Supreme Court Upholds Interest Demand on Delayed ESI Contributions

The Supreme Court of India recently upheld the Gujarat High Court’s decision, affirming the liability of The Transport Corporation of India Ltd. to pay interest on delayed Employees’ State Insurance (ESI) contributions. The appeal arose from a demand by the Employees’ State Insurance Corporation (ESIC) for contributions and interest under the Employees’ State Insurance Act, 1948.

Background of the Case

The appellant, The Transport Corporation of India Ltd., challenged a demand notice issued by the ESIC for contributions amounting to Rs. 8,01,510 for the period between July 30, 1975, and March 31, 1988. The ESIC also demanded interest on the delayed payments under Regulation 31-A of the Employees’ State Insurance (General) Regulations, 1950.

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The appellant initially contested this demand before the Employees’ Insurance Court, which ruled in its favor. However, the Gujarat High Court overturned this decision, holding that the appellant was liable for contributions from 1975 onwards. The matter then reached the Supreme Court.

Key Arguments of the Petitioner

The appellant argued that:

• The liability for ESI contributions was unclear until the Gujarat High Court’s 2006 judgment, and therefore, interest should not be charged for the period before this date.
• There was no statutory power to levy interest before October 20, 1989, and Regulation 31-A could not confer such power.
• Under Article 142 of the Constitution of India, the Supreme Court should exercise its discretionary power to waive the interest.

Key Arguments of the Respondents

The ESIC contended that:

• The appellant was liable to pay contributions from 1975 onwards, as held by the Gujarat High Court.
• The demand for interest was legally valid, as it was in line with Regulation 31-A and the amendments to Section 39(5) of the ESI Act.
• The Supreme Court had previously ruled that there was no power under the ESI Act to waive statutory interest.

Supreme Court’s Judgment

The Supreme Court dismissed the appeal, holding that the demand for interest was justified. The Court made the following observations:

“There is no dispute that the interest demanded from the appellant is in terms of Regulation 31-A of the said Regulations. In the writ petition filed before the Gujarat High Court and in this appeal, the appellant has not challenged the validity of Regulation 31-A.”

The Court further noted that:

• Interest was charged at 6% per annum for the period before October 19, 1989, as per the unamended Regulation 31-A.
• For arrears after October 20, 1989, interest was charged at 12% per annum, in accordance with Section 39(5) of the ESI Act.
• The appellant failed to prove that it had provided better medical facilities to its employees, which might have justified an exemption.
• There was no justification for invoking Article 142 to waive the interest.

Conclusion

The Supreme Court’s ruling reinforces the principle that employers must comply with ESI contribution requirements and cannot evade interest liabilities due to delayed payments. This judgment serves as a significant precedent for future cases involving delayed ESI contributions and interest demands.

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Petitioner Name: The Transport Corporation of India Ltd..
Respondent Name: Employees’ State Insurance Corporation & Ors..
Judgment By: Justice Ajay Rastogi, Justice Abhay S. Oka.
Place Of Incident: Gujarat.
Judgment Date: 29-10-2021.

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