High Court Quashes ESI Damages on Hindustan Coca-Cola, Orders Recalculation Based on Correct Timeline

 


Simplified Explanation of the Judgment

In this case, Hindustan Coca-Cola Beverages Pvt. Ltd. challenged an order by the Regional Director of the Employees State Insurance Corporation (ESIC), Patna, which imposed damages of ₹1,09,620 under Section 85B of the ESI Act, 1948.

The dispute centered around a delay in paying ESI contributions on escaped wages from 2000 to 2003. Initially, ESIC incorrectly raised a huge demand of over ₹1 crore in 2006. This demand was later rectified after re-inspection in 2008, and a corrected demand of ₹1.27 lakh was issued on 02.06.2008, which the company paid on 24.08.2009.

Despite this, ESIC levied damages based on the initial incorrect demand date (20.02.2006), counting a delay of over three years. The company argued that damages should be calculated from the date of the corrected demand in 2008.

The High Court agreed with the company and held that no authority can benefit from its own error. It stated that the delay period should start only after the valid demand was issued on 02.06.2008, not the earlier, flawed one. Accordingly, it quashed the 2014 order and directed ESIC to recalculate damages starting from 23.06.2008 (after allowing a 21-day grace period) up to the date of payment.

Significance of the Judgment

This judgment is crucial for businesses as it protects them from being penalized due to administrative errors of statutory bodies. It reaffirms that authorities must act fairly, and penalties must consider the actual facts and timelines. The case sets a strong precedent for applying discretion under Section 85B, and for using equitable principles in statutory penalty matters.

Legal Issues Decided and the Court’s Decision

  • Whether damages under Section 85B can be imposed from an incorrect demand date: No; damages must be calculated from the correct and final demand date.

  • Can mitigating circumstances be considered in imposing damages? Yes, discretion and fairness are essential under Section 85B.

  • Whether maximum damages under Regulation 31C are automatic: No; reasons must be given for imposing the maximum rate.

Judgments Referred by Parties

  • Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253

  • Prestolite (India) Ltd. v. Regional Director, (1994) Supp (3) SCC 690

Judgments Relied Upon or Cited by the Court

  • Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253

  • Prestolite (India) Ltd. v. Regional Director, (1994) Supp (3) SCC 690.

Case Title

Hindustan Coca-Cola Beverages Pvt. Ltd. vs Employees State Insurance Corporation & Others

Case Number

CWJC No. 3496 of 2015

Citation(s)

2024(4)PLJR 522

Coram and Names of Judges

Hon'ble Mr. Justice Mohit Kumar Shah

Names of Advocates

  • For Petitioner: Mr. Kumar Manish, Ms. Aishwarya Shankar

  • For Respondents: Mr. Rabindra Kr. Choubey

Link to the Judgment:


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