2005(3) ALL MR (JOURNAL) 8
(ANDHRA PRADESH HIGH COURT)

P.S. NARAYANA, J.

Employees' State Insurance Corporation Vs. M/S. A. P. Heavy Machinery And Engg. Ltd. & Ors.

Criminal Appeal No.1687 of 1999

19th November, 2004

Petitioner Counsel: B. G. RAVINDER REDDY
Respondent Counsel: Public Prosecutor

(A) Negotiable Instruments Act (1881) Ss.138, 147 - Enforceable debt - Liability to pay ESI contribution by employer - Is statutory obligation and "enforceable debt" within meaning of S.138. (Para 14)

(B) Negotiable Instruments Act (1881), Ss.138, 147 (As inserted is 2002) - Cheque issued as employer's contribution to ESIC - Returned for reason "exceeds arrangement" - After notice was issued employer paid amount by demand draft and matter was settled - Held, in the facts of the case though recording acquittal would not be in accordance with law settlement can be recorded. (Para 21)

Cases Cited:
Cranex Ltd. Vs. Nagarjuna Finance Ltd., 2001 ALL MR (Cri) 576 (S.C.)=(2000)7 SCC 388 [Para 7]
P. Mohan Babu Vs. D. Ramaswamy, 2000 ALL MR (Cri) 1683 (S.C.)=(2000)9 SCC 528 [Para 7,19]
O. P. Dholakia Vs. State of Haryana, (2000)1 SCC 762 [Para 7]
M. Rangaswamiaiah Vs. R. Shettappa, 2003 ALL MR (Cri) JOURNAL 1=2001(1) ALT (Cri) 235 Karnataka [Para 17]


JUDGMENT

JUDGMENT :- Employees' State Insurance Corporation represented by its Inspector, Hill Fort Road, Adarshnagar, Hyderabad had preferred the present appeal as against the order of acquittal recorded in C.C. No.66 of 1988 on the file of the XXIII Metropolitan Magistrate, Hyderabad, which had been transferred to the said Court by the Metropolitan Sessions Judge, Hyderabad vide orders in Dis. No.2282 of 1998, dated 4-7-1998 for disposal according to law.

2. It is averred in the complaint that the Managing Director of A.1 company shown as A.2 issued a cheque for Rs.1,00,000/- in favour of appellant-complainant Recovery Officer towards contribution for the period from 10/92 to 9/94 payable by the accused, drawn on the State Bank of India, Vijayawada and the said cheque was returned dishonoured for the reason "exceeds arrangements" and that the appellant-complainant got issued the statutory notice as required under the Negotiable Instruments Act, 1881 (for brevity "the Act") which was received by the accused but no payment was made.

3. PW-1 who is the Inspector of E.S.I, of Corporation was examined and Ex.P.1, the cheque issued by the accused, Ex.P.2, the cheque return memo, Ex.P.3, the office copy of the legal notice, Exs.P.4 and P.5 post acknowledgments of A.1 and A.2, Ex.P.6, resolution dated 3-1-1999 authorising inspectors to file and prosecute the cases in various Courts, Exs.P.7 and 8, the authorizations also were marked and PW-1 had deposed about all the aspects in detail. PW-1 also deposed that Ex.P.1 was issued in discharge of the liability towards ESI contribution and the cheque was dishonoured for the reason "exceeds arrangements". PW-1 also deposed that the accused paid the amount on 3-3-1998 by way of demand draft and the same was accepted by the appellant-complainant.

4. Sri B. G. Ravindra Reddy the learned counsel representing appellant-complainant made the following submissions:-

The learned counsel submitted that the Employees State Insurance Corporation is governed by the provisions of the Employees State Insurance Corporation Act, 1948 and in view of the Sections 39, 40, 85 and 86 of the said Act, this is a statutory obligation and liability, and hence the same is legally enforceable debt within the meaning of the Section 138 of the Act. The learned counsel also submitted that prior to the introduction of Section 147 of the Act by Amending Act 55 of 2002, there was cleavage of opinion relating to the compoundability of the offence and in view of the fact that this is a matter which was filed prior to the said Amending Act, recording of acquittal is not in accordance with law; at the best it may be a mitigating circumstance to be taken into consideration and hence the said findings recorded by the learned Judge cannot be sustained.

5. The learned Additional Public Prosecutor also had taken this Court through the provisions of Section 138 of the Act and also the other Sections 143 to 147 of the Act, which had been introduced by Act 55 of 2002 and would submit that in view of the fact that ESI contribution had been deposited by the accused by way of demand draft on 3-3-1998, there may not be any justification in further proceeding with the matter as against respondent Nos.1 and 2 accused.

