Bombay High Court
Regional Director, Employees’ State … vs M/S. Bombay Gymkhana Ltd., Thr. Its … on 24 February, 2026
2026:BHC-AS:9637
Sayyed 901-FA(ST).6383.2019.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
FIRST APPEAL (ST) NO.6383 OF 2019
Regional Director,
Employees' State Insurance
Corporation, Panchdeep Bhawan,
N. M. Joshi Marg, Lower Parel,
Mumbai - 400 013 ...Appellant
(Org. Respondent)
Versus
M/s. Bombay Gymkhana Ltd.,
Mahatma Gandhi Road,
Fort, Mumbai - 400 001
Through its Authorized Signatory ...Respondent
(Org. Applicant)
_____________________________________________________
Mr. Shailesh S. Pathak for the Appellant.
Mr. Manoj Gujar a/w Mr. T. R. Yadav i/by C. R. Naidu & Co. for the
Respondent.
_____________________________________________________
CORAM : JITENDRA JAIN, J.
DATE : 24 FEBRUARY 2026
JUDGMENT :
1. On being disclosed about me being a service member of the
respondent-gymkhana, both learned counsel stated that they do not
have any objection to this Court hearing the present appeal.
2. Admit on following substantial question of law :-
“Whether, the Employees’ State Insurance Court (ESI Court)
was justified in setting aside the order passed under Section
85-B of the Employees’ State Insurance Act, 1948 (ESI Act) on
the ground that the same is passed beyond the time limit
provided by proviso to explanation (b) to Section 77(1A)?
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3. Since the issue revolves around a narrow compass, by consent
of the parties, the appeal is heard finally at the admission stage.
Brief Facts:-
4. The respondent is a gymkhana incorporated and registered
under the Companies Act with the object to promote, manage, assist in
the promotion of all forms of athletic sports, pass time, recreation, etc.Proceedings with respect to applicability of the ESI Act:-
5. There was some difference of opinion between the appellant-
corporation and respondent-gymkhana as to whether the respondent-
gymkhana was covered by the provisions of the ESI Act.
6. The respondent-gymkhana challenged the applicability of the
ESI Act by filing an application to the ESI Court which was numbered as
Application (ESI) No. 88 of 1983. The said application came to be
dismissed on 29 May 1987. The appeal filed against the said order of
the ESI Court before this Court by respondent-gymkhana was also
dismissed for non-appearance on 12 April 1996 and there has been no
application for restoration of the said appeal till today. Therefore by this
dismissal, the respondent-gymkhana accepted applicability of the ESI
Act.
7. On 15 March 1989, appellant-corporation demanded
contribution of Rs.14.92 lakhs on adhoc basis by issuing Form C-18,
being contribution for the period from 1972 to 1989. The respondent-
gymkhana vide letter dated 30 August 2000, addressed to the appellant-
corporation, without prejudice to its rights and contentions, paid
amount of Rs.14.92 lakhs which was the demand made by the
appellant-corporation on 15 March 1989. It was specifically mentioned
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in the said letter that this is without prejudice and with an
understanding that no interest would be charged.
8. Admittedly thereafter, the appellant-corporation on 7
September 2000 paid the contribution and the matter stood at rest
insofar as the contribution aspect is concerned.
Proceedings with respect to levy of interest:-
9. On 23 March 2011, appellant-corporation demanded interest
of Rs.29.17 lakhs on above delayed contribution by issuing notice in
Form C-18 for the period from 1972 to 1989. The said demand was
challenged by the respondent-gymkhana by filing an application to the
ESI Court which was numbered as Application (ESI) No.11 of 2011. The
said application was rejected by the ESI Court on 20 August 2015. The
respondent-gymkhana challenged the said rejection by filing an appeal
before this Court being Appeal No.1149 of 2015 and this Court on 8
February 2022 dismissed the appeal filed by the respondent-gymkhana.
The issue raised in this appeal was only qua the rate of interest for the
delayed payment of contribution.
