ESI Act Violation: Supreme Court Rules on Minimum Fine for Non-Payment of Contributions

The Supreme Court of India, in the case of Employees State Insurance Corporation vs. A.K. Abdul Samad & Anr., ruled on the interpretation of Section 85(a)(i)(b) of the Employees’ State Insurance Act, 1948. The case revolved around whether courts have the discretion to impose a fine lower than Rs. 5,000 for non-payment of employee contributions under the Act. The judgment, delivered by Justices Dipak Misra and Shiva Kirti Singh, held that while courts can reduce the term of imprisonment under special circumstances, they do not have the discretion to lower the fine amount.

Background of the Case

The Employees State Insurance Corporation (ESIC) initiated criminal proceedings against the respondents for failure to pay contributions as required by the Employees’ State Insurance (ESI) Act. The trial court found them guilty and sentenced them to imprisonment till the rising of the court and a fine of Rs. 1,000. ESIC appealed, arguing that the fine should have been Rs. 5,000 as mandated by law.

Key Legal Issues

• Does Section 85(a)(i)(b) of the ESI Act allow courts to reduce both imprisonment and fine?
• Can the term “shall also be liable to fine” be interpreted as discretionary?
• Was the High Court justified in affirming the reduced fine imposed by the trial court?

Arguments of the Parties

Petitioner’s Arguments (ESIC)

The Employees State Insurance Corporation contended that the minimum fine of Rs. 5,000 was mandatory and not subject to judicial discretion. They cited previous Supreme Court rulings, including Zunjarrao Bhikaji Nagarkar vs. Union of India, which established that when the law mandates a fine, courts cannot alter it.

Respondent’s Arguments (A.K. Abdul Samad & Anr.)

The respondents argued that the phrase “shall also be liable to fine” should be interpreted as discretionary, allowing courts to reduce the fine amount. They relied on earlier rulings where courts had exercised discretion in sentencing under similar statutory provisions.

Supreme Court’s Observations

Justice Shiva Kirti Singh, delivering the judgment, stated:

“The discretion as per proviso is confined only in respect of the term of imprisonment. The amount of fine has to be Rupees five thousand, and the courts have no discretion to reduce the same once the offence has been established.”

The Court ruled that the intention of the legislature was clear in imposing a fixed fine and that judicial discretion is limited to reducing the imprisonment term, not the fine.

Final Verdict

The Supreme Court allowed the appeal, directing the respondents to pay a fine of Rs. 5,000 within six weeks. If they had already paid Rs. 1,000, they were ordered to pay the balance, failing which recovery proceedings would be initiated.

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Download Judgment: Employees State Insu vs A.K. Abdul Samad & A Supreme Court of India Judgment Dated 10-03-2016-1741853865357.pdf