Bombay HC Rules ESIC Cannot Impose Damages After Unreasonable Delay, Grants Relief To Bombay Gymkhana

Mumbai, March 16: In a relief to Bombay Gymkhana Ltd., the Bombay High Court recently held that the Employees’ State Insurance Corporation (ESIC) cannot impose damages for delayed payment of contributions after an unreasonable delay. The court dismissed the corporation’s appeal challenging an order that had set aside such a penalty.

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Court emphasises ‘reasonable period’ for action

Justice Jitendra Jain observed that even if the Employees’ State Insurance Act, 1948 does not specifically prescribe a limitation period for imposing damages under Section 85-B, such powers must be exercised within a “reasonable period”.

The court was hearing ESIC’s appeal challenging a 2018 order of the Employees’ State Insurance (ESI) Court, which had set aside damages of Rs 16.26 lakh imposed on Bombay Gymkhana for delayed payment of contributions.

Background of dispute

Bombay Gymkhana, a club registered under the Companies Act with the objective of promoting sports, recreation and other activities, had earlier disputed the applicability of the ESI Act to it. However, the ESI Court dismissed the challenge in 1987, and an appeal against that order was later dismissed by the High Court in 1996 for non-appearance.

In March 1989, ESIC demanded Rs 14.92 lakh as contribution for the period between 1972 and 1989. The gymkhana eventually paid the amount in September 2000. Later, in 2011, the corporation demanded Rs 29.17 lakh as interest on the delayed payment.

Delay in imposing damages

In April 2014, ESIC issued a show-cause notice proposing to impose damages of Rs 16.26 lakh under Section 85-B of the Act for the delayed contribution. After considering the gymkhana’s reply, the corporation confirmed the damages in June 2014.

The gymkhana challenged the order before the ESI Court, which in October 2018 quashed the damages, holding that the claim had been raised after an excessive delay.

High Court upholds ESI Court ruling

Upholding that decision, Justice Jain said it is settled law that where a statute does not prescribe a limitation period, the authority must still act within a reasonable time.

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The judge held that five years could be considered a reasonable period for imposing damages. Since the contribution was paid in September 2000 but the damages order was issued only in April 2014, the delay of nearly 14 years was clearly unreasonable.

The court also noted that deterrent action loses its effect if taken after long delays, and dismissed the ESIC’s appeal.

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