- 1 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8TH DAY OF JULY, 2025 BEFORE THE HON'BLE MR. JUSTICE RAMACHANDRA D. HUDDAR MISCELLANEOUS FIRST APPEAL NO. 3098 OF 2016 (ESI) BETWEEN: 1. THE REGIONAL DIRECTOR ESI CORPORATION REGIONAL OFFICE (KARNATAKA) NO.10, BINNYFIELDS, BINNYPET BANGALORE-560 023 2. THE RECOVERY OFFICER ESI CORPORATION REGIONAL OFFICE (KARNATAKA) NO.10, BINNYFIELDS BINNYPET, BANGALORE-560 023 …APPELLANTS (BY SRI. N.S. NARASIMHA SWAMY, ADVOCATE) AND: M/S KHODY INDIA LTD AT NO.21/2, PRATIBA COMPLEX UTTARADI MUTT ROAD BASAVANGUDI BANGALORE-560 004 REPRESENTED BY ITS DIRECTOR H.J. SIWANI …RESPONDENT (SERVED) THIS MFA IS FILED U/S 82(2) OF THE EMPLOYEES STATE INSURANCE ACT 1948 AGAINST THE JUDGMENT AND AWARD Digitally signed by ANJALI M Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 DATED:27.2.2016 PASSED IN E.S.I.NO.38/2010 ON THE FILE OF THE EMPLOYEES STATE INSURANCE COURT, BENGALURU, PARTLY ALLOWING THE APPLICATION FILED U/SEC 45-A OF THE ESI ACT. THIS APPEAL, COMING ON FOR FINAL HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE RAMACHANDRA D. HUDDAR ORAL JUDGMENT The Appellant-Corporation represented by its Regional Director and Recovery Officer has filed this appeal assailing the impugned order dated 27.02.2016 passed by the ESI Court in ESI Application No. 38/2010 thereby, the learned ESI Court has held that the applicant is liable to pay the contribution of Rs.5,00,000/- and the order under Section 45A of ESI Act is modified and further it is directed that the ESI Corporation to refund the remaining amount after deducting Rs.5 lakhs ordered amount within three months. 2. It is the specific contention of the appellants that, on 23.05.2007, the Insurance Inspector visited the - 3 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 factory of the respondents and observed that the respondent had not paid contribution in respect of the security personnel employed by them through the security agencies. Therefore, the respondent-company was called upon to produce the records by issuing a show-cause notice on 20.12.2007 under the provisions of ESI Act. The appellant being the statutory authority, on considering the say of the respondent no. 1-Company passed an order under Section 45A of the ESI Act on 22.12.2008 by providing full opportunity to the respondent-Company. It is stated that, in the said orders so passed by the appellant-Corporation, by virtue of the Orders passed under Section 45A of the E.S.I. Act, the Appellant- Corporation has claimed Rs.12,87,372/- for the period commencing from April 2000 to March 2006. 3. It is the submission of the learned counsel for the appellant that, ESI Court has not considered all the aspects of the case, especially the components mentioned in the Orders passed under Section 45A of the ESI Act. - 4 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 Arbitrarily, the ESI Court has reduced the contribution claim of Rs.5,00,000 without assigning any reasons and also ordered to refund the balance amount. Till date no amount or contribution is paid by the respondent company. Further he submits that on inspection of the respondent- company, it is noticed that, towards the wage element involved in the amount remitted to the security agencies by the respondent, the substantial amount is paid for the period stated supra. The said amount has been paid to the L.K.Trust Security Division, Ex-Servicemen Security Services, Security and Legal Aid Detective Services, Surakshitha Detective and Security. Aditya Trade and Security, Pinakini F and I(I) Limited and Kadamba Enterprises. Though the amounts have been mentioned in the said tabulations stated in the appeal, as per the say of the appellants, though the respondent company has paid certain amount, on visit of the respondent company, on going through the records, after giving full opportunities to the respondents, the officer of the appellant noticed that - 5 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 Rs.12,87,372/- have to be paid by the respondent for the period of commencing from April 2002 to March 2006 towards the contribution. 4. As the said amount is not paid, the respondent is liable to pay the same. But, the respondent challenged the same by filing an application in No.38/2010 before the ESI Court in which the impugned order has been passed. 5. In this appeal, though the respondent is served with the notice, has remained absent. 