CAN THE ESIC INSPECTOR INSIST ON PRODUCTION OF ACCOUNT BOOKS MAINTAINED BY THE EMPLOYER UNDER INCOME TAX ACT, 1961?

What do Sec. 45 (1) and 45(2) of the ESI Act, 1948 say?

And, Section 45 (2) (d) Refers to “account book” This does not imply that the ESI Act, 1948 mandates maintenance of account books. If the employer does not maintain he may be committing an offence under some other enactments but not under the ESI Act, But, the employer will be committing a criminal offence, when he does not produce them before the SSO or any other authority of the ESIC, in spite of the fact that he had maintained the books of accounts. 

Cross check the statement If an employer says that he has not preserved the records as mandated by the Income Tax Act, 1961 or Companies Act, 1956, the SSO of the ESIC has the duty to get such statements in writing from that employer and take up the case with the authorities of the concerned departments to confirm the veracity of the statement of the employer. If an employer says that he has not preserved the records as mandated by the Income Tax Act, 1961 or Companies Act, 1956, the SSO of the ESIC has the duty to get such statements in writing from that employer and take up the case with the authorities of the concerned departments to confirm the veracity of the statement of the employer. If the statement of the employer is found to be false, he can be prosecuted under Sec. 85 (f) of the ESI Act, If the statement of the employer is found to be false, he can be prosecuted under Sec. 85 (f) of the ESI Act, If the statement of the employer is true, the departments concerned will initiate action against the erring employer. If the statement of the employer is true, the departments concerned will initiate action against the erring employer.

Section 45 (2) (b) to produce to such Inspector or other official and allow him to examine such accounts, books and other documents relating to the employment of persons and payment of wages or to furnish to him such information as he may consider necessary; Recall the same phraseology used in Section 45 (2) (a) also

“to furnish to him such information as he may consider necessary” Used in Section 45 (2) (a) And In Section 45 (2) (b) What is the difference?

Under Sec. 45 (2) (a) the information is demanded from the Principal Employer or Immediate Employer. Under Sec. 45 (2) (b) the information is demanded from any person found in charge of the factory or establishment. Under Section 45 (2) (a), the information must be demanded for the purposes of the ESI Act, Under Sec.45 (2) (b), no such condition has been expressly laid down but it is implied.

Section 45 (1) The Corporation may appoint such persons as Inspectors, as it thinks fit, for the purposes of this Act, within such local limits as it may assign to them.

Section 45 (2) An Inspector appointed by the Corporation under sub-section (1) (hereinafter referred to as Inspector), or other official of the Corporation authorised in this behalf by it may, for the purposes of enquiring into the correctness of any of the particulars stated in any return referred to in section 44 or for the purpose of ascertaining whether any of the provisions of this Act has been complied with

require any principal or immediate employer to furnish to him such information as he may consider necessary for the purposes of the Act; ‘Require’ means ‘to make necessary; to demand; to ask as of right’ SECTION 45 (2) (A)

Section 45 (2) (b)  at any reasonable time enter any office, establishment, factory or other premises occupied by such principal or immediate employer and require any person found in charge thereof  to produce to such Inspector or other official and allow him to examine such accounts, books and other documents relating to the employment of persons and payment of wages  or to furnish to him such information as he may consider necessary; One must note the importance of the repeated usage of the word ‘any’.

Section 45 (2) (c) examine, with respect to any matter relevant to the purposes aforesaid, the principal or immediate employer, his agent or servant, or any person found in such factory, establishment, office or other premises or any person whom the said Inspector or other official has reasonable cause to believe to be or to have been an employee

Section 45 (2) (d) make copies of, or take extracts from, any register, account book or other document maintained in such factory, establishment, office or other premises;

Section 45 (2) (e) exercise such other powers as may be prescribed.

Section 45 (3) An Insurance Inspector shall exercise such functions and perform such duties as may be authorised by the Corporation or as may be specified in the regulations. What are the functions exercised by the Insurance Inspector as authorised by the Corporation? 

Reg. 102 Deputy Director and other officers specified therein shall have all the powers of an Inspector specified in Sec. 45 (2).