6. Sri V. Sriram Krishna, the learned counsel appointed from the Legal Aid Panel to assist the Court had submitted that C.C. was filed in the year of 1998 and the Amending Act 55 of 2002 came into force subsequent thereto. However, the learned counsel submitted that even prior to the introduction of Section 147 of the Act, the Courts had taken the view that taking into consideration the object of introducing these provisions, if payment had been made and settlement had been arrived at normally the same may have to be given effect to. The learned counsel no doubt submitted that there was cleavage of opinion relating to the compoundability of this offence prior to the introduction of Section 147 of the Act. The counsel also submitted that though there was some difference of opinion as to the compoundability of the offence prior to the introduction of the Amending Act 55/2002, in view of Section 147 of the Act, there is no doubt whatsoever that these offences are compoundable. The counsel also submitted that during the pendency of the appeal or revision before appellate Court or Revisional Court or the Apex Court, as the case may be when the matters of this nature had been amicably settled, it would be just and proper to give effect to the said settlement, instead of convicting the accused,

7. The learned counsel also placed reliance on Cranex Ltd. Vs. Nagarjuna Finance Ltd., (2000)7 SCC 388 : 2001 ALL MR (Cri) 576 (S.C.); P. Mohan Babu Vs. D. Ramaswamy (2000)9 SCC 528 : 2000 ALL MR (Cri) 1683 (S.C.); and O. P. Dholakia Vs. State of Haryana, (2000)1 SCC 762.

8. Heard the learned counsel.

The facts already had been narrated as supra. It is not in controversy that the Managing Director of the Company issued the cheque Ex.P.1 in discharge of the liability towards the ESI contribution. There is also no controversy that the cheque was returned dishonoured for the reason "exceeds arrangements". There is no dispute or controversy that the statutory notice as per the provisions of the Act had been issued and for non-compliance of the payment made therein, the complaint was filed for dishonour of the cheque. There is also no controversy that there is statutory duty and also statutory obligation as per the provisions of the Employees State insurance Act, 1948 on the part of the accused to make deposit of these ESI contributions. There is also no controversy that subsequent thereto accused paid the amount by way of demand draft on 3-3-1998. The only point with which this Court is left with to be decided is whether in such a case the acquittal recorded by the learned Magistrate is in accordance with the law.

9. Section 39 of the Employees State Insurance Act, 1948 dealing with the contribution reads as follows :

"Contributions.- (1) The contribution payable under this Act in respect of an employee shall comprise contribution payable by the employer (hereinafter referred to as the employer's contribution) and contribution payable by the employee (hereinafter referred to as the employee's contribution) and shall be paid to the Corporation.

(2) The contributions shall be paid at such rates as may be prescribed by the Central Government :

Provided that the rates so prescribed shall not be more than the rates which were in force immediately before the commencement of the Employees State Insurance (Amendment) Act, 1989.

(3) The wage period in relation to an employee shall be the unit in respect of which all contributions shall be payable under this Act.

(4) The contributions payable in respect of each Wage period, shall ordinarily fall due on the last day of the wage period, and where an employee is employed for part of the wage period, or is employed under two or more employers during the same wage period, the contributions shall fall due on such days as may be specified in the regulations.

(5)(a) If any contribution payable under this Act is not paid by the principal employer on the date on which such contribution has become due he shall be liable to pay simple interest at the rate of twelve per cent per annum or at such higher rate as may be specified in the regulations till the date of its actual payment :

Provided that higher interest specified in the regulations shall not exceed the lending rate of interest charged by any scheduled bank.

(b) Any interest recoverable under clause (a) may be recovered as an arrear of land revenue or under Section 45C to Section 451."

10. Section 40 of the said Act dealing with the Principal employer to pay contributions in the first instance reads as hereunder:

"Principal employer to pay contributions in the first instance.- (1) The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer's contribution and the employee's contribution.

(2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations, if any, made thereunder, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee) be, entitled to recover from the employee the employee's contribution by deduction from his wages and not otherwise;

Provided that no such deduction shall be made from any wages other than such as relate to the period or part of the period in respect of which the contribution is payable, or in excess of the sum representing the employee's contribution for the period.

(3) Notwithstanding any contract to the contrary, neither the principal employer nor the immediate employer shall be entitled to deduct the employer's contribution from any wages payable to an employee or otherwise to recover it from him.

(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted.

(5) The principal employer shall bear the expenses of remitting the contributions to the Corporation."

11. Section 85 of the said Act dealing with the punishment for failure to pay contributions, etc., reads as hereunder :

"Punishment for failure to pay contributions, etc. :- If any person-

(a) fails to pay any contribution which under this Act he is liable to pay, or

(b) deducts or attempts to deduct from the wages of an employee the whole or any part of the employer's contribution, or

(c) in contravention of Section 72 reduces the wages or any privileges or benefits admissible to an employee, or

(d) in contravention of Section 73 or any regulation dismisses, discharges, reduces or otherwise punishes an employee, or

(e) fails or refuses to submit any return required by the regulations, or makes a false return, or

(f) obstructs any inspector or other official of the Corporation in the discharge of his duties, or

(g) is guilty of any contravention of or non-compliance with any of the requirements of this Act or the rules or the regulations in respect of which no special penalty is provided,

he shall be punishable -

(1) where he commits an offence under clause (a), with imprisonment for a term which may extend to three years but -

(a) which shall not be less than one year, in case of failure to pay the employee's contribution which has been deducted by him from the employee's wages and shall also be liable to fine of ten thousand rupees:

(b) which shall not be less than six months, in any other case and shall also be liable to fine of five thousand rupees :

Provided that the Court may, for any adequate and special reasons to be recorded in the Judgment, impose a sentence of imprisonment for a lesser term;

(ii) where he commits an offence under any of the clauses (b) to (g) (both inclusive), with imprisonment for, a term, which may extend to one year or with fine which may extend to four thousand rupees, or with both."

