CHAPTER XXI

MISCELLANEOUS

XXI. b : EXEMPTIONS
 The “Appropriate Government” grants exemptions to factories and establishments from coverage
under the ESI Act 1948 u/s 87, 88 , 90 or 91 as the case may be.

21.3 According to Section 2 (1) “Appropriate Government “ means in respect of establishments under
the control of the Central Government or a railway administration or a major port or a mine or oil field ,
the Central Government , and in all other cases , the State Government.

The different sections under which exemptions is granted are detailed below :

21.4 Section 87 – Exemption of a factory or establishment or class of factories or establishments :

The appropriate government may, by notification in the official gazette and subject to such
conditions as may be specified in the notification , exempt any factory or establishment or class of factories
or establishments in any specified area from the operation of this Act for a period not exceeding 1 year
and may from time to time by like notification renew any such exemption for periods not exceeding one
year at a time.

Provided that such exemptions may be granted only if the employees in such factories or
establishments are otherwise in receipt of benefits substantially similar or superior to the benefits provided
under this Act.

Provided further that an application for renewal shall be made three months before the date of
expiry of the exemption period and a decision on the same shall be taken by the appropriate governments
within two months of receipt of such application.

( The provisos have been inserted by ESI (amendment ) Act, 2010 w.e.f. 1.6.2010.)

Courts’ opinion

The Appropriate Government while taking decision upon the question of exemption of a factory
has to conclude whether the benefits which the employer provides are substantially similar or superior to
the benefits which the Act provides. It would be reasonable to give a hearing so as to satisfy the mind of
the government in this regard – Orissa Industries Ltd v/s Union of India , 1992(1) LLJ 182.

21.5 Section 88 – Exemption of persons or class of persons:

The appropriate government may, by notification in the Official Gazette and subject to such
conditions as it may deem fit to impose, exempt any person or class of person s employed in any factory
or establishment, or class of factories or establishments to which this Act applies from the operation of the
Act.

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In this category the State Governments exempt certain category of employees like persons who are on
tour for more than 7 months in a year( i.e like travelling sales represntatives etc) and the exemption would
be reviewed every year subject to certain routine conditions specified in the orders.

Courts’ Opinion
The appropriate government while taking decision upon the question of exemption of persons or
class of persons has to take into account the consent of the employees who are required to apply in a
prescribed format designed by the Corporation and available in Co-ordination branch of RO / SRO. The
applications so received are forwarded by the employer to the appropriate government giving details of
benefits provided by them. The appropriate government shall grant exemption only after concluding that
the benefits provided by the employer are substantially similar or superior to the benefits which the Act
provides. ( Lark Laboratories ( India) Ltd v/s Government of N.C.T. of Delhi and another – 2007 (1) LLJ
72 : 2006LLR 1093::2006 (111) FLR 86

21.6 Corporation to make representation : Section 89:–

No exemption shall be granted or renewed under section 87 or section 88, unless a reasonable
opportunity has been given to the Corporation to make any representation it may wish to make in regard
to the proposal and such representation has been considered by the appropriate government.

An application in the prescribed format for exemption is made to the Appropriate Government
which in turn forwards the same to the Corporation for its comments / representation. The application
should be accompanied by documents indicating the details of various benefits provided by the employer
to his employees.On receipt of the exemption application, the RO/ SRO examines the benefits provided
by the employer to its employees with that provided under the Act and thereafter sends its justification for
the same.

In practice, the following format** is suggested for the purpose:

The Regional Office should carefully analyze each and every type of Benefit provided by the employer

and compare the same with the corresponding Benefits provided under the ESI Scheme. In fact, the
benefits that are not provided by the employer, but, available only under the ESI Scheme like: Medical
benefits provided to superannuated employees, vocational Rehabilitation Scheme, Unemployment Relief
provided under the Act, long term Benefits like PDB,DB. need to be clearly brought to focus in the
comments furnished to the Government. The whole range of Benefits need to be comprehensively compared
and the inevitable inference should be logically arrived at and clearly indicated. Importantly, whether the
employer’s Scheme of Benefits covers all sections of employees like permanent, casual, Temporary
employees and whether the Scheme of Benefits is of a permanent Nature are to be carefully analyzed and
the supremacy of ESI Benefits over employers’ Scheme of Benefits are to be indicated. All other relevant

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points need to be weighed and indicated The details of coverage already effected and the Benefits to
which they would have already become eligible during the period of Exemption also needs to be checked.
However, the present amendment to the Act specifies that Exemption can be granted only for prospective
periods..

** Sub: Comparative statement of benefits provided by the employer and under the ESI Act

S.No. Nature of Benefits Benefits Remarks(whether bfts

benefits provided by the provided under provided by employer are
employer the Act by substantially similar or
ESIC superior to that provided
under the Act.

It should be ensured that the RD, JD or BO dealing with the employers file wherein
exemption application has been received attends the hearing on the date and time fixed
by the quasi judicial authority under the Union Ministry of Labour / State Labour Ministry
as the case may be to present the case on behalf of the Corporation. In the absence of the
BO, responsible officer need be sent to attend the hearing with all relevant documents.

21.7 Section 90 – Exemption of factories or establishments belonging to

government or any local authority.

