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M/S. A.K Brothers v. Employees State Insurance Corporation .
Judgment Summary — Reference on Rule 17 (U.P. Employees Insurance Court Rules, 1952)
Factual and Procedural Background
The Employees State Insurance Corporation, Kanpur (the Corporation) filed an application under Section 75 of the Employees State Insurance Act, 1948 against the firm Messrs A.K. Brothers for recovery of a sum as contribution under the Act. The firm raised several defenses, including that the Corporation's application was time-barred. The Employees Insurance Court, Kanpur overruled that plea and gave a decree in favour of the Corporation. The firm appealed to the High Court. At the hearing before a learned Single Judge, the appellant relied upon Rule 17 of the Uttar Pradesh Employees Insurance Court Rules, 1952 (which prescribes a twelve-month limitation). The Corporation contended that Rule 17 was ultra vires the State's rule-making power under the Act. Finding no prior pronouncement by this Court on the specific question, the learned Single Judge referred the following question of law to a larger Bench:
“Whether R. 17 of the Uttar Pradesh Employees Insurance Court Rules, 1952 is ultra vires of the rule-making power of the State?”
Legal Issues Presented
- Whether Rule 17 of the Uttar Pradesh Employees Insurance Court Rules, 1952 (prescribing a twelve-month period for filing applications) is ultra vires the rule-making power of the State under Section 96 of the Employees State Insurance Act, 1948.
- Whether a rule prescribing a period of limitation (such as Rule 17) falls within clause (b) of sub-section (1) of Section 96 of the Act as a rule concerning "the procedure to be followed in proceedings before such Courts."
- Whether provisions of the Act (notably Sections 68 and 94, and other specific limitation provisions such as Sections 80 and 82) preclude the State from prescribing a limitation period for proceedings under Section 75.
Arguments of the Parties
Appellant's Arguments (Mr. Grover)
- The appellant relied on Rule 17 of the U.P. Employees Insurance Court Rules, 1952 to contend that the Corporation's application was time-barred.
- Mr. Grover relied on clause (b) of sub-section (1) of Section 96 (the State's power to make rules as to the procedure to be followed in proceedings before Insurance Courts) in support of the validity of Rule 17 as procedural rule-making power exercised by the State.
Respondent's Arguments (Mr. B.N. Asthana, for the Employees State Insurance Corporation)
- Mr. Asthana strongly relied upon a Division Bench decision of the Madhya Pradesh High Court in Employees State Insurance Corporation v. Madhya Pradesh Government, AIR 1964 Madh Pra 75, which held that a Rule 17 prescribing limitation was outside the State's rule-making power under the corresponding provisions and was inconsistent with the Act.
- He argued that if an employer could defeat claims simply by refusing to furnish returns (Section 44), allowing a rule of limitation would enable employers to defeat the Act.
- He contended that Sections 68 and 94 of the Act, which deal with recovery and priority of contributions respectively, did not contemplate any rule of limitation for proceedings under Section 75, implying that the State could not impose such a limitation for those proceedings.
- Mr. Asthana argued that a rule prescribing limitation is not a matter of procedure and thus could not be framed under Section 96(1)(b).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Employees State Insurance Corporation v. Madhya Pradesh Government, AIR 1964 Madh Pra 75 | Held that Rule 17 of the Madhya Pradesh Employees Insurance Courts Rules (prescribing a period of limitation) was outside the rule-making power conferred by the corresponding statutory provision and was inconsistent with the Act (i.e., ultra vires). | The Bench considered this decision closely because the respondent relied on it. The Court examined the points covered by that judgment but ultimately reached a contrary conclusion on the validity of Rule 17 in U.P.; the U.P. Rule 17 was held valid under Section 96(1)(b). |
Court's Reasoning and Analysis
The Court proceeded by first setting out the relevant statutory framework contained in the Employees State Insurance Act, 1948: establishment of the Corporation (s.3); employer contributions and obligations (Ch. IV, including ss.40 and 44); recovery rights of the Corporation (s.68); adjudication by Insurance Courts and proceedings (ss.74–77); specific limitation provisions for certain proceedings (ss.80 and 82); State Government rule-making power (s.96(1), particularly clause (b) permitting rules about procedure); and priority of contributions (s.94).