12. Section 86 of the said Act dealing with the prosecutions reads as hereunder :

"Prosecutions.- (1) No prosecution under this Act shall be instituted except by or with the previous sanction of Insurance Commissioner or of such other officer of the Corporation as may be authorized in this behalf by the Director General of the Corporation.

(2) No Court inferior to that of a Metropolitan Magistrate or Judicial Magistrate of the First Class shall try any offence under this Act.

(3) No Court shall take cognizance of any offence under this Act except on a complaint made in writing in respect thereof."

13. On a careful reading of the different provisions of the Employees State Insurance Act, 1948, it is clear that the very object is to provide for certain benefits to employees in case of sickness and maternity and employment injury and to make provision for certain other matters in relation thereto, and the enactment was made - "whereas it is expedient to provide for certain benefits to employees in case of sickness and maternity and employment injury and to make provision for certain other matters in relation thereto".

14. There can be no doubt or controversy that this is a statutory obligation or statutory liability, which is definitely an enforceable debt within the meaning of the Section 138 of the Act.

15. Section 138 of the Act reads as hereunder :-

"Dishonour of cheque for insufficiency, etc., of funds in the account.- Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank such person shall be deemed to have committed an offence and shall, without prejudice to any other provision of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both :

Provided that nothing contained in this section shall apply unless-

(a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, (within thirty days) of the receipt of information by him from the bank regarding the return of the cheque as unpaid; and

(c) the drawer for such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation.- For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability."

16. Section 147 of the Act dealing with the offences to be compoundable reads as hereunder:-

"Offences to be compoundable.- Not - withstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable."

No doubt this provision was introduced in the Act as amended by Act 55 of 2002.

17. Strong reliance was placed on M. Rangaswamiaiah Vs. R. Shettappa, 2001(1) ALT (Cri) 235 Karnataka : 2003 ALL MR (Cri) JOURNAL 1; wherein the view was expressed to the effect that in the present Code of Criminal Procedure, there is no express prohibition against compounding of an offence under other laws, in the absence of such provision in the present Code, and where the Negotiable Instruments Act itself is silent, such offence could be compounded.

18. In Cranex Ltd. Vs. Nagarjuna Finance Ltd. (supra) where there was compromise or settlement between parties during pendency of appeal in Sessions Court against conviction and sentence of imprisonment and fine under Section 138 of the Act, it was held that subsequent events taking place during the pendency of appeal can be taken into account by the appellate Court while disposing of the appeal.

19. In P. Mohan Babu Vs. D. Ramaswamy (supra) wherein it was held that during the pendency of appeal before Supreme Court, the drawer paying the entire amount covered by the disputed cheques and affidavit filed before Supreme Court showing that the complainant was fully satisfied with the said payment, the Apex Court held that it would be a mitigating factor.

20. In O. P. Dholakia Vs. State of Haryana (supra) wherein the complainant had received the entire money and stated before the Supreme Court that he had no objection if the conviction was set aside and the State opposing the setting aside of the conviction on the ground that the parties could have entered into a compromise only during the pendency of the appeal and not at this stage. Despite some force in the State's contention, in view of the nature of the offence and the existence of a compromise, Supreme Court granting permission, in the peculiar facts and circumstances of the case to compound the conviction and sentence, which are, necessarily to be annulled.

21. The compoundability or non-compoundability of offence at the relevant point of time need not detain this Court any longer for the reason that Section 147 of the Act had been introduced, no doubt by a subsequent Amending Act. Even prior thereto the opinions expressed by different High Courts and also the Apex Court appear to be in favour of approving such compounding and settlement between the parties, taking into consideration the aim and object of the provisions of the Act. Hence, in view of the same inasmuch as within a short span of time, the ESI contributions had been deposited by way of demand draft by R.1 and R.2 who are A.1 and A.2, it can be taken that the statutory obligation or the liability cast upon, A.1 and A.2 under the Employees' State Insurance Act, 1948 had been complied with and hence in view of the peculiar facts and circumstances, it can be taken that the matter in relation to which the cheque had been issued, had been settled between the parties and inasmuch as such settlement may have to be given effect to keeping in mind, the object of introducing the relevant provisions of the Act, this Court can note the same and record the said settlement between the parties. It is made clear that though the deposit by way of demand draft had been made it is only a subsequent event. Hence, recording of acquittal cannot be said to be in accordance with law and settlement alone could have been recorded.

22. Accordingly the settlement between the parties is hereby recorded in the peculiar facts and circumstances of the case. The Criminal Appeal is accordingly disposed of.

Order accordingly.