• Applicability of the ESI Act, Compensation

1948
• Wages under the Act & Benefits:
• Key HR Issues Session Four:
• Authorities under the Act
Wages under various
Labour Acts

agenda
5 hours
 The Employees’ State Insurance Act, 1952

• Objective and Applicability

• The ESI Act is a welfare legislation (PK Mohammed v ESIC, 1993 I LLJ 482 (SC 3J))

• It is a social welfare legislation and has to be necessarily so construed as would

serve the purpose & object (Harihar Polyfibres v ESIC, 1984 II LLJ 475 (SC 2J))

• Applicable to whole of India, and

• To factories employing 10 or more persons, where manufacturing process is being

carried on, or is ordinarily carried on

• It is also applicable to other establishments on Government notification

 The Employees’ State Insurance Act, 1952
• Applicability; Contd.

• It also extends to following establishments, wherein 20 or more persons are

employed, or were employed for wages on any day of the preceding 12 months
(vide Notification dated 12-Nov-1978 of Govt of Maharashtra and Notification dates 13-Mar-
1989):
• Hotels
• Restaurants
• Shops
• Cinemas including preview theatres
• Newspaper establishments, as defined u/s 2(d) of The Working Journalist (Conditions
of Service) & Miscellaneous Provisions Act, 1955
• Road Motor Transport Establishments, employing 20 of more persons.

• Notifications dated 24-Apr-2010, WEF 1-May-2010: to employees drawing wages

not exceeding Rs.15000/- pm

• NOTE: Check similar notifications for your States.

 The Employees’ State Insurance Act, 1952
• Applicability; Contd.

• A club having kitchen will be treated as a factory and its employees will be covered under ESI.
There is no difference between club and hotel (Cricket Club of India v ESIC, 1993 I LLJ 642 (Bom HC))
and (ESIC v Jalandhar Gymkhana Club, 1992 LLR 733 (P&H HC))

• Co-operative Society having more than 20 employees (Sindhi Sehiti MP Transport Coop Society
Ltd., Bhopal v Regional Director, ESIC, Indore, 1997 LLR 543 (MP HC))

• A go-down away from the factory will comes under its expression ‘premises of the factory’
for applicability under the Act (Narashimha Mills Ltd., Coimbatore v Regional Director, ESIC, Madras,
2000 LLR 784 (Mad HC))
• ESI Act will be applicable upon the employees working in sales depots & offices of Bata
India since it’s factory is covered under the Act (Bata India Ltd., Calcutta v ESIC, 2003 III LLJ
716 (Cal HC)

• ESI Act will apply on all branches of an establishment when total number exceeds 20 (Duvent
Fans Pvt Ltd v Regional Director ESIC, Bangalore 2001 LLR 783 (Kar HC))
 The Employees’ State Insurance Act, 1952

• Applicability; Contd.

• Three concerns will be clubbed together for ESI purposes when there is geographical unity
and functional integrality (Madonna Textiles v ESIC, AIR 2000 SC 238)

• Two units will be clubbed together for coverage, when there is inter-dependability between
the two (Jamuna Stores v Regional Director, ESIC, 2004 LLR 1163 (AP HC))

• The principles for determination of functional integrality for coverage and clubbing of more
than ESI Act are different than those under civil or taxation laws (Regional Director, ESIC, Madras
v Aruna Stores, Proprietor J Shantha, 2005 LLR 500 (Mad HC))

• Two petrol pumps at different locations, having functional integrality, will be treated as a
single entity (Asst. Regiona Director, ESIC v Kolhapur Motor Malak Sangh Ltd, 2007 LLR 1242 (Bom HC))
 The Employees’ State Insurance Act, 1952

• Applicability; Contd.

• In the absence of functional integrality, two hotels cannot be clubbed for coverage (Dy
Regional Director, ESIC, Bangalore v Hotel Vijay, Mysore, 2007 LLR 895 (SN) (Kar HC))

• Two firms functioning separately having own sales tax number & electricity connection are
not to be clubbed (ESIC, Kanpur v M/s Tops Food Products, 2008 LLR 42 (All HC))

• When father allows his son to use the premises for different type of business, there
establishments cannot be clubbed (ESIC v Ved Parkash Gupta, 2008 LLR 881 (Del HC)

• Business of interior decorations, furnishers or designers by different workers and different

contractors has no nexus nor functional integrality on inter-changeability (Regional Director,
ESIC v Reliance Corporation, 2005 LLR 708 (Bom HC))
 The Employees’ State Insurance Act, 1952

• Applicability; Contd.

