRISHNA INDUSTIRES v. STATE OF H.P.1 as under:
"C.
Maintainability of the writ petition before the High Court
The High Court has dealt with the maintainability of the petition under Article 226 of the Constitution. Relying on the decision of this 1 (2021) 6 SCC 771 NC: 2024:KHC:7175 Court in CCT v. Glaxo Smith Kline Consumer Health Care Ltd. [CCT v. Glaxo Smith Kline Consumer Health Care Ltd., (2020) 19 SCC 681: 2020 SCC OnLine SC 440] , the High Court noted that although it can entertain a petition under Article 226 of the Constitution, it must not do so when the aggrieved person has an effective alternate remedy available in law. However, certain exceptions to this “rule of alternate remedy” include where, the statutory authority has not acted in accordance with the provisions of the law or acted in defiance of the fundamental principles of judicial procedure; or has resorted to invoke provisions, which are repealed; or where an order has been passed in violation of the principles of natural justice. Applying this formulation, the High Court noted that the appellant has an alternate remedy available under the GST Act and thus, the petition was not maintainable.
In this background, it becomes necessary for this Court, to dwell on the “rule of alternate remedy” and its judicial exposition. In Whirlpool Corpn. v. Registrar of Trade Marks [Whirlpool Corpn. v. Registrar of Trade Marks, (1998) 8 SCC 1] , a two-Judge Bench of this Court after reviewing the case law on this point, noted : (SCC pp. 9-10, paras 14-15)
“14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for “any other purpose”.
Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its NC: 2024:KHC:7175 juri iction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without juri iction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the field.” (emphasis supplied)
Following the dictum of this Court in Whirlpool [Whirlpool Corpn. v. Registrar of Trade Marks, (1998) 8 SCC 1], in Harbanslal Sahnia v. Indian Oil Corpn. Ltd. [Harbanslal Sahnia v. Indian Oil Corpn. Ltd., (2003) 2 SCC 107], this Court noted that: (Harbanslal Sahnia case [Harbanslal Sahnia v. Indian Oil Corpn. Ltd., (2003) 2 SCC 107] , SCC p. 110, para 7)
“7. So far as the view taken by the High Court that the remedy by way of recourse to arbitration clause was available to the appellants and therefore the writ petition filed by the appellants was liable to be dismissed is concerned, suffice it to observe that the rule of exclusion of writ juri iction by availability of an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise its writ juri iction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) where the orders or proceedings are wholly without juri iction or the vires of an Act is challenged. (See Whirlpool Corpn.v. Registrar of Trade Marks [Whirlpool Corpn. v. Registrar of Trade Marks, (1998) 8 SCC 1].) The present case attracts applicability of the first two contingencies. Moreover, as noted, the NC: 2024:KHC:7175 appellants' dealership, which is their bread and butter, came to be terminated for an irrelevant and non-existent cause. In such circumstances, we feel that the appellants should have been allowed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings.” (emphasis supplied)
The principles of law which emerge are that:
The power under Article 226 of the Constitution to issue writs can be exercised not only for the enforcement of fundamental rights, but for any other purpose as well.
The High Court has the discretion not to entertain a writ petition. One of the restrictions placed on the power of the High Court is where an effective alternate remedy is available to the aggrieved person.
Exceptions to the rule of alternate remedy arise where : (a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution; (b) there has been a violation of the principles of natural justice; (c) the order or proceedings are wholly without juri iction; or (d) the vires of a legislation is challenged.
An alternate remedy by itself does not divest the High Court of its powers under Article 226 of the Constitution in an appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternate remedy is provided by law.
When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion. NC: 2024:KHC:7175
In cases where there are disputed questions of fact, the High Court may decide to decline juri iction in a writ petition. However, if the High Court is objectively of the view that the nature of the controversy requires the exercise of its writ juri iction, such a view would not readily be interfered with.”
