Employees State Insurance Corporation vs. M/S, Thiruvettai Ayyanar Spinners (P) Limited

Facts

The Employees State Insurance Corporation (Appellant) filed a Civil Miscellaneous Appeal challenging an order of the Labour Court (ESI Court), Madurai. The Labour Court had reduced damages imposed under Section 85-B of the ESI Act from Rs. 1,87,344 to 25% of that amount. The original order imposing damages was passed by the ESI Authority on March 14, 2019, for a violation. The respondent, Thiruvettai Ayyanar Spinners (P) Limited, had challenged this order before the Labour Court, arguing there was no mens rea or actus reus. The Labour Court negatived the mens rea/actus reus contention but reduced the damages based on the textile industry's financial crisis.

Held

The Court held that the Labour Court's exercise of discretion to reduce damages was without basis and jurisdiction. While the Labour Court negatived the contention of no mens rea or actus reus, it reduced damages to 25% based on a presumed financial crisis of the respondent, without any evidence whatsoever. The Court noted that to seek indulgence for reduced damages due to financial crisis, proper materials must be on record to show the crisis and lack of intentional default. Citing its own judgment in The Regional Director, Tirunelveli vs. The Management, The Sree Sivakumar Spinning Mills and an Apex Court judgment in Union of India vs. Dharmendra Textile Processors, the Court reiterated that mens rea or actus reus is not essential for imposing damages under Section 85-B of the ESI Act. The appeal was allowed, the Labour Court's order reducing damages was set aside, and the original order imposing the full damages was restored.

Key Issues

1. Whether the Labour Court, Madurai, was correct in allowing the respondent's case based solely on a pleading of financial crunch, without producing profit and loss account records to evidence the financial crisis before the ESI Authority or the Court? (Question of law and fact, turning on Section 85-B of the ESI Act). Petitioner's arguments: The Appellant contended that the Labour Court erred by presuming financial crisis without any supporting material or evidence produced by the respondent. The reduction of damages to 25% was therefore invalid. Respondent's arguments: The respondent argued that the Labour Court correctly reduced damages by taking judicial notice of the financial crisis during the demonetization and GST implementation periods. They relied on the case of Halwasia Vidya Senior Secondary School vs. The Regional Provident Fund Commissioner (2006(3) LLN 122).