Shetty v.

ESIC: Supreme Court Affirms Liability of Manager for ESI

Contribution Non-Payment Despite Claimed Designation
Discrepancy.
Case Name: Ajay Raj Shetty v. Director and Anr.
Citation: 2025 INSC 500
Facts: M/s Electriex (I) Ltd. deducted ESI contributions but failed to
deposit ₹8,26,696/-. An ESIC report named Ajay Raj Shetty as General
Manager and Principal Employer. Shetty claimed he was merely a
Technical Coordinator.
Procedural Posture: The Trial Court convicted Shetty under Section
85(i)(b) of the Employees’ State Insurance Act, 1948. The First
Appellate Court and the High Court affirmed this. Shetty appealed to
the Supreme Court.
Issue: Can Shetty be held liable as a "principal employer" under
Section 2(17) of the ESI Act for the company's failure to remit deducted
employee contributions?
Holding: Yes. The Supreme Court dismissed the appeal, upholding
the conviction.
Reasoning: The Court noted concurrent findings that company
records identified Shetty as General Manager, which he did not
adequately refute. Interpreting Section 2(17), the Court held that
"principal employer" includes a "managing agent" or one responsible
for supervision and control, within which Shetty fell. The non-payment
of deducted contributions violated Section 85(a). Citing ESI Corpn. v A
K Abdul Samad, the Court reiterated the mandatory nature of the
minimum fine. The "sick industry" status did not preclude criminal
prosecution.
Author: Adv. Sagar Badade (सागर बडदे )
Website: LEGALCELL.org
2025 INSC 500 REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. OF 2025

[@ SPECIAL LEAVE PETITION (CRIMINAL) NO.3743 OF 2024]

AJAY RAJ SHETTY …APPELLANT

VERSUS
DIRECTOR AND ANR. …RESPONDENTS

R1: DIRECTOR

R2: M/S ELECTRIEX (I) LTD.

J U D G M E N T

AHSANUDDIN AMANULLAH, J.

Leave granted.

2. This appeal has been preferred by the Appellant against the

Final Judgment and Order dated 08.12.2023 (hereinafter referred to

Signature Not Verified

as the ‘Impugned Order’) passed by the High Court of Karnataka at

Digitally signed by
VARSHA MENDIRATTA
Date: 2025.04.17
15:14:25 IST
Reason:
 2

Bengaluru (hereinafter referred to as the ‘High Court’), by which

Criminal Revision Petition No.164 of 2015 filed by the Appellant and

Respondent No.2 has been dismissed.

BRIEF FACTS:

3. M/s Electriex (India) Limited (hereinafter referred to as

‘Respondent No.2’ or ‘Company’) was declared as a sick industry by

the Board for Industrial and Financial Reconstruction (hereinafter

referred to as the ‘BIFR’) on 31.10.2001 in Case No.49/2000. On

24.09.2002, the BIFR ordered for a change in the management of

Respondent No.2. Aggrieved by this Order, Respondent No.2

preferred Appeal No.340/2002 before the Appellate Authority for

Industrial and Financial Reconstruction (hereinafter to referred to as

the ‘AAIFR’). Such appeal was dismissed vide AAIFR’s Order dated

15.01.2003. Following this, Respondent No.2 filed Writ Petition

No.20033/2003 before the High Court and it is relevant to note that

the Employees’ State Insurance Corporation (hereinafter referred to

as ‘ESIC’) was also a party to the said writ petition, wherein the

High Court on 03.03.2008 remanded the matter back to the BIFR to

 3

consider the matter expeditiously keeping in view the the interest of

all the parties concerned and quashed the Orders of BIFR and

AAIFR dated 24.09.2002 and 15.01.2003, respectively.

4. On 01.07.2010, BIFR directed the Company to negotiate with

the secured creditors for settlement of their dues. On 01.02.2011,

ESIC officials visited the factory premises of Respondent No.2 to

ascertain and verify about its deductions towards the Employees'

State Insurance (hereinafter to referred to as ‘ESI’) contribution for

the period from 01.02.2010 to 31.12.2010. Pursuant thereto, a

Report was prepared which disclosed that even though deductions

of Rs.8,26,696/- (Rupees Eight Lakhs Twenty-Six Thousand Six

Hundred and Ninety-Six) from the wages of Respondent No.2’s

employees were made for the above-mentioned period, the same

was not deposited with the ESIC. In the Report, the authorized

signatory of Respondent No.2 had mentioned the Appellant’s name

as the ‘General Manager’ and ‘Principal Employer’ of the Company.