6. On going through the impugned order, it shows that, the inspection report Ex.R2 shows about the inspection done by the Officer. It is the specific contention of the appellant-Corporation that, the respondents have not produced any document to show that they have paid the contribution of ESI. Taking into consideration of all these aspects, as per the guidelines under the ESI Act, the appellant-Corporation has taken the wages at 60% of the wages paid to the security agencies and accordingly - 6 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 contribution has been claimed by the appellant- Corporation. To show that, what is the method adopted by the ESI Court to reduce the a contribution of Rs.5,00,000, there are no proper reasons assigned by the ESI Court while passing the orders under Section 45A of the ESI Act. Certain components have been stated in the said order. They read as under: "1) Where in respect of a factory or establishment no returns, particulars, registers or records are submitted, furnished or maintained in accordance with the provisions of section 44 or any (Social Security Officer) or other official of the Corporation referred to in sub-section 92) of section 45 is (prevented in any manner) by the principal or immediate employer or any other person, in exercising his functions or discharging his duties under section 45, the Corporation may, on the basis of information available to it, by order, determine the amount of contribution payable in respect of the employees of that factory or establishment: (Provided that no such order shall be passed by the Corporation unless the principal or immediate employer or the person in charge of the factory or establishment has been given a reasonable opportunity of being heard) (Provided further that no such order shall be passed by the Corporation in respect of the period beyond five years from the date on which the contribution shall become payable) - 7 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 (2) An order made by the Corporation under sub-section (1) shall be sufficient proof of the claim of the Corporation under section 75 or for recovery of the amount determined by such order as an arrear of land revenue under section 45B (or the recovery under sections 45C to 45-I)." 7. Except the bald contention taken up in the petition, there are no grounds stated by the respondents. When the ESI has claimed the contribution of around 60% of the wages paid to the security agencies and on the side of the accounts not spent on security agencies by the respondent establishment, rightly the ESI has taken 60% of the wages on above basis. This could not have been interfered with by the ESI Court because, the claiming of the contribution on the ad hoc basis without the actual wages cannot be done without verification of the records. As per the say of the appellant, there is a verification of the records and the concerned officer has determined the total amount towards the wages paid by the respondent- company. The observation of the ESI Court and the documents do not depict that the principal employer or the immediate employer have paid the contribution, appears to - 8 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 be wrong. The ESI Court has applied the guesswork and calculated the amount at Rs.5,00,000/- which is not in accordance with the provisions of ESI Act. The reasons have been assigned in Exhibit P8 by the Assistant Director that how the amount is calculated. As per the records produced before the Assistant Director by the respondent company, the total receipts have been shown from April 2002 to March 2006 at Rs.2,86,68,656/- and out of that there was a contribution made towards as per the act for the same period Rs.27,95,861/-, the balance was Rs. 2,58,62,795/-. Out of this, the Asst. Director has deducted the wages paid to the guards in a non-implemented area to the extent of Rs.84,23,785/- and the balance was Rs.1,74,39,010/-. It is also observed that though the security agency has failed to produce the records in respect of the amount, the Assistant Director has considered only 60% of the above amount as wages,40% being the security payments as well as the profit of the contractor and claim contribution of Rs.6,80,122/- on the wages of - 9 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 Rs.1,04,63,406/-. By applying the mind, the Asst. Director has passed order on verification of the records. Therefore, I do not find any factual error committed by the Asst. Director in passing the order under Section 45(A) of the ESI Act, 1948. The learned ESI Court has not properly considered the observations so made in Exhibit P8 being the order passed by the Asst. Director of Section 45(A) of the Act. Based upon the guesswork, one cannot be made to pay the contribution. Section 45-A of the ESI Act speaks about the determination of contribution in certain cases. Based upon the components of payment as well as contribution, the Assistant Director of ESI has passed the order under Section 45-A. He has taken into consideration of ad hoc payment. 8. In view of the all these aspects, the impugned order is liable to be set aside and order under Ex.A8 deserves to be restored. Accordingly, I pass the following order: - 10 - HC-KAR NC: 2025:KHC:24761 MFA No. 3098 of 2016 ORDER (i) Appeal is allowed. (ii) The impugned order dated 27.11.2016 passed by the ESI Court, Bengaluru, is hereby set aside. The orders passed by the Assistant Director i.e. marked at Ex. A8 is restored. (iii) The respondents are directed to pay the amount as determined under the orders under Section 45-A of the ESI Act i.e. as per Ex.A8, within four weeks from the date of this order. Sd/- (RAMACHANDRA D. HUDDAR) JUDGE SK List No.: 1 Sl No.: 35