The Court then addressed the specific contentions raised:
- As to the submission that an employer could defeat the Corporation's claim by refusing to furnish returns under Section 44, the Court gave two answers: (a) the Corporation can seek information from other sources; and (b) the Act contains penal provisions (Section 85) for failure to furnish returns or making false returns, making it unsafe for an employer to simply refuse to comply.
- Concerning reliance on Sections 68 and 94 to argue that there can be no limitation for an application under Section 75, the Court observed that even if the liability fell under Section 68 (and even assuming no limitation attached to arrears of land revenue), that would not necessarily preclude a limitation for proceedings under Section 75. The Court explained that two alternative remedies may have different rules as to limitation. Section 94 was characterized as a rule of priority for contributions and not a provision that eliminates limitation defenses or mandates enforcement of time-barred debts.
- On the point that Parliament had prescribed specific limitation periods for certain proceedings (Sections 80 and 82), the Court held that the existence of those specific provisions does not prove that Parliament intended to preclude other authorities from prescribing limitation for other categories of proceedings under the State's rule-making power.
- Turning to whether limitation is a matter of "procedure" under Section 96(1)(b), the Court reviewed the Madhya Pradesh decision (relied on by the respondent) and quoted Dixit, C.J.'s observations about the character of limitation rules. The Court also cited authority (Halsbury's Laws of England) for the proposition that provisions of statutes of limitation which bar the remedy and not the right are rules of procedure and part of the lex fori. On that basis the Court found that rules regarding limitation are largely procedural.
- Given that Rule 17 simply prescribes that an application must be filed within twelve months, the Court treated it as a procedural rule. Having examined the Act and finding no provision inconsistent with Rule 17, and noting that Section 96(1)(b) expressly empowers the State to make rules as to procedure, the Court concluded that Rule 17 falls within the rule-making power conferred on the State and is not inconsistent with the Act.
Holding and Implications
Holding: The reference was answered in the negative: Rule 17 of the U.P. Employees Insurance Court Rules, 1952 is not ultra vires the rule-making power of the State under the Employees State Insurance Act, 1948.
Implications and direct consequences (as stated in the opinion):
- The Court found Rule 17 to be a valid exercise of power under Section 96(1)(b) of the Act because it prescribes a procedural limitation for filing applications before the Insurance Court and is not inconsistent with any provision of the Act.
- The papers in the case were directed to be returned to the learned Single Judge with this answer to the referred question.
- The opinion does not elaborate broader policy consequences beyond the immediate effect on the parties and the instruction to return the papers to the Single Judge.
Reference answered.
Oak, J.:— The question of law referred to us is:
“Whether R. 17 of the Uttar Pradesh Employees Insurance Court Rules, 1952 is ultra vires of the rule-making power of the State?”.
2. This reference arises out of a proceeding under the Employees State Insurance Act, 1948 (hereafter referred to as the Act). Employees State Insurance Corporation, Kanpur filed an application against a firm Messrs A.K Brothers under Section 75(2) of the Act for the recovery of a certain sum as contribution under the Act. The firm raised various pleas in defence. One of the points raised by the firm was that, the application by the Corporation was barred by time. This plea was overruled by the Employees Insurance Court, Kanpur. That Court passed in favour of the Corporation-applicant a decree for a certain sum. Against that decree, an appeal has been filed before this Court. When the appeal was taken up by a learned Single Judge of this Court, the appellant relied upon R. 17 framed by the State Government under the Act laying down that such applications must be filed within twelve months from the date of accrual of the cause of action. The Corporation urged that R. 17 was ultra vires. On finding that there was no pronouncement on this question by this Court, the learned Single Judge referred the question of law quoted above to a larger Bench.