On the basis of the Report, a private complaint was filed by the

Respondent No.1 for offence(s) under Section 85(a) 1 of the

1
‘85. 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) xxx
(c) xxx
 4

Employees’ State Insurance Act, 1948 (hereinafter to referred to as

the ‘Act’) against the Appellant and Respondent No.2 before the

Special Court for Economic Offences, Bangalore (hereinafter

referred to as the “Trial Court”) namely, CC No.326/2011 on

11.10.2011.

5. The Trial Court on 28.09.2013 convicted the Appellant under

Section 85(i)(b) of the Act and sentenced him to undergo

imprisonment for six months along with a fine of Rs.5000/- (Rupees

Five Thousand). Aggrieved, the Appellant and Respondent No.2

filed Criminal Appeal No.553/2013, before the Principal City Civil

and Sessions Judge, Bangalore which was subsequently

transferred to the Fast Track Court VI, Bangalore (hereinafter

referred to as the ‘First Appellate Court’). The First Appellate Court

(d) xxx
(e) xxx
(f) xxx
(g) xxx
he shall be punishable—
(i) 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.’
 5

on 14.11.2014 upheld the order of conviction and sentence passed

by the Trial Court and dismissed Criminal Appeal No.553/2013.

Aggrieved by such Order of the First Appellate Court, the Appellant

and Respondent No.2 filed Criminal Revision Petition No.164 of

2015 before the High Court.

6. The High Court by the Impugned Order dated 08.12.2023

dismissed the Revision Petition of the Appellant and Respondent

No.2 on the ground that the evidence on record clearly established

that the Appellant was General Manager and Principal Employer of

Respondent No.2 and it was also established that a contribution of

Rs.8,26,696/- (Rupees Eight Lakhs Twenty-Six Thousand Six

Hundred and Ninety-Six) was deducted during the period

01.02.2010 to 31.12.2010 from the employees of Respondent No.2,

but not remitted to the ESIC.

APPELLANT’S SUBMISSIONS:

7. The learned senior counsel for the Appellant submitted that

the appointment of the appellant was in July, 2009, to the post of

 6

Technical Coordinator in Respondent No.2. This Court’s attention

was also drawn to the fact that proceedings before the BIFR was

instituted in 2001, long before the Appellant’s appointment and

further that appointment order was not given as the Company was

sick and salary was also not paid. It was also contended that the

burden is on the prosecution to show that the Appellant was

appointed as General Manager, which they have only done by

referring to the Report produced by the ESIC. The Report also

cannot be relied upon as the official who prepared it was not

brought before the Court for the Appellant to cross-examine him.

8. It was further submitted that the prosecution lodging case

against the Appellant for contravening Section 85(a) of the Act is

erroneous as there is no such averment, either in the complaint or in

the evidence that it was the Appellant who had deducted the

contribution from the wages of the employees and had failed to

deposit the same with Respondent No.1. The other fact pointed out

by the Appellant was that under Regulation 10-C 2 of the Employees’

2
‘10-C. Intimation regarding change in particulars submitted at the time of registration of
factory/establishment.—The employer in respect of a factory/establishment to which this Act applies
and to whom a code number has already been allotted, shall intimate to the appropriate Regional
Office, Sub-Regional Office, Divisional Office or Branch Office, any change in the particulars furnished
in Form 01 at the time of registration of the factory/establishment within two weeks of such change.’
 7

State Insurance (General) Regulations, 1950 (hereinafter referred to

as the ‘Regulations’), the Principal Employer is required to submit

Form 01(A) to the ESIC, but the same was not produced.

9. Learned senior counsel submitted that the Appellant paid the

entire dues to the Respondent No.1 after the Impugned Order and

at the time of filing Petition for Special Leave to Appeal before this

Court, hence prayed for his acquittal.

10. With regard to his designation, it is pointed out that in the

counter-affidavit of the Respondent No.2 filed before this Court,

Paragraph 5 explicitly provides that the Appellant was working only

as a ‘Technical Coordinator’ in the Company and one Mr. Ajit Hegde

was the Principal Employer of Respondent No.2 at the relevant

time.

