Criminal Application No.2625 of 1998,Criminal Application No.2626 of 1998

27th February, 2003

Petitioner Counsel: Mr. MANOJ MOHITE
Respondent Counsel: Shri. K. V. SASTE

Cases Cited:
Yeshwantrao Dattaji Chougule Vs. State, II-1993(1) Crimes [Para 3]
Employees State Insurance Corporation Vs. S. K. Agarwal, 1998(4) ALL MR 389 (S.C.)=1998(4) LJ (SC) 777 [Para 3,6]
Employees State Insurance Corporation, Chandigarh Vs. Gurdial Singh, (1994) 24 LIC 52 [Para 7]
Suresh Tulsidas Kilachand Vs. Collector of Bombay, 1994(17) Labour and Industrial Cases 1614 [Para 9]

JUDGMENT

JUDGMENT :- Both the applications are being decided by a common judgment and order because they are revolving around the same cause of action, that is not depositing the amount of provident fund deducted from the employees by the public limited company where those employees were employed. In both the applications, the applicants are assailing the propriety, legality and correctness of the order passed by the J.M.F.C. Sangli who entertained the complaints filed by Shri. J. B. Doiphode, Provident Fund Inspector against the applicants in the said Court alleging that they had committed the offence punishable under provisions of Section 406 of IPC.

2. Few facts need to be stated for unfolding the issue in debate. The applicants happened to be the Directors of M/s. Madhav Nagar Cotton Mills Ltd., District Sangli. They deducted the amount from the pay, salary and wages of the employees who were coming under the purview of the Provident Fund Act. It was alleged by Shri. Doiphode that the total sum of Rs.67,590/- was deducted from the pay, salary and wages of the employees coming under the purview of the said enactment pertaining to months May, June and July so far as complaint filed by him in the Court on 8-9-1994 happens to be concerned. He alleged that the sum Rs.27,740/- were not deposited though they were deducted from the pay, salary and wages of such employees pertaining to the month of August, 1994 so far as complaint dated 4-1-1995 was concerned. The learned Magistrate issued the process in view of section 406 of IPC and started hearing those two complaints as judicial proceedings. The applicants made a prayer for quashing those two complaints and prosecutions.

3. Mr. Manoj Mohite placed reliance on the following two judgments :-

(1) Judgment of the Bombay High Court in the matter of Yeshwantrao Dattaji Chougule & Ors. Vs. State, reported in II-1993(1) Crimes (Cri. Misc. Application No.23 of 1992), and

(2) Judgment of the Supreme Court in the matter of Employees State Insurance Corporation Vs. S. K. Agarwal & Ors., reported in 1998(4) LJ (SC) 777 : [1998(4) ALL MR 389 (S.C.)].

Relying on these two judgments, Shri. Mohite submitted that the provisions of Section 2(17) of the Employees State Insurance Act., 1948 (hereinafter referred to as ESI Act for convenience) and provisions of section 2(e) of Employees Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred to as the Act for convenience) are pari materia. Hence, in view of the Judgment of the Supreme Court, the learned Magistrate should not have passed the order issuing process against the applicants. He submitted further that the said order being illegal, this Court be pleased to quash the complaints and the resultant prosecutions.

4. Shri. Saste opposed the prayer and justified the order of learned Judicial Magistrate taking the cognizance of the complaints and issuing the process against the applicants.

5. Section 2(17) of the ESI Act provides

"principal employer" means -

(i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948, (63 of 1948) the person so named;

(ii) in any other establishment, any person responsible for the supervision and control of the establishment;"

6. So far as the Act is concerned, the definition given in section 2(e) provides:

"employer" means -

(i) in relation to an establishment which is a factory, the owner or the occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and where a person has been named as a manager of the factory under clause (f) of sub-section (1) of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and

(ii) In relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent; such manager, managing director or managing agent."

Thus, those two provisions are pari materia and, therefore, the observations of Supreme Court made in the Judgment of the case between Employees State Insurance Corporation Vs. S. K. Agarwal & Ors. (supra) in paragraph nos.10,11,12, and 13 would be applicable to these cases.

7. In paragraph 10, the Supreme Court held that in the case of Employees State Insurance Corporation, Chandigarh Vs. Gurdial Singh and Ors. (1991(24) Labour and Industrial Cases 52), this Court held that the directors of a private limited company were not personally liable to pay contributions under the Employees State Insurance Act, 1948. The Court was considering a case where a private limited company was the owner of the factory and the occupier of the factory had been duly named under the Factories Act, 1948. The Court said that the directors did not come within the definition of clause 1 of Section 2(17) of the Employees' State Insurance Act. Court also disapproved of the decision of a Single Judge of the Bombay High Court which has been subsequently overruled by the Division Bench of the Bombay High Court in the case of Suresh Tulsidas Kilachand and Ors. etc. Vs. Collector of Bombay and Ors. etc. (1994(17) Labour and Industrial Cases 1614).

8. In paragraph 11, the Supreme Court held that :-

"Therefore, even if we read the definition of "principal employer" under the Employees State Insurance Act, 1948 in Explanation 2 to Section 405 of the Indian Penal Code, the directors of the company, in the present case, would not be covered by the definition of "principal employer" when the company itself owns the factory and is also the employer of its employees at the head office."

9. In paragraph 12, the Supreme Court held :-

"In any event, in the absence of any express provision in the Indian Penal Code incorporating the definition of "principal employer" in Explanation 2 to Section 405, this definition cannot be held to apply to the term "employer" in Explanation 2. As the High Court has observed, the term "employer" in Explanation 2 must be understood as in ordinary parlance. In ordinary parlance it is the company which is the employer and not its directors either singly or collectively."

Thus, the Supreme Court upheld the judgment of the Calcutta High Court which was the subject matter of the lis which was quashing the prosecution initiated against M/s. Indo Japan Steel Ltd. The company having its factory and head office at Calcutta.

10. Thus, in view of the judgment of the Supreme Court, the said two complaints and said two prosecutions will have to be quashed by allowing these applications exercising the jurisdiction and authority in view of Section 482 of the Criminal Procedure Code, 1973 and Article 226 of the Constitution of India. Thus, rule made absolute.

Applications allowed.