Introduction: Section 40(1) of the Act read with Section 43 of the Act mandates the employers to make
the payment of the contributions due and submit the related returns within the clear time-limits prescribed
under the Act and the relevant Regulations. These deadlines are inviolable and are to be strictly adhered
to. Law does not allow the employers to delay these time bound actions for any reason however justifiable
they are. Reasons like Financial stringencies faced by the units etc. do not permit any delay. Law has
provided that any such delay in remitting the Contributions should necessarily be visited by the provisions
of Interest. Various Courts have uniformly held its validity and have categorically spelt out that interest at
the rate prescribed under Regulation-31-A is payable. The provision for payment of interest on contribution
due but not paid in time by the employers has been made in the Act vide ESI (Amendment) Act 1966 by
inserting a Sub-Section 39 (5) under Chapter-IV. The Corporation was also empowered to make regulations
in this behalf by inserting a Sub-Section (iiia) under Section 97 (2) of the Act. Accordingly, a new Regulation
31-A has been added in the ESI (General) Regulations 1950. These provisions have come in to effect
from 28-1-1968. Thus, the provision for claim, recovery and payment of interest has come in to effect
only from 28th day of January, 1968.
L.17.1 Provision for interest and its recovery in the Act:
Section 39 (5) (a); If any contribution payable under this Act is not paid by the principal employer on the
date on which such contribution has become due, he shall be liable to pay simple interest at the rate of
twelve per cent per annum or at such higher rate as may be specified in the regulations till the date of its
Provided that higher interest specified in the Regulations shall not exceed the lending rate of
interest charged by any scheduled bank.
(b) Any interest recoverable under clause (a) may be recovered as an arrear of land revenue or
under Section 45C to Section 45-I.
L17.2 Provision to make Regulation by the Corporation in the Act:
Section 97 (2) (iiia): the rate of interest higher than twelve per cent on delayed payment of contribution.
L17.3 Regulation relating to Interest on contribution due, but not paid in time and its recovery:
Regulation 31-A: An employer who fails to pay contribution within the periods specified in Regulation-
31, shall be liable to pay simple interest at the rate of 12 per cent per annum in respect of each day of
default or delay in payment of contribution.
ESIC REVENUE MANUAL
INTEREST AND DAMAGES (LAW & PROCEDURES)
Regulation 31-B: Recovery of interest.
Any interest payable under Regulation 31A may be recovered as an arrear of land revenue or under
Section 45C to Section 45-I of the Act.
L17.4 Rate of interest from time to time:
The following is the rate of interest from time to time;
28-01-1968 to 19-10-1989: 6% p.a.
20-10-1989 to 31-8-1994 : 12% p.a.
01-9-1994 to 30-9-2005 : 15% p.a.
1-10-2005 onwards : 12% p.a.
Thus, if the contributions that fell due on, say, 30th June, 1989 is remitted on 11th November 2005
, even if the delay is because of a Court Case , Interest is payable at 6% p.a. from 1/7/1989 to 19/10/1989,
at 12% p.a for the period from 20/10/1989 to 31/8/94, at 15% p.a. for the period from 1/9/1994 to 30/9/
3005 and at the rate of 12% p.a. from 1/10/2005 to 11/11/2005
L17.5 Interest is not a penalty but a statutory liability:
Interest is a statutory liability. Since the employer has not paid the contribution on the date due
for its payment, it is deemed to have been utilized the said amount in his business. He is, therefore, liable
to pay the interest at the rate prescribed by the Corporation. Therefore, no notice for reasonable opportunity
of being heard is to be given before claiming the interest.
Case law: It was held by the Supreme Court that the payment of interest on delayed payment of contribution
is statutory and therefore the question of waiver, settlement or compromise, does not arise.
(M/s Goetez(India) Ltd., v. ESIC 2008(118)FLR 654; 2008LLR,897; 2008(3)LLN 649; 2008(3)LLJ 356;
and 2008(4)LIC 4415.)
L17.6 Financial constraints / incurring loss in business not a ground to escape from statutory liability:
The Rajasthan High Court observed that the mere fact, a factory or concern has incurred loss on
account of various reasons is not enough to deprive the contribution to the Employees’ State Insurance
Fund. (ESIC v. Jaipur Spinning and Weaving Mills Ltd- 1987(72) FJR 57)
A similar view has been expressed by the Andhra Pradesh High Court in the case of ESIC v.
Chirala Co-operative Spinning Mills Ltd., Chirala in CMA No. 2905/2001 dated 9th November, 2004.
(2005(1) LLJ1016; 2005(2) LLN584; 2005(100) FLR703; 2005LLR591)
The Division Bench of Kerala High Court held that if at all a unit is declared as a sick unit, only
damages could be waived but not the interest. (Mosaic Industries private Ltd., Mangalore v. ESIC Bangalore
and others-2008(3) LLJ 436; 2008(118) FLR 182; 2008 (2) LIC 2067; 2008 (4) LLN 425)