11. The Appellant raised another leg of argument by contending

that the guilt of the accused has to be kept in mind while imposing

liability under the Act. It was submitted that the Act essentially

criminalizes a civil wrong. This is evident by perusing Regulation

 8

31C3 of the Regulations, wherein it is provided that the ESIC has

the power to recover unpaid contributions from the defaulting

employer by way of a penalty and it is at the discretion of the ESIC

to either waive off such damages or to reduce the same by up to

50%. This is contingent on the Company being declared as a ‘sick

company’, which Respondent No.2 was in this case. Therefore,

3
‘31-C. Damages on contributions or any other amount due, but not paid in time.—If an
employer fails to pay contribution within the periods specified under Regulation 31, or any other
amount payable under the Act, the Corporation may recover damages, not exceeding the rates
mentioned below, by way of penalty:—

Period of delay

Provided that the Corporation in relation to a company in respect of which a Resolution Plan has been
sanctioned by the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016
may:
(a) Waive up to 50 per cent of the damages levied or leviable depending upon merits of the case.
(b) in exceptional hard cases, waive either totally or partially the damages levied or leviable.’
The Proviso above, prior to its substitution [Notification No.N-12/13/1/2016-P&D dated 17-10-
2018], read as under:
‘Provided that the Corporation, in relation to a factory or establishment which is declared as sick
industrial company and in respect of which a rehabilitation scheme has been sanctioned by the Board
for Industrial and Financial Reconstruction, may:
(a) in case of change of management including transfer of undertaking(s) to workers' cooperative(s) or
in case of merger or amalgamation of sick industrial company with a healthy company, completely
waive the damages levied or leviable;
(b) in other cases, depending on its merits, waive up to 60 per cent damages levied or leviable;
(c) in exceptional hard cases, waive either totally or partially the damages levied or leviable.’
 9

ESIC ought to have adopted a more liberal approach instead of

pressing for criminal prosecution.

12. Learned senior counsel summed up his argument stating

that, if at all the appellant is to be convicted, it can be for a day till

the rising of the Court. He relied on the judgment of this Court in ESI

Corpn. v A K Abdul Samad, (2016) 4 SCC 785.

SUBMISSIONS BY RESPONDENT NO.1:

13. Learned counsel for Respondent No.1 submitted that the

Appellant had a chance to produce documents to show that he was

only a ‘Technical Coordinator’. Furthermore, the High Court made

an observation that the Appellant also had an opportunity to

produce wage-slips or pay-slips to show his status, and the same

was not done. The Appellant also made no efforts to summon any

relevant documents from Respondent No.2.

14. The learned counsel for ESIC also drew the Court’s attention

to a judgment of the Madras High Court in Pentafour Products

 10

Ltd. v. Union of India, 2005 SCC Online Mad 841, wherein the

issue pertained to the applicability of Section 138 of the Negotiable

Instruments Act, 1881 vis-à-vis Sections 22(1)4 and 22A5 of the Sick

Industrial Companies (Special Provisions) Act, 1986. The Madras

High Court ruled that an order declaring a company sick under the

Sick Industrial Companies (Special Provisions) Act, 1986 did not

prohibit criminal proceedings against such company, under Sections

22(1) or 22A thereof.

15. It was submitted by learned counsel that the High Court

observed that despite there being sufficient evidence against the

Appellant, he was convicted under Section 85(i)(b) of the Act and

4
‘22. Suspension of legal proceedings, contracts, etc.—(1) Where in respect of an industrial
company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under
preparation or consideration or a sanctioned scheme is under implementation or where an appeal
under Section 25 relating to an industrial company is pending, then, notwithstanding anything
contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles
of association of the industrial company or any other instrument having effect under the said Act or
other law, no proceedings for the winding up of the industrial company or for execution, distress or the
like against any of the properties of the industrial company or for the appointment of a receiver in
respect thereof and no suit for the recovery of money or for the enforcement of any security against
the industrial company or of any guarantee in respect of any loans or advance granted to the
industrial company shall lie or be proceeded with further, except with the consent of the Board or, as
the case may be, the Appellate Authority.
xxx’
5
‘22-A. Direction not to dispose of assets.—The Board may, if it is of opinion that any direction is
necessary in the interest of the sick industrial company or creditors or shareholders or in the public
interest, by order in writing, direct the sick industrial company not to dispose of, except with the
consent of the Board, any of its assets—
(a) during the period of preparation or consideration of the scheme under Section 18; and
(b) during the period beginning with the recording of opinion by the Board for winding up of the
company under sub-section (1) of Section 20 and up to commencement of the proceedings relating to
the winding up before the concerned High Court.’
 11

not under Section 85(i)(a) of the Act, thereby giving him a lesser

sentence. In this backdrop, he sought dismissal of the appeal.