•ESI will be applicable upon an establishment when, in addition to 7 employees, there were 3
paid directors (ESIC v Haryana Biological Pvt Ltd, 2010 LLR 38 (P&H HC))

•Petrol Pump, if it employs 10 or more persons (Chaisons v ESIC, 2005 LLR 1119 (Ker HC))
• A petrol pump and service station with the aid of power employing less than 20
workers will be covered under ESI Act (Kanchamba Service Station v UOI, 1999 LLR 450 (Kar
HC))

•‘Manufacturing process’ would include ‘packing’ (ESIC v Dave Griha Udyog, 2000 LLR 1201 (MP HC))

•Equipment maintenance staff canteen and laundry workers of a hospital (Christian Medical College
v ESIC, AIR 2001 SC 373)
 The Employees’ State Insurance Act, 1952

• Applicability; Contd.

•Temporary employees (Regional Director, ESIC v Fashion Fabrics, 1991 LLR 324 (Ker HC))

•Consultancy services will attract the applicability of the Act (ESIC, Pune v Kirloskar Consultants Ltd,
1995 LLR 34 (Bom HC)

•A Manager will be counted as an employee (ESIC v M/s Corner House Fun Food Café, 1998 LLR 797 (Kar
HC))

•A Managing Director of a Company will be covered under the Act (ESIC v Apex Engineering Pvt Ltd,
1997 LLR 1097 (SC))
 The Employees’ State Insurance Act, 1952

• Applicability to employees engaged through a Contractor

•Employees engaged by a contractor in an establishment are liable to be covered under ESI Act
(ESIC v Vijayamohini Mills, 1990 LLR 305 (Ker HC))

•The principal employer will be liable to pay ESI’s contributions of the employees engaged
through a contractor (Standard Fabricators India Pvt Ltd v Regional Director, ESIC, Bombay, 1994 LLR 869
(Bom HC))

•Employer engaging 18 regular employees in addition to 7 casuals through catering contractors

to serve food – casuals will fall under category of employees to be covered under the Act (Udipi
Hotel Sudha v ESIC, 1998 LLR 55 (Mad HC))
• Workers employed by contractor for the work of the principal employer connected with
the business of the factory are liable to be included for the purpose of contribution
under the act, even if such workers were casual (Siddheshwar & Co. v ESIC, 1998 LIC 157 (Kar
HC))
 The Employees’ State Insurance Act, 1952

• Applicability to employees engaged through a Contractor

• Security guards employed through Agency will be included (Dy Director, ESIC, Bangalore v
Proprietor, M/s Summer Palace Restaurant, Ullal, Mangalore, 2007 LLR 896 (SN) (Kar HC))
 The Employees’ State Insurance Act, 1952

• Non-applicability

• To seasonal factories

• To employees of Government factory or establishments receiving similar or superior

benefits

• To employees drawing wages exceeding Rs.15000 pm

• Wage limit for disabled employee is Rs.25000 pm
• Proviso: Employee continues to be the employee until the end of the period even if his wages
exceeded the above limit after the beginning of the contribution period.

• Apprentice engaged under The Apprentice Act, 1961

• To members of military, air or naval force

 The Employees’ State Insurance Act, 1952

• Non-applicability; Contd.

•ESI will not be applicable upon the Municipality employees for better medical facilities and
amenities (Kakinada Municipality v ESIC, Hyderabad, 2009 LLR 1051 (SN) (AP HC))

•Pathological tests carried on by a laboratory, attached to a hospital, would not come under the
purview of ‘manufacturing process’ to attract its coverage under ESI Act (ESIC v Duncan Gleneagles
Hospital Ltd, 2005 LLR (SN) 1071 (Cal HC))

•An employee is appointed on wages whereas an apprentice is engaged against stipend (ESIC v
Arvind Mills Ltd, 2009 1017 (Guj HC))

•Directors of a Company not drawing amount over and above director’s remuneration are not to
be covered under the Act (ESIC v Navchetan Press, 2004 LLR 1047 (Del HC))

•A partner will not be covered under the Act (ESIC v Apex Engineering Pvt Ltd, 1997 LLR 1097 (SC))
 The Employees’ State Insurance Act, 1952

• Non-applicability; Contd.