3. In order to appreciate the various points raised by the learned counsel for the parties, it will be useful to refer to the relevant provisions of the Act. The Employees State Insurance Corporation is established under Section 3 of the Act. Chapter IV of the Act provides for contribution by the employer and employees. Section 40 lays down that the principal employer must pay contributions in the first instance. Under S. 44, an employer has to furnish returns and maintain registers. Chapter V describes various benefits to employees. Section 68 provides for the Corporation's rights where a principal employer fails or neglects to pay any contribution. Chapter VI deals with adjudication of disputes and claims. Employees Insurance Courts (hereafter referred to as Insurance Courts) are established under Section 74 of the Act. Section 75 enumerates matters to be decided by Insurance Courts. One such matter is a claim for the recovery of contributions from the principal employer. Section 76 deals with institution of proceedings etc. Subjection (1) of S. 76 states:
“Subject to the provisions of this Act and any rules made by the State Government, all proceedings before the Employees Insurance Court shall be instituted in the Court…….”
4. According to S. 77, proceedings before an Insurance Court can be commenced by application. Section 80 lays down that a beneficiary cannot establish his claim before the Insurance Court unless such claim is filed within twelve months. Section 82 provides for appeals to the High Court. Such an appeal has to be filed within sixty days. Chapter VII provides for penalties. According to S. 94, contributions due so a Corporation have priority over other debts. Section 96 confers power on State Government to make rules. Sub-section (1) of S. 96 states:
“The State Government may, subject to the condition of previous publication, make rules not inconsistent with this Act in regard to all or any of the following matters, namely:
5. According to S. 77, proceedings before an Insurance Court can be commenced by application. Section 80 lays down that a beneficiary cannot establish his claim before the Insurance Court unless such claim is filed within twelve months. Section 82 provides for appeals to the High Court. Such an appeal has to be filed within sixty days. Chapter VII provides for penalties. According to S. 94, contributions due so a Corporation have priority over other debts. Section 96 confers power on State Government to make rules. Sub-section (1) of S. 96 states:
“The State Government may, subject to the condition of previous publication, make rules not inconsistent with this Act in regard to all or any of the following matters, namely:
(a) ……………………………….
(b) the procedure to be followed in proceedings before such Courts and the execution of orders made by such Courts.
…………….”.
6. In exercise of the powers conferred by clauses (a) to (c) of sub-section (1) of Section 96 of the Act, the State Government made rules in February 1952. They were published in the U.P Gazette dated 23-2-1952 in Part I-A of the Gazette. Rule 17 relates 40 limitation. The validity of that rule is now in dispute.
7. A similar rule on the question of limitation was framed by Madhya Pradesh Government. The validity of that rule was challenged before Madhya Pradesh High Court in “Employees State Insurance Corporation v. Madhya Pradesh Government”, AIR 1964 Madh Pra 75. It was held by a Division Bench of Madhya Pradesh High Court that, Rule 17 of the Madhya Pradesh Employees Insurance Courts Rules prescribing the period of limitation for an application to the Insurance Court is outside the a rule-making power conferred on the State Government under S. 96(1), and is inconsistent with the provisions of the Act, and is consequently ultra vires.
8. Mr. B.N Asthana, appearing for the respondent, places strong reliance upon that decision. He has adopted the reasoning of that judgment. It is, therefore, necessary to examine the various points covered by that judgment.
9. It was urged by Mr. Asthana that, if such a claim is allowed to be defeated by a rule of limitation, an employer can defeat the Act simply by refusing to furnish a return in time, as required by Section 44 of the Act. There are two answers to this contention. Firstly, even if an employer refuses to furnish a return within time, it is always open to the Corporation to collect the necessary information from other sources. Secondly, the Act provides penalties for acts of commission and omission. According to Section 85 of the Act, if a person fails or refuses to submit a return required by the regulations, or makes a false return, he is liable to imprisonment extending to three months and fine. It is not, therefore, altogether safe for an employer to decline to furnish, a return.
