The Supreme Court upheld the conviction of a company’s general manager under Section 85(a) of the ESI Act, remarking that despite contributions deducted from the employees’ salaries, they were not deposited with the ESIC.
The Court dismissed an Appeal against the decision of the Karnataka High Court, which dismissed the Criminal Revision Petition filed by the Appellant challenging the conviction under Section 85(a) of the Employees’ State Insurance Act, 1948 (ESI Act) for allegedly deducting ESI contribution from the employees, but not remitting it to the Employees’ State Insurance Corporation (ESIC).
A Bench of Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanuallah held that “the conviction and the sentence does not require any interference, much less in the present case, where despite contributions having been deducted from the employees’ salaries, they were not deposited with the ESIC.”
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AOR Shankar Divate represented the Appellant, while AOR Manish Kumar Saran appeared for the Respondents.
Brief Facts The ESIC submitted that M/s Electriex (India) Limited, which was declared a sick industry in 2001, had deducted its employees’ wages for ESI contributions but had not deposited the amount with the ESIC.
A private complaint was filed against the Appellant, leading to his conviction by the Trial Court under Section 85(i)(b) of the ESI Act. The Conviction was upheld
Court’s Reasoning
The Supreme Court noted the argument canvassed by the Appellant that he neither held the post of General Manager nor was he the ‘Principal Employer’ during the relevant period. The submission urged was that the liability was on the Company for making payments to the ESIC, therefore, he could not be charged, much less convicted, for an offence under the ESI Act.
The Bench, referring to the definition of a principal employer under Section 2(17) of the ESI Act, noted that “it is clear that the definition also includes a ‘managing agent’ of the Owner/Occupier in the case of a factory or ‘named as the manager of the factory under the Factories Act, 1948’ and for ‘any other establishment’, ‘principal employer’ would include ‘any person responsible for the supervision and control of the establishment’. Therefore, designation of a person can be immaterial if such person otherwise is an agent of the Owner/Occupier or supervises and controls the establishment in question. From the materials available on record, we find that the Appellant falls within the ambit of Section 2(17) of the Act, being a ‘managing agent’.”
Supreme Court The Bench remarked that “the High Court rightly indicated that non-remittance of the contribution deducted from the salary of an employee to the ESIC is a offence under Section 85(a) of the Act and punishable under Section 85(i)(a) of the Act but the Trial Court had imposed a lesser sentence as provided under Section 85(i)(b) of the Act.”
Consequently, the Court ordered, “Accordingly, the appeal, being devoid of merit, stands dismissed. The Appellant is directed to undergo the sentence after setting off the period already undergone, if any and pay the fine, if not already paid, as awarded by the Trial Court.”
Accordingly, the Supreme Court allowed the Appeal.
Cause Title: Ajay Raj Shetty v. Director & Anr. (Neutral Citation: 2025 INSC 500)
Appearance: Appellant: AOR Shankar Divate
Respondents: AOR Manish Kumar Saran and Vipin Kumar; Advocates Bharat Lal Soni and Jitendra Kumar
Source: verdictum
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