2013 (3) TMI 881 - HC - Indian Laws

Court Nullifies Damages for Late Payments; Upholds BIFR Order as Binding for Company Restructuring and ESI Compliance.

The court quashed the order demanding damages for late payment of contributions, holding that the BIFR order, which extended the cut-off date for ... BIFR scheme binding on statutory authorities - Waiver of damages under Regulation 31(c) of the ESI General Regulations, 1951 - Effect of consent of statutory authority to a rehabilitation scheme - Preclusion of a statutory authority from defeating a binding rehabilitation order by invoking its internal regulationsBIFR scheme binding on statutory authorities - Effect of consent of statutory authority to a rehabilitation scheme - Waiver of damages under Regulation 31(c) of the ESI General Regulations, 1951 - Whether the respondents were bound by the BIFR order directing consideration of the cut-off date as 31.3.2003 and whether the ESI Corporation could refuse full waiver of damages for belated payment by relying on Regulation 31(c). - HELD THAT: - The Board for Industrial and Financial Reconstruction sanctioned a rehabilitation scheme which, with the consent of the ESI Corporation, directed that the cut-off date for settlement of dues be treated as 31.3.2003. The court held that the BIFR order has statutory force and is binding on the ESI Corporation. Regulation 31(c), while permitting waiver of damages up to a specified extent and envisaging full waiver only in extraordinary circumstances, does not prohibit complete waiver where the ESI Corporation has consented to the rehabilitation scheme. Once the ESI Corporation consented to the scheme before BIFR, it could not thereafter invoke its internal regulation to defeat or nullify the binding effect of the BIFR order. The impugned demand for damages made contrary to the BIFR direction was therefore arbitrary and unsustainable. [Paras 9, 10, 11]The impugned orders demanding damages contrary to the BIFR-sanctioned scheme are set aside and the petition is allowed.Final Conclusion: Writ petition allowed; impugned orders set aside as inconsistent with the binding BIFR rehabilitation scheme and the consent given by the ESI Corporation; no costs. Issues:1. Whether the order of the second respondent and the consequential order of the first respondent, demanding damages for belated payment of contribution, should be quashedRs.2. Whether the BIFR order for changing the cut-off date for payment of outstanding dues to ESI Corporation from 31.3.2001 to 31.3.2003 is binding on the respondentsRs.3. Whether the respondents were justified in refusing to waive the damages for belated payment as per the BIFR orderRs.Analysis:Issue 1:The petitioner sought a writ to quash the order demanding damages for belated payment of contribution and to direct the respondents to waive the damages. The petitioner, a sick industrial company under BIFR, had a rehabilitation scheme where ESI Corporation dues were to be paid in installments. The BIFR order changed the cut-off date for payment to 31.3.2003. The respondents refused to waive damages, claiming it was at their discretion under ESI regulations. The court held that the BIFR order had statutory force, and the respondents could not go against it. The demand notice was deemed arbitrary and against the law, leading to the quashing of the impugned order.Issue 2:The BIFR order changed the cut-off date for payment of dues to ESI Corporation, which was accepted by the ESI Corporation as per the representation made by the company. The court noted that the BIFR order had statutory force and was binding on all parties. The ESI General Regulation did not prohibit complete waiver in extraordinary circumstances, and the consent of ESI Corporation was not contrary to the regulation. The court held that once ESI Corporation consented before the BIFR, they could not rely on regulations to go against the BIFR order. Therefore, the BIFR order changing the cut-off date was held to be binding on the respondents.Issue 3:The respondents contended that they had the discretion to waive damages as per ESI regulations, and full waiver was only in extraordinary situations. However, the court found no merit in this defense. The BIFR order, with ESI Corporation's consent, had statutory force and aimed at reconstructing the company. The court held that the respondents could not use regulations to defeat the BIFR order. Therefore, the refusal to waive damages was deemed arbitrary and against the law, leading to the setting aside of the impugned order.