Regulation 102

Regulation A (i) Every principal employer shall maintain a bound inspection book and shall be responsible for its production, on demand by an inspector or any other officer of the Corporation duly authorised to exercise the powers of an Inspector irrespective of the fact whether the principal employer is present in the factory or establishment or not during the inspection.

Regulation A(ii) A note of all irregularities and illegalities discovered at the time of inspection indicating therein the action, if any, proposed to be taken against the principal employer together with the orders for their remedy or removal passed by an inspector or any other officer of the Corporation duly authorised to exercise the powers of an inspector, shall be sent to the principal employer who shall enter the note and orders in the inspection book. 

Regulation A(iii) Every principal employer shall preserve the inspection book maintained under this regulation, after it is filled, for a period of 5 years from the date of the last entry therein.

Inspection of Inspection of Books of Accounts Books of Accounts

BOOKS OF ACCOUNTS IMPLY “availability and organisation of the necessary information” –Commentaries under Section 209 of the Companies Act.

Books of Accounts are created from but are different from a a heap of loose documents

Books of Accounts Section 209 of the Companies Act insists on “proper books of account”.

Books of Accounts Books of Accounts must be kept at and produced for inspection at the Registered Office. Where it is kept at some other place, the Registrar of the company must be informed of the address of such place. Sec. 209 of the Companies Act.

BOOKS OF ACCOUNTS Every company is required to preserve in good order for a period of not less than eight years immediately preceding the current year, the books of account together with the vouchers relevant to any entry in such books of account. Every company is required to preserve in good order for a period of not less than eight years immediately preceding the current year, the books of account together with the vouchers relevant to any entry in such books of account. An exception has however been made for section 25 companies, which may preserve their books of account for a period not less than four years (S.O. No.1578, dated ). An exception has however been made for section 25 companies, which may preserve their books of account for a period not less than four years (S.O. No.1578, dated ).

BOOKS OF ACCOUNTS In a circular dated , issued by the Department of Company Affairs, it has been opined that the preservation of books and papers will necessarily require the preservation of vouchers, records, papers, etc. also. The circular states: “Having regard to the facts that sub-section (1) of the section requires a company also to keep books of account with respect to the matters in respect of which receipts and expenditure take place and that the books of accounts would not be of much use without the vouchers, records, papers, etc., on the basis of which such books have been prepared, this Department is of the view that such vouchers, records, papers, etc., must also be preserved for a like period”.

Ledger Verification

The purpose of Ledger Verification is to see whether wages paid by the employer to any of his employees have been concealed under different heads of accounts and, if so, to ascertain the number of such employees and the quantum of such wages on which the employer had omitted to pay contribution.

The SSO of the ESI Corporation does, therefore, have the authority to demand the production of not only the Books of Accounts maintained by the employer under the provisions of the Income Tax Act, 1961 but also the returns submitted and registers maintained by the employer under various Central and State enactments.

What would you do if an Insurance Inspector is ‘obstructed’ from doing his work? What would you do if an Insurance Inspector is ‘prevented in any manner’ from doing his work? Obstruction – prosecution Prevented in any manner – civil action under 45 A

OBSTRUCTION VS. PREVENTION IN ANY MANNER

Obstruction “Obstruction is not confined to physical obstruction and it includes anything which makes it more difficult for the police or public servant to carry out their duties” -Collector of Customs and Central Excise Vs. Paradip Port Trust – 4 SCC 250

Obstruction “I hold that the expression ‘obstruction’ used in Sec. 186 of IPC is not confined to physical obstruction. It need not be an act of use of criminal force. The act need not be a violent one. It is enough if the act complained of results in preventing a public servant in discharge of his lawful duties.” -Shika Goyal Vs. ESIC C.P of AP

“Obstruction of the Social Security Officer or other official of the Corporation in the discharge of the his duties” results in prosecution under the special provision of Sec. 85 (f) of the ESI Act, Prevention in any manner results in speaking order under Sec. 45 –A on the basis of available evidence. The word ‘obstructed’ was modified as ‘prevented in any manner’ in 1989.

Some employers and middlemen want to be clever in evading compliance under the ESI Act. But, it would be better if they choose to remain compassionate.

Thankyou! Gif. File in slide 1: courtesy: internet