SUBMISSIONS BY RESPONDENT NO.2:

16. Learned counsel for Respondent No.2 submitted that the

Appellant after completing Engineering course without any industrial

experience joined as ‘Technical Coordinator’ in the Company in

July, 2009. He worked from July, 2009 to April, 2011 with the

Company. He was only a Technical Coordinator and never acted as

Principal Employer nor as General Manager.

17. Learned counsel also submitted that one of the promoters of

the Company is the Principal Employer, namely Mr. Ajit Hegde. It

was further submitted that the Appellant cleared the balance amount

of Rs. 6,86,696/- (Rupees Six Lakhs Eighty-Six Thousand Six

Hundred and Ninety-Six) of ESIC dues on 22.12.2023, though he

was not the Principal Employer or General Manager of Respondent

No.2 and counsel submitted that after the BIFR was dissolved by

the Central Government (in 2016), the Company cleared the

 12

Provident Fund Account dues and made a one-time full and final

settlement with all its employees.

ANALYSIS, REASONING AND CONCLUSION:

18. The basic point canvassed by the Appellant is that he neither

held the post of General Manager nor was he the ‘Principal

Employer’ during the relevant period. The submission urged was

that the liability was on the Company for making payments to the

ESIC, therefore, he could not be charged, much less convicted, for

an offence under the Act.

19. The Trial Court, the First Appellate Court as well as the High

Court have returned concurrent findings of fact that the Appellant

was liable, as in the record of Respondent No.2/Company he was

described as General Manager, which could not be controverted by

him. Further, there is also a finding that except for a stand taken

before the authorities/Court, the Appellant was not able to show that

he was not holding such a post or was not designated as General

Manager, on the basis of his appointment letter, pay-slips etc.

 13

Moreover, the Appellant who, be it noted, does not deny that he was

under the employment of Respondent No.2/Company has not

disclosed as to who was/were the person(s) holding such positions

during the relevant period of time, about which he could not have

been ignorant. Section 2(17) of the Act, which defines ‘principal

employer’, reads as under:

‘(17) “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 establishment under the control of any
department of any Government in India, the authority
appointed by such Government in this behalf or where
no authority is so appointed, the head of the department;
(iii) in any other establishment, any person responsible
for the supervision and control of the establishment;’

20. From the above, it is clear that the definition also includes a

‘managing agent’ of the Owner/Occupier in the case of a factory or

‘named as the manager of the factory under the Factories Act,

1948’ (hereinafter referred to as the “Factories Act”) and for ‘any

other establishment’, ‘principal employer’ would include ‘any

person responsible for the supervision and control of the

 14

establishment’. Therefore, designation of a person can be

immaterial if such person otherwise is an agent of the

Owner/Occupier or supervises and controls the establishment in

question. From the materials available on record, we find that the

Appellant falls within the ambit of Section 2(17) of the Act, being a

‘managing agent’.

21. Before the High Court, two decisions were relied upon by the

Appellant viz. Employees’ State Insurance Corpn., Chandigarh

v Gurdial Singh, AIR 1991 SC 1741 and J K Industries Limited

v Chief Inspector of Factories and Boilers, (1996) 6 SCC 665.

In our view, these are clearly distinguishable. In Gurdial Singh

(supra), it was held that when a factory had an Occupier, who

would fall within Section 2(17)(i) of the Act, the Directors of the

company concerned could not be roped in by resorting to Section

2(17)(iii) of the Act, which was in the nature of a residuary clause.

It was laid down that in the absence of factual proof and of actual

position, Directors could not be treated as owners ipso facto. While

holding that the High Court therein was right in affixing liability on

the company, in the event of an ‘occupier’, the occupier was liable

 15

to meet the demand, despite some other person being named as a

‘manager’. To our mind, J K Industries Limited (supra) operates

in a different field i.e., in the context of liability under the Factories

Act and the interpretation accorded to, on whom liability falls on

under the Factories Act, cannot be simpliciter accorded also to

liability under the Act, as the Act has specific provisions thereon.