Proceedings with respect to imposition of impugned damages/penalty:-
10. On 16 April 2014, the appellant-corporation issued notice to
the respondent-gymkhana in Form D-18 to show cause as to why the
damages should not be imposed and recovered for default in making
the payment of contribution within the time stipulated under the ESI
Act. The said show cause was accompanied by calculation of damages
of Rs.16.26 lakhs which pertains to the delay in payment of
contribution from 1975 to 1994.
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11. The said show cause notice was replied by the respondent-
gymkhana vide letter dated 13 May 2014. The respondent-gymkhana
contended that the demand for damages have been raised after lapse of
almost thirty years and, therefore, by relying on provisions of Section
77(1A)(b), the Limitation Act and various decisions of the Hon’ble
Supreme Court on reasonable period, pleaded for withdrawal of the
claim for damages.
12. The appellant-corporation, on 30 June 2014, rejected the
above contentions of the respondent-gymkhana and passed an order
under Section 85-B of the ESI Act and imposed damages of Rs.16.26 for
the delayed payment of contribution for the period 1975 to 1983. The
order under Section 85-B states that there is no limitation period for
claiming damages under Section 85-B though there is a limitation of
five years provided in Section 45-A for passing orders insofar as
contribution is concerned.
13. The above order under Section 85-B of the ESI Act was
challenged by the respondent-gymkhana by filing an application with
the ESI Court which was numbered as Application (ESI) No.63 of 2004.
On 16 October 2018, the ESI Court quashed and set aside the order
dated 30 June 2014 passed under Section 85-B of the ESI Act, primarily
relying on first proviso to Explanation (b) to Section 77(1A) of the ESI
Act.
14. Being aggrieved by the above order of the ESI Court, the
appellant-corporation has filed the present appeal.
Submissions of the Appellant-Corporation:-
15. Briefly, Mr. Pathak, learned counsel for the appellant-
corporation submits that there is no limitation period provided for
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passing order under Section 85-B. The limitation provided by first
proviso to Explanation (b) to Section 77 (1A) deals with
commencement of proceedings and not for passing of an order under
Section 85-B. He further submits that wherever the legislature wanted
orders to be passed within limitation period, same has been provided
under the Act. For e.g. Section 45-A which provides for period of five
years to pass an order for demanding contribution. Mr. Pathak further
submitted that penal provisions should be strictly enforced and moreso
while dealing with beneficial social statutes. He further relied upon
following decisions in support of his submissions and prayed for
reversal of the impugned order of the ESI Court :-
(a) ESI Corporation vs. C. C. Santhakumar1
(b) Horticulture Experiment Station, Gonikoppal, Coorg vs.
Regional Provident Fund Organization2
(c) Premchand Jute & Industries Pvt. Ltd. & Anr. vs.
Employees State Insurance Corporation & Ors.3
(d) The Deputy Regional Director & Anr. Vs. M/s. Aashu
Engineering Works4Submissions of the Respondent-Gymkhana:-
16. Per contra, Mr. Gujar, learned counsel for the respondent-
gymkhana submitted that assuming provisions of Section 77(1A) are
not applicable to the orders under Section 85-B still the Hon’ble
Supreme Court in the case of C. C. Santhakumar (supra) has observed
in paragraphs 32 to 36 that such orders should be passed within
reasonable period. He relied on provisions of Section 45-A, Regulation
32(2) of the Employees’ State Insurance (General) Regulations, 1950
1 (2007) 1 SCC 584
2 (2022) 4 SCC 516
3 2020 SCC OnLine Cal 1574
4 First Appeal No.756 of 2011 dated 17 February 2026
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and provisions of Section 77 (1A) and contended that period of five
years would be reasonable period for passing order for recovery of
damages. He submitted that in the instant case, the payment was made
by the respondent-gymkhana for the period 1972 to 1989 on 7
September 2000 and the order under Section 85-B was passed on 16
April 2014 i.e. almost after close to fourteen years from date of
payment. He, therefore, submitted that this period of fourteen years
would not constitute “reasonable period” and, therefore, even if the
limitation period is not provided under the Act, the impugned order is
passed beyond reasonable period and, therefore, is bad in law. He
further relied upon the following decision to submit that the appeal
court can affirm the order of the Trial Court on different reasons :-
17. Heard learned counsel for the appellant-corporation and the
respondent-gymkhana.
