Denying Hearing And Relying On Undisclosed Reports, Bombay HC Sets Aside ESIC Order
Pranav B Prem
The Bombay High Court has quashed the Employees' State Insurance Corporation's (ESIC) rejection of Mondelez India Foods Pvt. Ltd.'s appeal, citing violations of the principles of natural justice. A single-judge bench of Justice Sharmila U. Deshmukh ruled that ESIC's dismissal of the appeal without granting a hearing was improper, particularly given the disputed facts regarding the receipt of the original order. Additionally, the court found that ESIC's reliance on an undisclosed committee report rendered its order legally unsustainable. Consequently, the matter was remanded to the ESIC Appellate Authority for fresh adjudication.
Background
Mondelez India Foods Pvt. Ltd. was issued a show cause notice by ESIC on October 22, 2018, proposing a claim of Rs. 20.18 crore for omitted wages for the financial years 2014-2016. In response, the company argued that the assessed expenses did not qualify as 'wages' under Section 2(22) of the Employees' State Insurance Act, 1948. After reviewing the submitted documents, ESIC reduced the claim to Rs. 74.93 lakh but introduced new wage heads that were not part of the original notice. Aggrieved, Mondelez filed an appeal under Section 45AA of the ESI Act on July 24, 2019, asserting that it had received the order only on May 27, 2019, making the appeal timely. However, ESIC rejected the appeal, claiming that Mondelez had received the order on May 24, thereby making the appeal time-barred. Following this rejection, Mondelez approached the ESI Court, which upheld ESIC's decision. This led the company to file an appeal before the Bombay High Court under Section 82 of the ESI Act.
Arguments
For Mondelez: Senior Counsel S.C. Naidu contended that ESIC's rejection of the appeal was unlawful as the company had provided evidence showing it had received the order on May 27. He further argued that Mondelez was denied a hearing before its appeal was dismissed and that ESIC relied on a committee report that was never shared with the company. Additionally, Naidu pointed out that ESIC included new wage heads in the final assessment, depriving Mondelez of the opportunity to contest them.
For ESIC: Advocate Shailesh S. Pathak argued that Section 45AA does not permit condoning delays beyond 60 days and maintained that Mondelez failed to provide sufficient evidence to the ESI Court. He defended ESIC's decision-making process, asserting that all required procedures were followed.
Court’s Findings
Denial of Hearing Violates Natural Justice: The High Court emphasized that "as there was dispute as regards the date on which the order passed under Section 45A was received by Appellant, the Appellate Authority was bound to give an opportunity of being heard to the Appellant before rejecting Appeal as being barred by limitation." The court held that even though Section 45AA does not explicitly mandate an oral hearing, it does not prohibit one either. Since ESIC had sought evidence regarding the receipt date, it was obligated to consider it properly.
Reliance on Undisclosed Report Renders the Order Unsustainable: The court found that ESIC had relied on a committee report dated May 8, 2019, which was not made available to Mondelez. The judgment referenced the case Small Gauges Ltd. vs. V.P. Ramaiah, where it was held that "all the documents relied upon by Department must be furnished to him before any conclusion is arrived at on the basis of those documents." Since Mondelez was denied access to the report that formed the basis of ESIC’s order, the court ruled that the order was vitiated.
Addition of Wage Heads Beyond Show Cause Notice Violates Due Process: The court observed that "expenses under certain heads of account were considered as wages, which were not part of show cause notice." It reiterated that a show cause notice must fully inform the affected party of all allegations to allow for an adequate response. By introducing new wage heads at the final assessment stage, ESIC deprived Mondelez of the opportunity to present its case.
Verdict
The Bombay High Court allowed the appeal and quashed the ESIC order. It ruled that the impugned judgment dated October 11, 2023, was to be set aside and that the appeal filed under Section 45AA of the ESI Act be restored before the Appellate Authority. The court directed the Appellate Authority to reconsider the appeal afresh on the issue of limitation, uninfluenced by the previous rejection order of September 26, 2019. Furthermore, the authority was instructed to grant Mondelez a fair hearing and, if the limitation issue was resolved in its favor, to decide the appeal on merits. Additionally, since Mondelez had already deposited certain amounts under Section 45A at the time of filing the appeals, the court acknowledged that it would be entitled to a refund should ESIC determine that the contributions were wrongly assessed.
Advocates representign the parties:
For Appellant: Mr. S. C. Naidu, Ms. Samiksha Kanani, Mr. Abhishek Ingle and Mr. Pradeep Kumar
For Respondent: Mr. Shailesh S. Pathak
Cause Title: M/s. Mondelez India Foods Pvt. Ltd. V. The Deputy Director & One Anr.
Case No: First Appeal No.1441 OF 2024
Citation: 2025:BHC-AS:10305
Coram: Justice Sharmila U. Deshmukh
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