The appropriate government may, after consultation with the Corporation by

notification in the Official Gazette and subject to such conditions as may be specified in
the notification, exempt any factory or establishment belonging to any local authority,
from the operation of the Act, if the employees in any such factory or establishments are
otherwise in receipt of benefits substantially similar or superior to the benefits provided
under this Act.

21.8 Section 91 – Exemption from one or more provisions of the Act :

The appropriate government may, with the consent of the Corporation, by

notification in the Official Gazette, exempt any employees or class of employees in any
factory or establishment or class of factories or establishment from one ore more of the
provisions relating to the benefits provided under this Act

21.9 Section 91A- Exemption to be either prospective or retrospective :

Any notification granting exemption u/s 87 , u/s 88, u/s90 or u/s91 may be issued
so as to take effect prospectively (w.e.f. 1.6.2010) on such date as may be specified
therein.

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N.B. : As exemption can only be granted prospectively w.e.f 1.6.2010, Hqrs instructions
conveyed vide D.O P-13/11/1/93(P) – Ins I dtd 28.5.96 from Director (B) on retrospective
exemption and modus operandi to be adopted while furnishing comment to the appropriate
government stands superceded.

21.10 Section 91AA – Central Government to be appropriate Government :

Notwithstanding anything contained in this Act, in respect of establishments

located in the states where medical benefit is provided by the Corporation, the Central
Government shall be the appropriate government.

21.11 POLICY OF EXEMPTION : In the early 80s sub-committees were set up to

study and recommend the policies to be uniformly followed in granting exemptions to
the Factories. After an in-depth study and due deliberations they recommended that
exemptions should not be granted at all routinely to all the factories and extreme restraint
is to exercised keeping in view of the fact that the benefits under this Social Security
legislations should be made available to all such employees and even recommended
even that in the event it is granted a special cess/contributions should be imposed on the
employers. These recommendations were accepted in toto by the Corportion in which
the State Governments were also party to the decision. Thus, even now Corporation
does not readily approve of the grant of Exemption and always emphasise the supremacy
of the benefits under the Scheme and insists on coverage under the Scheme. to the factories
/ establishments under the ESI Act :

EXEMPTED UNITS NOT EXCLUDED FROM REGULAR INSPECTION : Head

quarters Instructions no.P-13/11/1/93-Ins I dated 12.1.96 amplify further as under:

The appropriate government grants exemptions to factories and establishments

from coverage under the ESI Act u/s 87, 88, 90 or 91 as the case may be. It has been
observed that once exemption order is received, the relevant files is not further attended
to irrespective of the nature of exemption.

At times exemptions are granted only to regular employees, which means that
non-regular employees such as temporary, casual, badli or contract employees are not
exempted and their compliance need to be enforced. Similarly the exemptions are normally
granted for a specific period and on completion of the specific period no further exemption
is granted, but, often the relevant file is not reviewed properly and the compliance for the
past period not exempted is not enforced.

As the order of the exemption given by the appropriate government will itself
show, regular inspection is not barred in case of exempted units and it is very necessary

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to ensure that non exempted category of employees are duly registered and covered
and
also that after the expiry of the exemption period or for periods not exempted or for prior
period so exempted, the compliance is strictly enforced. To ensure this, the files of the
exempted factories /establishments needs also to be regularly reviewed and regular
inspections should also be conducted in such cases keeping in view the terms and
conditions of exemption order so that there should be no slip up in enforcing
compliance
in respect of non regular category of employees for the period for which exemption is
not
granted. Similarly it is entirely for the employer to approach the appropriate
government
for getting exemption well in advance and if exemption is granted for a specific period ,
the burden is on the employer alone to take steps to seek exemption if eligible well
ahead
of the expiry of the current exemption order. In other words it is not the responsibility of
the Corporation to remind either the employer or the appropriate government to grant
further exemption and we are not required to stay our hand from enforcing
compliance
merely because the factory or establishment obtained exemption order for certain past
period. In this connection the instruction issued vide this office letter no. V-
37/12/2/93-
Ins III dtd 18.4.95 may also be referred to for strict compliance.

In order to ensure the above and to also ensure that regular inspection of the
exempted units are also carried out with a view to enforce compliance for the non exempted
category of employees or non-exempted periods, the Regional Directors should
ensure
that the exact nature of the order of the exemption is indicated in the SC-15 Register(
Inspection Register) / Exemption register maintained in the Regional Office as well as
SC-15 Register (Inspection Register ) maintained in the Inspection office of the SSO
indicating the period of exemption, the nature of exemption and the category of
employees
who are exempted. Such files should not be put away unless there is a permanent
exemption
covering the entire employees of the factory / establishment u/s 90. Wherever exemptions
are granted only for a category of employees or for a specific period the file should be
reviewed every year and inspection report obtained. Similarly, where the entire
factory /
establishment is exempted u/s 90 without specifying any period , periodical inspection
atleast once in two or three year should still be carried out to ensure whether there is
any
change in service condition resulting reduction of benefits earlier available to the
employees including the regular employees so that if necessary the appropriate government
should be approached to review the decision and cancel the exemption order. If after the
expiry of the exempted period, the exemption is not renewed, RO should commence
enforcement action without waiting for or asking the employer to apply for renewal of
exemption as it is the employer’s responsibility to get the renewal orders well in time.