Analysis & Conclusions:-
18. I propose to decide the question of law on the premise that
there is no limitation period provided under the ESI Act to pass an order
under Section 85-B of the ESI Act for claiming damages. This is on a
demur of no express provision providing limitation. In this judgment, I
am not adjudicating whether any express provision exists in the Act
which provides for limitation period to pass an order under Section 85-
B of the ESI Act.
19. Relevant provisions of the ESI Act are as under :-
85-B Power to recover damages –
(1) Where an employer fails to pay the amount due in respect of any
contribution or any other amount payable under this Act, the5 2001 (3) SCC 179
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Sayyed 901-FA(ST).6383.2019.docCorporation may recover [from the employer by way of penalty such
damages not exceeding the amount of arrears as may be specified in
the regulations]:
Provided that before recovering such damages, the employer shall be
given a reasonable opportunity of being heard :
Provided further that the Corporation may reduce or waive the
damages recoverable under this section in relation to an establishment
which is a sick industrial company in respect of which a scheme for
rehabilitation has been sanctioned by the Board for Industrial and
Financial Reconstruction established under section 4 of the Sick
Industrial Companies (Special Provisions) Act, 1985, subject to such
terms and conditions as may be specified in regulations.
(2) Any damages recoverable under sub-section (1) may be recovered
as an arrear of land revenue [or under sections 45C to 45-I].
77. Commencement of proceedings –
(1) The proceedings before an Employees’ Insurance Court shall be
commenced by application.
[(1A) Every such application shall be made within a period of three
years from the date on which the cause of action arose.
Explanation: For the purpose of this sub-section,–
(a) the cause of action in respect of a claim for benefit shall not be
deemed to arise unless the insured person or in the case of
dependants’ benefit, the dependants of the insured person claims or
claim that benefit in accordance with the regulations made in that
behalf within a period of twelve months after the claim became due or
within such further period as the Employees’ Insurance Court may
allow on grounds which appear to it to be reasonable;
[(b) the cause of action in respect of a claim by the Corporation for
recovering contributions (including interest and damages) from the
principal employer shall be deemed to have arisen on the date on
which such claim is made by the Corporation for the first time:
Provided that no claim shall be made by the Corporation after five
years of the
period to which the claim relates;
(c) the cause of action in respect of a claim by the principal employer
for recovering contributions from an immediate employer shall not be
deemed to arise till the date by which the evidence of contributions
having been paid is due to be received by the Corporation under the
regulations.]
(2) Every such application shall be in such form and shall contain such
particulars and shall be accompanied by such fee, if any, as may be7 of 13
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with the Corporation.
45A. Determination of contributions in certain cases –
(1) Where in respect of a factory or establishment no returns,
particulars, registers or records are submitted, furnished or
maintained in accordance with the provisions of section 44 or any
[Social Security Officer] or other official of the Corporation referred to
in sub-section (2) of section 45 is [prevented in any manner] by the
principal or immediate employer or any other person, in exercising his
functions or discharging his duties under section 45, the Corporation
may, on the basis of information available to it, by order, determine
the amount of contributions payable in respect of the employees of
that factory or establishment :
Provided that no such order shall be passed by the Corporation unless
the principal or immediate employer or the person in charge of the
factory or establishment has been given a reasonable opportunity of
being heard:
Provided further that no such order shall be passed by the Corporation
in respect of the period beyond five years from the date on which the
contribution shall become payable.
