Supreme Court Upholds Conviction of General Manager for ESI Contribution Default.


17 April 2025 Criminal Appeals & Suspension of Sentence >> Criminal Law   |   Employees State Insurance Act >> Labor Law  

The Supreme Court of India has dismissed an appeal filed by a former General Manager of M/s Electriex (India) Limited, upholding his conviction for failing to deposit Employees' State Insurance (ESI) contributions deducted from employees' wages. The judgment reaffirms the responsibility of key managerial personnel in ensuring compliance with the Employees' State Insurance Act, 1948 (the Act).

The case originated from a private complaint filed by the Employees’ State Insurance Corporation (ESIC) against the Appellant and the Company before the Special Court for Economic Offences, Bangalore. The complaint alleged offences under Section 85(a) of the Act, following a report that revealed a deduction of Rs. 8,26,696/- from employees' wages between February 1, 2010, and December 31, 2010, which was not deposited with the ESIC. The report identified the Appellant as the 'General Manager' and 'Principal Employer' of the Company.


 

 

The Trial Court convicted the Appellant under Section 85(i)(b) of the Act, sentencing him to six months imprisonment and a fine of Rs. 5,000/-. This conviction was upheld by both the First Appellate Court and subsequently by the High Court of Karnataka at Bengaluru, which dismissed the Appellant's Criminal Revision Petition.

In his appeal before the Supreme Court, the Appellant argued that he was merely a 'Technical Coordinator' appointed in July 2009 and not the General Manager or Principal Employer during the relevant period. His counsel contended that the prosecution had failed to prove his designation beyond relying on the ESIC report, the author of which was not presented for cross-examination. It was also argued that there was no evidence showing the Appellant himself had deducted the contributions and failed to deposit them.

Furthermore, the Appellant's counsel pointed to Regulation 10-C of the Employees’ State Insurance (General) Regulations, 1950, which requires the Principal Employer to submit Form 01(A) to the ESIC, arguing the prosecution's failure to produce this form weakened their case. Another argument raised was that the Act essentially criminalizes a civil wrong, evidenced by Regulation 31C which allows the ESIC to recover unpaid contributions with a penalty and even waive or reduce damages, especially for sick companies like Respondent No.2. The Appellant's counsel pleaded for a lenient sentence, suggesting imprisonment until the rising of the 

Court, relying on a previous Supreme Court judgment.

However, the Supreme Court bench, found no merit in the Appellant's arguments. The Court noted the concurrent findings of fact by the lower courts that the Appellant was described as the General Manager in the Company's records, a fact he failed to adequately controvert with documentary evidence like his appointment letter or pay slips. The Court also highlighted the Appellant's failure to identify who held the positions of General Manager and Principal Employer during the relevant time, despite being employed by the Company.

The Supreme Court clarified the definition of 'principal employer' under Section 2(17) of the Act, stating that it includes not only the owner or occupier but also a 'managing agent' or any person responsible for the supervision and control of the establishment. Based on the available records, the Court concluded that the Appellant fell within this definition.

Distinguishing the precedents relied upon by the Appellant, the Court noted that Employees’ State Insurance Corpn., Chandigarh v Gurdial Singh dealt with the liability of company directors when an occupier of the factory existed, while J K Industries Limited v Chief Inspector of Factories and Boilers pertained to the Factories Act, which has different provisions regarding liability.

The Supreme Court also addressed the sentencing aspect, noting that while the offence under Section 85(a) read with Section 85(i)(a) of the Act for non-deposit of deducted employee contributions carries a minimum imprisonment of one year and a fine of Rs. 10,000/-, the Trial Court had imposed a lesser sentence under Section 85(i)(b). The High Court had not found it necessary to interfere with this reduced sentence. The Supreme Court upheld the fine amount, citing ESI Corpn. v A K Abdul Samad, which held that the prescribed fine under Section 85(i)(b) is mandatory.

Ultimately, the Supreme Court dismissed the appeal, affirming the conviction and sentence imposed by the lower courts. The Appellant was directed to serve his sentence, with a set-off for any period already served, and to pay the fine if not already paid. The interim order granting exemption from surrendering was withdrawn, and the Appellant was instructed to surrender before the Trial Court within two weeks.

This judgment serves as a significant reminder of the accountability of managerial personnel in ensuring statutory compliance, particularly concerning employee welfare legislations like the ESI Act. The Supreme Court's emphasis on the factual records and the broad definition of 'principal employer' underscores the responsibility of those in supervisory and controlling roles within an organization.


Section 85, EMPLOYEES STATE INSURANCE ACT - 1948  

EMPLOYEES STATE INSURANCE ACT, 1948  

Section 138, Negotiable Instruments Act - 1881  

Negotiable Instruments Act, 1881  

COMPANIES ACT, 2013