Can a Principal Employer Be Held Liable for a Vanished Contractor's Unpaid Dues? Seeking Clarity on ESIC's Role

Scenario of Contractor Default and Principal Employer Liability

I would like to know if any labor contractor terminated or stopped his contract in the year 2018, and in the year 2019, ESIC bodies came to know that XYZ contractor is a defaulter for an amount of Rs. 20 lakh from the years 2015 to 2018, and the contractor has vanished.

1. In the above scenario, can ESI hold the principal employer responsible and issue a Garnishee to pay any outstanding amount? This is even after the payment of Rs. 1 lakh by the principal employer, which was on hold by the principal employer.

2. Can ESI send a summon with reference to Garnishee to pay the outstanding difference amount of Rs. 19 lakh to the principal employer?

Note: The contractor used to submit fabricated/edited challans during monthly bill submission to the principal employer.

Electronic Submission of ESIC Contributions

Manual challans of ESIC were abolished in 2012, and electronic forms of contribution records and challan payment receipts now exist. It is the principal's responsibility to ensure that ESIC/EPF contributions are remitted by the contractor before settling their bills. Electronic submission of contribution records/challans cannot be duplicated.

In the monthly forms 12 to 14, the principal receives detailed information about employee wages and contributions by the contractor and must request CR and payment clearance details along with the bills. The principal employer (PE) is always liable for the contractor's compliance defaults. Seek assistance from your local ESIC legal counsel, who can review the records and provide further guidance.

ESI Notice and Principal Employer Responsibility

ESI can issue a notice to the Principal Employer but can't be held responsible for default payment. In such cases, the Principal Employer can issue a notice to the contractor, stating that their money will be kept on hold until they clear dues with ESI.

It clearly shows that some sort of nexus existed between HR personnel of the Principal Employer and the Contractor. In principle, the contractor's bill is considered for processing after receiving HR clearance.

The ESI authority can't claim from the Principal Employer because of what they were doing for the last three years, as ESI deposits are made on a monthly basis.

Legal Precedent: India Pistons Repco Limited 2014 LLR 536

In India Pistons Repco Limited 2014 LLR 536, it was held that in the absence of any control or supervision over the employees of the independent contractor who was given various job work to be carried out, the Principal Employer cannot be held liable for the ESI contribution. Hence, the ESI authority has wrongly determined the money.

Action Against Staff

The management of the Principal Employer should take action against the staff/officer to whom the Contractor used to submit the paysheet, challan, etc., including fabricated/edited challans, during monthly bill submission.