Ultimately, the Court concluded:

‘62. To sum up our conclusions are:

(1) In the case of a company, which owns a factory, it is
only one of the directors of the company who can be
notified as the occupier of the factory for the purposes of
the Act and the company cannot nominate any other
employee to be the occupier of the factory;
(2) Where the company fails to nominate one of its
directors as the occupier of the factory, the Inspector of
Factories shall be at liberty to proceed against any one
of the directors of the company, treating him as
the deemed occupier of the factory, for prosecution and
punishment in case of any breach or contravention of the
provisions of the Act or for offences committed under the
Act.
…’
(emphasis supplied)

22. Therefore, J K Industries Limited (supra) dealt only with the

Factories Act and do not aid the Appellant in the instant context.
 16

23. Further, the High Court rightly indicated that non-remittance

of the contribution deducted from the salary of an employee to the

ESIC is a offence under Section 85(a) of the Act and punishable

under Section 85(i)(a) of the Act but the Trial Court had imposed a

lesser sentence as provided under Section 85(i)(b) of the Act. This

is clearly borne out by Section 85(i)(a) of the Act which provides

for a sentence of not less than one year imprisonment and fine of

Rs.10,000/- (Rupees Ten Thousand), since the amount had been

deducted from the salaries of the employees and not paid, which is

the fact in the present case, whereas under Section 85(i)(b) of the

Act, sentence of imprisonment is not less than six months and with

fine of Rs.5,000/- (Rupees Five Thousand) in other cases. Of

course, the Trial Court could have given a lesser sentence even

for an offence under Section 85(i)(a) of the Act under the proviso

to Section 85(i) of the Act. Overall, the High Court did not feel the

necessity to interfere in the lesser sentence awarded by the Trial

Court. Thus, we find that the conviction and the sentence does not

require any interference, much less in the present case, where

despite contributions having been deducted from the employees’

salaries, they were not deposited with the ESIC.

 17

24. In A K Abdul Samad (supra), the question before the Court

was as to whether discretion had been granted only to reduce the

sentence of imprisonment for a term lesser than six months or

whether it encompassed discretion to levy no fine or a fine of less

than five thousand rupees. Answering the said question, the Court

held:

‘9. In our considered view, the clause “shall also be liable

to fine”, in the context of the Penal Code may be capable
of being treated as directory and thus, conferring on the
court, a discretion to impose sentence of fine also in
addition to imprisonment although such discretion stands
somewhat impaired as per the view taken by this Court
in Zunjarrao Bhikaji Nagarkar [Zunjarrao Bhikaji
Nagarkar v. Union of India, (1999) 7 SCC 409: 1999
SCC (L&S) 1299]. But clearly no minimum fine is
prescribed for the offences under IPC nor that the Act
was enacted with the special purpose of preventing
economic offences as was the case in Chern Taong
Shang [Chern Taong Shang v. Commander S.D. Baijal,
(1988) 1 SCC 507: 1988 SCC (Cri) 162]. The object of
creating offence and penalty under the Employees' State
Insurance Act, 1948 is clearly to create deterrence
against violation of provisions of the Act which are
beneficial for the employees. Non-payment of
contributions is an economic offence and therefore the
legislature has not only fixed a minimum term of
imprisonment but also a fixed amount of fine of five
thousand rupees under Section 85(a)(i)(b) of the Act.
There is no discretion of awarding less than the specified
fee, under the main provision. It is only the proviso which
is in the nature of an exception whereunder the court is
vested with discretion limited to imposition of
 18

imprisonment for a lesser term. Conspicuously, no words

are found in the proviso for imposing a lesser fine than
that of five thousand rupees. In such a situation the
intention of the legislature is clear and brooks no
interpretation. The law is well settled that when the
wordings of the statute are clear, no interpretation is
required unless there is a requirement of saving the
provisions from vice of unconstitutionality or absurdity.
Neither of the twin situations is attracted herein.
10. Hence, the question is answered in favour of the
appellant and it is held that the amount of fine has to be
rupees five thousand and the courts have no discretion
to reduce the same once the offence has been
established. The discretion as per the proviso is confined
only in respect of the term of imprisonment.’
(emphasis supplied)

25. The decision in A K Abdul Samad (supra), thus, is of no

help to the Appellant. While the fine awarded and affirmed by the

Courts below is upheld, we are not convinced to substitute the

term of imprisonment to be operative only for a day till the rising of

the Court

26. Accordingly, the appeal, being devoid of merit, stands

dismissed. The Appellant is directed to undergo the sentence after

setting off the period already undergone, if any and pay the fine, if

not already paid, as awarded by the Trial Court. The exemption

 19

from surrendering granted by order dated 18.03.2024 stands

withdrawn. The appellant shall surrender before the Trial Court

within two weeks from today.

27. Registry is directed to send a copy of this order to the Trial

Court.

28. No order as to costs.

29. I.A. No.20317/2024 is allowed.

30. I.A. No.20329/2024 is disposed of.

.………………......................J.
[SUDHANSHU DHULIA]

………………....................…..J.
[AHSANUDDIN AMANULLAH]
NEW DELHI
APRIL 17, 2025