(2) An order made by the Corporation under sub-section (1) shall be
sufficient proof of the claim of the Corporation under section 75 or for
recovery of the amount determined by such order as an arrear of land
revenue under section 45B or the recovery under section 45C to
section 45-I.
20. Section 85-B provides for imposition of penalty under the
nomenclature of damages.
21. It is settled law, by now, that whenever a Statue does not
provide limitation period for doing an act or for passing an order then
the said act should be done or order should be passed within a
reasonable period. This is no more res-integra and the Hon’ble Supreme
Court in a series of decisions have taken this view which I do not
propose to deal with in the present judgment to avoid burdening it any
further. This is more particularly while dealing with the penal provisions
imposing civil financial liability. Where power is conferred to effectuate
a purpose, it has to be exercised in a reasonable manner which inheres
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its exercise within a reasonable time. This does not require buttressing
by any precedent – but for the sake of completeness following decisions
support this proposition:
(i) Ram Chand and Others vs. Union of India and others6
(ii) Mohamad Kavi Mohamad Amin vs. Fatmabai Ibrahim7
(iiii) M/s. Samrat Industries vs. Regional Director, ESI Corp.8
22. The reasonable period concept has been accepted by the
Supreme Court in C.C. Santhakumar case (supra) while dealing with
the ESI Act itself.
23. What should be reasonable period has to be examined by
analysing various provisions of the Act with which the Court is
concerned. In the present case, the second proviso inserted with effect
from 1 June 2010, to Section 45-A of the ESI Act provides that no order
shall be passed by the Corporation in respect of a period beyond five
years from the date on which the contribution shall become payable. If
this proviso prohibits passing of any order for the period beyond five
years from the date on which the contribution becomes payable, then
the question of passing any order for claiming damages for delay in
payment of contribution for a period beyond five years would not arise.
This analysis is for the limited purpose of ascertaining what should be
the “reasonable period” to pass an order under Section 85-B of the ESI
Act. The second proviso to Section 45-A gives a clue that five years
period can be treated as a “reasonable period” in the absence of express
limitation period.
24. Regulation 32 of the ESI (General) Regulations, 1950
provides that every employer shall preserve every register maintained
6 (1994) 1 SCC 44
7 (1997) 6 SCC 71
8 O.J.C. No.1842/1991 dtd. 3 August 1994
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under this regulation for a period of five years from the date of last
entry therein. This regulation also gives a clue for arriving at the
“reasonable period” of five years for the purpose of passing an order for
which there is no limitation period prescribed.
25. Section 77(1A) provides that every application before the ESI
Court shall be made within a period of three years from the date on
which the cause of action arose. The phrase “cause of action” is
explained in the Explanation. Explanation (b) provides that the cause of
action in respect of a claim by the Corporation for recovering
contribution (including interest and damages) from the principal
employer shall be deemed to have arisen on the day on which such
claim is made by the Corporation for the first time. However, proviso to
clause (b) provides that no claim shall be made by the Corporation after
five years of the period to which the claim relates. For the purpose of
the present judgment, I am proceeding on an assumption that this
proviso does not provide a limitation period for passing an order under
Section 85-B but certainly this proviso gives a clue as to what should be
the “reasonable period”, if there is no express limitation period provided
in the Act. Applying the principle of this proviso, we fall back to the
reasonable period being of five years. Similarly application before the
ESI Court should be made within three years.
26. Therefore, after examining the Scheme of the Act, in my view,
the “reasonable period” for claiming damages under Section 85-B,
which in the instant case is calculated on the basis of the default made
for payment of contribution would be five years. In the instant case,
admittedly, the contribution for the period 1972 to 1989 was made by
the respondent-gymkhana on 7 September 2000. If five years period is
taken as reasonable period from the date of this payment, then the
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appellant-corporation should have passed the order under Section 85-B
on or before September 2005. However, in the instant case, the order
under Section 85-B has been passed on 16 April 2014, which is much
beyond reasonable period of five years.