(Emphasis supplied)
The Apex Court follows the earlier judgments in the cases of Whirlpool Corporation and Harbanslal Sahnia, in a later judgment the Apex Court in the case of GODREG JARA LEE LIMITED v. EXCISE AND TAXATIOIN OFFICER-CUM- ASSESSING AUTHORITY2, has held as follows:
“4. Before answering the questions, we feel the urge to say a few words on the exercise of writ powers conferred by Article 226 of the Constitution having come across certain orders passed by the high courts holding writ petitions as “not maintainable” merely because the alternative remedy provided by the relevant statutes has not been pursued by the parties desirous of invocation of the writ juri iction. The power to issue prerogative writs under Article 226 is plenary in nature. Any limitation on the exercise of such power must be traceable in the Constitution itself. Profitable reference in this regard may be made to Article 329 and ordainments of other similarly worded articles in the Constitution. Article 226 does not, in terms, impose any limitation or restraint on the exercise of power to issue writs. While it is true that exercise of writ powers despite availability of a remedy under the very statute which has been 2 2023 SCC OnLine SC 95 NC: 2024:KHC:7175 invoked and has given rise to the action impugned in the writ petition ought not to be made in a routine manner, yet, the mere fact that the petitioner before the high court, in a given case, has not pursued the alternative remedy available to him/it cannot mechanically be construed as a ground for its dismissal. It is axiomatic that the high courts (bearing in mind the facts of each particular case) have a discretion whether to entertain a writ petition or not. One of the self- imposed restrictions on the exercise of power under Article 226 that has evolved through judicial precedents is that the high courts should normally not entertain a writ petition, where an effective and efficacious alternative remedy is available. At the same time, it must be remembered that mere availability of an alternative remedy of appeal or revision, which the party invoking the juri iction of the high court under Article 226 has not pursued, would not oust the juri iction of the high court and render a writ petition “not maintainable”. In a long line of decisions, this Court has made it clear that availability of an alternative remedy does not operate as an absolute bar to the “maintainability” of a writ petition and that the rule, which requires a party to pursue the alternative remedy provided by a statute, is a rule of policy, convenience and discretion rather than a rule of law. Though elementary, it needs to be restated that “entertainability” and “maintainability” of a writ petition are distinct concepts. The fine but real distinction between the two ought not to be lost sight of. The objection as to “maintainability” goes to the root of the matter and if such objection were found to be of substance, the courts would be rendered incapable of even receiving the lis for adjudication. On the other hand, the question of “entertainability” is entirely within the realm of discretion of the high courts, writ remedy being discretionary. A writ petition despite being maintainable may not be entertained by a high court for very many reasons or relief could even be refused to the petitioner, despite setting up a sound legal point, if grant of the claimed relief would not further public interest. Hence, dismissal of a writ petition by a high court on the ground that the NC: 2024:KHC:7175 petitioner has not availed the alternative remedy without, however, examining whether an exceptional case has been made out for such entertainment would not be proper.
A little after the dawn of the Constitution, a Constitution Bench of this Court in its decision reported in 1958 SCR 595 (State of Uttar Pradesh v. Mohd. Nooh) had the occasion to observe as follows:
“10. In the next place it must be borne in mind that there is no rule, with regard to certiorari as there is with mandamus, that it will lie only where there is no other equally effective remedy. It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute, (Halsbury's Laws of England, 3rd Edn., Vol. 11, p. 130 and the cases cited there). The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its discretion, issue a writ of certiorari to quash the proceedings and decisions of inferior courts subordinate to it and ordinarily the superior court will decline to interfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies.
***
At the end of the last century, this Court in paragraph 15 of the its decision reported in (1998) 8 SCC 1 (Whirlpool Corporation v. Registrar of Trade Marks, Mumbai) carved out the exceptions on the existence whereof a Writ Court would be justified in entertaining a writ petition despite the party approaching it not having availed the alternative remedy provided by the statute. The same read as under: NC: 2024:KHC:7175 (i) where the writ petition seeks enforcement of any of the fundamental rights;
(ii) where there is violation of principles of natural justice;
(iii) where the order or the proceedings are wholly without juri iction; or (iv) where the vires of an Act is challenged.
Not too long ago, this Court in its decision reported in 2021 SCC OnLine SC 884 (Assistant Commissioner of State Tax v. Commercial Steel Limited) has reiterated the same principles in paragraph 11.”
(Emphasis supplied)
In the light of the afore-quoted judgments merely because a statutory alternative remedy is available, this Court would not relegate the petitioner to such remedy on three circumstances – (i) if the order is passed which is without juri iction; (ii) if the order is passed which is contrary to the statute; and (iii) if the order is passed in violation of the principles of natural justice.
The present case falls within the third exception as enunciated by the Apex Court. If it is in violation of the principles of natural justice, this court would not show its door NC: 2024:KHC:7175 of exit to the petitioner who has suffered an order without hearing. The submission of the learned counsel for the Corporation is that no constitutional right of the petitioner is taken away and therefore, the petition should not be entertained is noted only to be rejected, as it is fundamentally flawed. The right of any person be it constitutional, statutory or otherwise is a right that moves with the person. If the said right is to be taken away or determined to the prejudice of any person, it cannot be without following the principles of natural justice in the least. Therefore, the submission that no constitutional right of the petitioner is taken away, and therefore, the petition should not be entertained is unsustainable. Any order having a civil or economic consequence must pass muster of the principles of natural justice, failing which, those orders would be rendered unsustainable. I am in complete agreement with what the Co-ordinate Bench has rendered in the case of AFFINE ANALYTICS PRIVATE LIMITED on identical circumstance. NC: 2024:KHC:7175
For the aforesaid reasons, the following:
O R D E R
i. The writ petition is allowed-in-part.
ii. The impugned action stands obliterated.
iii. The matter is remitted back to the hands of the Competent Authority to reconsider the matter afresh after issuing appropriate notice to the petitioner to the appropriate address and seek its reply and on considering the same, pass appropriate orders in accordance with law.
iv. Till such time, the interim order subsisting in the subject petition, as on today, shall continue. JUDGE
SJK List No.: 1 Sl No.: 4/CT:SNN
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.