•A freelancer such as an electrician or a carpenter is not “employee” (Modern Equipment Co. Ltd v
ESIC, (1984) 2 LLN 560)
 The Employees’ State Insurance Act, 1952

• Sec 2(22), defines wages. Wages include:

1. All remuneration paid or payable in cash to the employee on fulfilling his terms
of employment, expressed or implied. The scope includes:

• Production Bonus for additional production against which an employee can claim
advance (Modella Woollens Ltd v ESIC, 1995 SCC 164 (2J))

• Overtime wages (Indian Drugs & Pharma Ltd v ESIC, 1997 I CLR 193 (SC 2J))

• HRA (Harihar Polyfibres v ESIC, 1984 II LLJ 475 (SC 2J))

• HRA cannot be excluded from ESI’s contributions even when employer and
employee have made a settlement for its exclusion (Management of Oriental Hotel
Ltd., Chennai v ESIC, Chennai, 2001 LLR 489 (Mad HC))

• Subsistence Allowance (Regional Director, ESIC v Populat Automobiles, 1998 I LLJ 621 (SC 2J))
 The Employees’ State Insurance Act, 1952

• Wages include; CONTD…

• Sales commission paid monthly or at intervals of two months regularly (Gem & Co. v ESIC, 2000
II LLJ 68 (Mad HC))

• Efficiency Incentive / bonus paid pursuant to settlement (M/s Escorts Ltd v Regional Director, ESIC
Bangalore, 2004 III LLJ 200 (Kar HC))

• Attendance Bonus payable under a settlement, since it falls under first plan of the definition
(Wellman India P Ltd v ESIC, 1994 I LLJ 545 (SC 2J)

• Leave encashment paid pursuant to an agreement (Dy Regional Director, ESIC v Mizar Govind
Annappa Pai & Sons, Mangalore, 2004 I CLR 272 (Kar HC))

• Labour charges for maintenance (Jawahar Mills v ESIC, 2001 I LLN 354 (Mad HC))
 The Employees’ State Insurance Act, 1952

• U/s 2(22), wages include:

2. Any payment made to any employee for any period of authorized leaves. Scope
Includes:
• Wages paid on holidays (ESIC v Ramdhar Jaiswal & Anr, 2004 III LLJ 998 (Cal HC))

3. Any payment made to an employee for the period of lock-out or strike, which is
legal.

4. Any payment made to an employee for lay-off

 The Employees’ State Insurance Act, 1952

• U/s 2(22), wages include:

5. Any additional remuneration if paid at intervals not exceeding two months.

• The following conditions should exists, if additional remuneration is to be included in

wages:

a. The remuneration should be in additional to all those payments made to an

employee fulfilling his terms of employment.

a. The additional remuneration can be irrespective whether the employee fulfills the
terms of employment or not.
• However, Madras HC held contrary view (K Ramachandran v ESIC, 1974 (46) FJR 73
(Mad HC))
 The Employees’ State Insurance Act, 1952

c. Such additional remuneration should have been paid but not payable.

d. The interval of payment of such additional remuneration should not exceed two months. It
covers the following payments:
i. Night shift allowance
ii. Incentive allowance
iii. Heat, gas and dust allowance
• As opined by Supreme Court in Harihar Polyfibres case, Supra.
 The Employees’ State Insurance Act, 1952

• U/s 2(22), wages exclude:

a. Contributions paid to Provident/Pension Fund & ESI

b. Any TA or value of travelling concession

c. Any sum paid to an employee to meet special expenses incurred by him in the nature
of his employment
• Meals and Tiffin Allowance paid to defray special expenses is not wages (Malabar
Fruit Products Co. v ESIC, 1992 II LLJ 786 (Ker HC DB))

d. Gratuity payable on discharge

 The Employees’ State Insurance Act, 1952

• Wages exclude:
• The following payments are excluded as they do not form part of the inclusive portion of
the definition:
i. Inam paid to employee at employer’s discretion (Braithwate & Co. India Ltd v ESIC, 1968 I
LLJ 550 (SC 2J))

ii. Any sum paid as percentage of wage as a gesture of goodwill for good attendance
(ESIC v Bata Shoe Co Pvt Ltd, 1986 I LLJ 138 (SC 2J))

iii. Bonus and incentives paid at the intervals of 3 months (United Breweries Ltd v ESIC, 2003 I
LLN 694 (Ker HC DB))

iv. Bonus paid under law or an award since it has nothing to do with fulfillment of terms
of contract of employment (Bala Subramanya Rajaram v BC Patil & Ors., 1958 AIR 518 (SC 3J))

v. Ex-gratia payment (MPSRTC v ESIC, 1991 I CLR 924 (MP HC))

 The Employees’ State Insurance Act, 1952

• Key points for HR Managers:

1. Liability to pay is unconditional

a. U/s 39: When the Act becomes applicable, the employer has a liability to pay
contribution.

b. Such liability is NOT dependent on the following:

i. Demand to be made by the ESIC, or
ii. The recovery from the employees, or
iii. Whether or not the employees are enjoying the ESI benefits
(Bombay Ammona Pvt Ltd v ESIC, 1991 II LLN 646 (Del HC))

c. When the Act applies to an establishment, the employer has an obligation of payment
of contribution, until the establishment ceases to be covered by the Act.
(ESIC v General Secretary, ST Workers Federation (INTUC), Sangli, 2001 I CLR 510 (Bom HC))
 The Employees’ State Insurance Act, 1952