27. There is no explanation for the delay of fourteen years, when
the damages are calculated on the basis of contribution and the said
contribution was paid on 7 September 2000. The explanation that in
the intervening period, the appellant-corporation has levied interest
which was contested by the respondent-gymkhana and ultimately the
appeal filed by the respondent-gymkhana was dismissed by this Court
on 8 February 2022 cannot be accepted. This is so because, the damages
have been levied admittedly on the default made for making
contribution within the prescribed time provided under the Act. The
levy of interest and the challenge to the said levy by the respondent-
gymkhana has no relation whatsoever to the order passed under Section
85-B which levied damages on the delayed payment of contribution and
not on the interest. Furthermore, even the damages are calculated on
contribution and not on the interest. Therefore, this contention cannot
be accepted.
28. The contribution pertains to 1972 to 1989. The first appeal
challenging applicability of the Act was dismissed on 12 April 1996. In
2000, the respondent-gymkhana paid up contribution. After eleven
years, in 2011, interest on delayed contribution was levied which
ultimately on challenge only qua rate of interest was dismissed in 2022.
The damages were imposed in 2014, i.e. fourteen years after payment
of contribution. The application on applicability was dismissed by the
ESI Court in 1987. There was no bar on appellant-corporation to initiate
proceedings under Section 85-B by any Court at any point of time. In
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my view, looking at these facts, the delay in imposing penalty is
unreasonable.
29. The learned counsel for the respondent-gymkhana has relied
upon the decision of the Hon’ble Orissa High Court in the case of
Samrat Industries (supra) to contend that the Hon’ble Orissa High Court
has considered ten years as unreasonable period. I do not wish to go
that far since in the instant case, I have analysed the scheme of the Act
and have come to a conclusion that the reasonable period would be five
years. Even if this judgment has to be considered, then even in that case
the impugned order under Section 85-B is passed after fourteen years,
which is beyond ten years that was held as unreasonable as per the
Hon’ble Orissa High Court.
30. The submission made by the appellant-corporation that the
ESI Act being social welfare legislation and penalty provision should
have deterrent effect cannot be disputed but even in such welfare
legislation, the order of penalty should have been passed within
reasonable period. Merely because legislation is a welfare legislation, it
does not give a licence to the appellant-corporation to pass an order
beyond reasonable period. There has to be a certainty to the litigation
and moreso with regard to penal provisions. Nothing prevented the
appellant-corporation to act swiftly to impose damages when in 2000,
the respondent-gymkhana made the payment of contribution. A good
cause has to be pursued within reasonable limitation period which gets
lapsed on the expiry of the reasonable period. There is no explanation
for the delay of fourteen years. For deterrent effect, penal provision
should be invoked immediately and not after a long delay of fourteen
years. Deterrent effect loses its essence if invoked after a long period of
delay. Therefore, invocation of penal action should be before the
deterrent effect evaporates in thin air.
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31. The decision relied upon by the learned counsel for the
appellant-corporation in the case of Premchand Jute & Industries Pvt.
Ltd. (supra), Horticulture Experiment Station (supra) and M/s. Aashu
Engineering Works (supra) would not be applicable to the facts of the
present case, since the issue before me is only the “reasonable limitation
period” within which an order under Section 85-B should have been
passed and I have proceeded on a premise that there is no express
limitation period provided under the Act for passing an order under
Section 85-B. This issue was not the subject matter of adjudication in
these judgments.
32. I, once again, make it clear that whether there is an express
provision under the Act to pass an order under Section 85-B within
certain limitation period is expressly kept open to be adjudicated in an
appropriate case.
33. The appeal is dismissed by answering the question against the
appellant-corporation and in favour of respondent-gymkhana with the
hope that the statutory authorities would act swiftly within reasonable
time henceforth.
[ JITENDRA JAIN, J. ]
Signed by: Sayyed Saeed Ali
Designation: PA To Honourable Judge
Date: 25/02/2026 15:58:27 13 of 13
