The Supreme Court has clarified that the Employees’ State Insurance Corporation can invoke Section 45A only when an employer fails to produce records, does not cooperate, or obstructs inspection. Mere dissatisfaction with the quality or completeness of records cannot justify using Section 45A to raise contribution demands.
New Delhi: The Supreme Court of India has recently given an important ruling in favour of employers, holding that the Employees’ State Insurance Corporation (ESIC) cannot use its exceptional summary powers to raise ancient contribution demands when an employer has produced records and cooperated with inspections.
The Court set aside a contribution demand raised against Carborundum Universal Ltd for the period between 1988 and 1992, holding that the Corporation wrongly invoked its powers under Section 45A of the Employees’ State Insurance Act, 1948.
The bench made it clear that Section 45A is meant only for exceptional situations and cannot be used as a shortcut to avoid proper adjudication under the law.
The bench of Justice Manoj Misra and Justice Ujjal Bhuyan observed that mere dissatisfaction with the records produced by an employer does not give jurisdiction to the Corporation to invoke Section 45A. The provision empowers the Corporation to determine contributions only when an employer completely fails to submit records, does not cooperate, or obstructs inspection.
The Court clearly stated that
“the very foundation for exercising power under Section 45A lies in either non-production of records, lack of cooperation, or obstruction during inspection.”
It explained that Section 45A is intended to be a “best judgment” assessment, similar to provisions found in taxing statutes, and is not meant to be used in ordinary situations where records are available.
The bench further clarified that when an employer produces records and extends full cooperation, any dispute regarding the correctness or adequacy of contributions must be decided under Section 75(2)(a) of the Act, and not under Section 45A. According to the Court, dissatisfaction with the quality, completeness, or clarity of documents does not amount to non-production of records.
The judges cautioned that using Section 45A merely because the Corporation is unhappy with certain documents would amount to misuse of the law.
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They stated that such dissatisfaction
“cannot be used to invoke a power meant only for exceptional situations.”
If the Corporation believes that the employer’s calculations are incorrect or that further clarification is needed for certain entries, the proper legal route is to raise a dispute under Section 75.
The Court also warned that expanding the scope of Section 45A to cover cases of partial dissatisfaction or perceived inadequacy of records would effectively amount to rewriting the statute, which would be contrary to its text and structure.
It further observed that the statutory scheme does not allow the Corporation to bypass Section 75 simply because verification of records is inconvenient or time-consuming.
The case arose from a civil appeal filed by Carborundum Universal Ltd against a judgment of the Madras High Court dated October 12, 2023. The High Court had refused to interfere with a 2015 order passed by the Employees’ Insurance Court, which had upheld an order of the ESIC Regional Office (Tamil Nadu) passed in the year 2000.
Under that order, the Corporation claimed that an amount of Rs 5,42,575.53 was due as arrears of contribution from the employer for the period between August 1, 1988 and March 31, 1992.
The employer was directed to pay the amount along with interest at 12 percent per annum up to August 31, 1994, and at 15 percent per annum thereafter. This order was passed by invoking Section 45A of the Act.
While acknowledging that the Employees’ State Insurance Act, 1948 is a beneficial legislation enacted to provide social security benefits to employees, the Supreme Court took note of the fact that the High Court itself had recorded that the appellant had appeared before the Corporation through authorised representatives and had produced relevant records during personal hearings.
The Court observed that once records are produced and the employer actively participates in the proceedings, there can be no allegation of non-cooperation or obstruction. Therefore, the basic conditions required for invoking Section 45A were clearly absent in the present case.
It was also noted that the appellant had produced detailed records such as ledgers, cash books, journal vouchers, contractor records, and contribution returns for the relevant period. Multiple personal hearings were granted by the Corporation, and all of them were attended by authorised representatives of the company.
The Corporation itself had recorded that although records were produced, certain supporting bills were not furnished for some expenditure heads. Even assuming this finding to be correct, the Supreme Court held that this did not bring the case within the scope of Section 45A.
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The bench finally concluded that both the Employees’ Insurance Court and the High Court committed a grave error by upholding the order passed under Section 45A without examining this basic jurisdictional defect.
Holding that the invocation of Section 45A was completely unsustainable on the facts of the case, the Supreme Court set aside the orders passed by the Employees’ State Insurance Corporation, the ESI Court, and the Madras High Court.
Case Title:
M/s Carborundum Universal Ltd Vs Employees’ State Insurance Corporation
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