10. Relying on Sections 68 and 94 of the Act, it was urged by Mr. Asthana that, since those proceedings did not contemplate any rule of limitation, there cannot be any limitation for an application under Section 75 of the Act. Section 68 deals with the Corporation's right to recover from the employer under certain circumstances. Sub-section (2) of S. 68 lays down that the amount recoverable under this section may be recovered as if it was an arrear of land revenue. We do not know whether the liability involved in the present case is covered by Section 68 of the Act. But assuming that the present case is covered by Section 68 of the Act, and further assuming that there is no limitation for the recovery of arrears of land revenue, it does not follow that there cannot be any limitation for proceedings under Section 75 of the Act. If there are two alternative remedies, it is conceivable that there is some limitation as regards one remedy, but no limitation as regards the alternative remedy. Section 94 merely lays down a principle that contributions due to a Corporation should get priority over ordinary debts. This is merely a rule of priority. Section 94 does not lay down that, even time barred debts would be enforced by Insolvency Courts.
11. Sections 80 and 82 of the Act lay down two periods of limitation for two types of proceedings. The proceeding under S. 80 is a claim by a beneficiary; while the proceeding under S. 82 is an appeal to the High Court. The mere fact that Parliament thought it fit to lay down two specific periods of limitation for two types of proceedings does not lead to the conclusion that, it is impossible for some appropriate authority to lay down a period of limitation for some other proceeding under the relevant rule-making power.
12. Mr. Grover, appearing for the appellant, relies upon clause (b) of sub-s. (1) of S. 96. Clause (b) enables a State Government to make a rule laying down the procedure to be followed in such proceedings. Mr. Asthana contended that a rule prescribing limitation is not a matter of procedure at all. This point was disposed of by Dixit, C.J in the case from Madhya Pradesh thus:
“Now, in some cases while dealing with the question whether the Limitation Act, 1908 has or has not retrospective effect, it has no doubt been held that ‘limitation’ is a branch of the law of procedure. But in those cases a new rule of limitation was held to be retrospective, not because the law of limitation is merely a law of procedure in no way affecting the right of any kind of any party, but because the law was intended to be retrospective…. It is, therefore, not correct to say that the rule of limitation which enjoins a party to bring an action within a particular period is nothing but a matter of procedure simpliciter.”
13. It is well established that rules regarding limitation are largely a law of procedure. In Halsbury's Laws of England, Third Edition, Volume 24, it is stated on page 181 under paragraph 331:
“Those provisions of statutes of limitation which bar the remedy and not the right are rules of procedure only, and form part of the lex fori.”
14. Rule 17 merely lays down that an application has to be filed within twelve months. That is merely a matter of procedure.
15. On going through the various provisions of the Act, we do not find any provision inconsistent with Rule 17 framed by U.P Government. It is true that the Act itself contains certain rules about limitation as regards certain proceedings, and the Act has not prescribed any specific period of limitation under Ss. 75 and 76. But S. 96 empowers the State Government to frame rules for such proceedings subject to the provisions of the Act. Section 96(1)(b) empowers the State Government to lay down rules of procedure for such proceedings. Rules 16 framed by the State Government deals with the place of suing. Mr. Asthana conceded that, that is a matter of procedure. If the place of suing is a matter of procedure, we find no difficulty in holding that the rule as regards limitation is also a matter of procedure.
16. The impugned rule is covered by Section 96(1)(b) of the Act. We do not find any conflict between the rule and any provision of the Act. It, therefore, follows that the rule in question is valid. Our answer to the question referred to the Bench is that, Rule 17 of the U.P Employees Insurance Court Rules, 1952 is not ultra vires. Let the papers be returned to the learned Single Judge with this answer.
DI/AKJ/V.B.B
17. Reference answered.
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