• Key points for HR Managers:

2. Maintenance of Registers
a. U/s 44: Employer has an obligation to maintain registers
b. Employer cannot say that employees are not identifiable to avoid liability (Soft
Beverages Pvt Ltd v ESIC, 2001 I LLJ 309 (Mad HC))
c. U/s 32: It is the duty of the employer to maintain registers for 5 years (ESIC v Krishna
Dass, 1992 (81) FJR 581: 1999 III LLJ 246 (Kar HC))

3. ESI Act – Employee Compensation Act, 1923 – Conflict of benefits

• When an employee is entitled to claim benefits under ESI Act, he cannot claim
compensation under ECA or Motor Vehicles Act (A Trehan v Associated Electrical Agencies,
1996 AIR (SC) 1990
• An employee covered under ESI Act is debarred from claiming compensation under
any other law (Pandu d/o Shri Uma Charan Mishra v Divisional Manager of MPSRTC, 1999 LLR
135 (MP HC))
 The Employees’ State Insurance Act, 1952

• Key points for HR Managers:

4. Non-deposit of ESI contributions since Code number was not allotted will not be justified
(ESIC v M/s. Jaiswal Rolling Mill, 2008 LLR 606 (Cal HC))
• Recession in market, labour trouble and non-availability of forms will be good cause for
late-deposit of ESI’s contribution (Hindustan Monark Pvt Ltd v ESIC, 1997 LLR 774 (All HC))

4. Primary liability to pay ESI contributions is of the principal employer and not the contractor
(ESIC, Bangalore v Dharwad Cooperation Milk Producers Societies Union Ltd., Dharwad, 2000 LLR 348 (Kar
HC))
• When the principal employer was not supervising the workers of the contractor, no
liability of ESI contributions can be fastened (Abu Marble Mining Pvt Ltd v Regional Directors,
ESIC, Mumbai, 2005 LLR 184 (Bom HC))

5. Non payment of contributions will not affect the availing of ESI benefits by an employee
(Bharaqgath Engineering v R Ranganayaki, 2003 LLR 227 (SC))
 The Employees’ State Insurance Act, 1952

• Forum to decide disputes under the Act:

1. Employee State Insurance Court

a. To determine coverage, recovery and other disputes
• U/s 75: ESI Court can decide matters pertaining to above between employer and
employees
• However, u/s 45A, ESI Court is required to give opportunity of hearing to the
employer (Rajarani Exports Ltd v ESIC & Ors., 2002 I LLJ 1119 (Cal HC))
• An employer, aggrieved with the findings of ESI authorities, can approach ESI
Court (M/s Dhanbad Cold Storage Pvt Ltd v ESIC, 2009 LLR 404 (Jhar HC))
• ESI Court would adjudicate disputes regarding applicability of Act or quantum of
contribution (ESI Court v K Fibre Bangalore Pvt Ltd, 1997 II LLJ 739 (SC 2J))

b. ESI Court cannot review it’s order:

• ESI Court has no inherent power to review its order (ESIC & Anr v Surendra Sharma,
2003 LIC 525 (Gau HC))
 The Employees’ State Insurance Act, 1952

• Forum to decide disputes under the Act:

2. Reference

• U/s 81: ESI Court may submit any question of law to the High Court for decision.

3. Appeal: to the High Court

a. U/s 82: The HC can hear appeals, if the matter involves substantial question of law
(ESIC v Radhas Printers, 1996 LLR 718 (Ker HC))

• When there is no employer-employee relationship between the streamer agent

association and the streamer watchman, the full bench of High Court has set
aside the order of ESI Court holding that the association was liable to get itself
covered and registered under ESI Act (Cochin Streamer Agents Association v ESIC, 2004
I LLJ 617 (Ker HC))
 The Employees’ State Insurance Act, 1952

2. Appeal: to the High Court; Contd.

HOWEVER:

b.U/s 91: So far as exempting any establishment is concerned, it is the Appropriate

Government and not High Court that can adjudicate (All India ITDC Employees’ Union v ESIC &
Ors., 2000 I LLJ 591 (Raj HC))

c.Also, where employees are covered under ESI Act, and there is any alteration of medical
facility by any settlement, then the proper forum for employees to seeking any relief will
be under IDA and not the High Court (General Secretary APBI Contractor Employees’ Union v State
of WB & Ors., 2003 (102) FJR 225 (Cal HC))

d.HC will not interfere in factual finding of ESI Court (Regional Director, ESIC v Anadha Silk
Paradise, 2008 LLR 1243 (Mad HC))