A PROJECT ON

Employment State Insurance Act, 1948

Applicability and Constitutionality

SUBMITTED TO

Prof (Dr) Nuzhat Parveen Khan

BY: AQUIB JAWED

POST GRADUATE DIPLOMA (LABOUR LAW)

PAPER III

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 ACKNOWLEDGEMENT

I, would like to express my gratitude to our teacher, Dr.

Nuzhat Parveen Khan and Anil Kumar Kapoor for
making the subject so easy and understandable to us that
has helped me to put my best efforts to the assignment.

Thank you

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INTRODUCTION

The Employee State Insurance Act, [ESIC] 1948, is a piece of social welfare
legislation enacted primarily with the object of providing certain benefits to
employees in case of sickness, maternity and employment injury and also to
make provision for certain others matters incidental thereto. The Act in fact tries
to attain the goal of socio-economic justice enshrined in the Directive principles
of state policy under part 4 of our constitution, in particular articles 41, 42 and
43 which enjoin the state to make effective provision for securing, the right to
work, to education and public assistance in cases of unemployment, old age,
sickness and disablement. The act strives to materialise these avowed objects
through only to a limited extent. This act becomes a wider spectrum then
factory act. In the sense that while the factory act concerns with the health,
safety, welfare, leave etc of the workers employed in the factory premises only.
But the benefits of this act extend to employees whether working inside the
factory or establishment or elsewhere or they are directly employed by the
principal employee or through an intermediate agency, if the employment is
incidental or in connection with the factory or establishment.

The ever expanding industrial horizon and reciprocal uprising of labour

consciousness necessitate the employee and employer to be conversant with the
current labor legislation that govern their relationship, rights and obligation.

In the conference of Labour Ministers held in January 1940, it was declared to

invite the views of provincial Government, employers and workers about
compulsory contribution of the sickness insurance fund. The second conference
was held in year 1941, was of the opinion that any such legislation must be
preceded by an actual examination of the problem in certain industries. In 1942

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third conference was called for to examine a tentative sickness scheme prepared
by the Labour department of the Government of India. The Conference agreed
to introduce the scheme on a selective basis and recommended a sickness
insurance scheme to workers in jute, cotton and heavy engineering industries. In
1943 government appointed Prof. B.P. Adarkar as a special officer to report on
health insurance of the industrial workers in India. He submitted a report in
1944 which contained comprehensive contributory scheme of social insurance.
Some improvements in the above scheme were suggested by Maurice Stack and
Raghunath Rao, members of ILO, who examined it at the invitation of
government of India. The Adarkar Report and suggestions made by the two ILO
members were discussed by the Labour Conference in October 1944, and by
Standing Labour Committee in March 1945. The following recommendations
were made:
1. The central Government should proceed with the preparation of a scheme
of health insurance applicable to all perennial factories and covering
employment injuries sand maternity benefits if possible.
2. The scheme should be circulated to Provincial governments and
association of employers and workers before a bill was drafted.
The Employees’ State Insurance Bill providing for compulsory sickness,
maternity and employment injury benefits for workers in perennial factories was
introduced in the central Legislature on 6th November 1946. The Employee
State Insurance act was promulgated by the Parliament of India in the year
1948.To begin with the ESIC scheme was initially launched on 2 February 1952
at just two industrial centres in the country namely Kanpur and Delhi with a
total coverage of about 1.20 lac workers. There after the scheme was
implemented in a phased manner across the country with the active involvement
of the state government.

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The Employees’ State insurance Act is a legislation which aims at bringing
about social and economic justice to poor labour class. It aims at the labour
welfare. But labour welfare is an elastic term bearing somewhat different
interpretation in one country from another according to different social customs,
the degree of industrialisation and the educational development of the workers.
Investigation Committee of the Government of India has preferred to include
under welfare activities anything done for the intellectual, physical, moral and
economic betterment of workers whether by employers, by Government or
other agencies, over and above what is laid down by law or what is normally
expected as part of contractual benefits for which workers have bargained.
Labour welfare is a very comprehensive term and includes everything
undertaken by the State, employers and association of workers for the
improvement of workers’ standard of living and promotion of their social and
economic well being.
These welfare activities need to be considerably extended so as to cover
workers of every factory, industry, mines, plants and communications, etc. A
definite minimum standard of welfare should be laid down, which has to be
observed by all employers.

APPLICABILITY

The ESIC Act applies to non-seasonal, power using factories or manufacturing

units employing ten or more persons and non-power using establishments
employing twenty or more persons. Under the enabling provisions of the act, a
factory or establishment, located in a geographical area, notified for
implementation of the scheme, falls in the purview of the act. Employees of the
aforesaid categories of factories or establishments, but drawing wages only up
to Rs 6,500 a month are entitled to health insurance cover under the ESI act.

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The wage ceiling for purpose of coverage is revised from time to time; to keep
pace with rising cost of living and subsequent wage hikes. The present ceiling
of Rs 6,500 has been effective from 1 January 1997 the appropriate government
state or central is empowered to extend the provision of the ESI Act to various
classes of establishment, industrial, commercial, agricultural or otherwise in
nature. Under these enabling provisions most of the state governments have
extended the ESI act to certain specific classes of establishments. Like shops,
hotels, restaurants, cinemas, employing 20 or more persons. But no industry has
the right to opt out of the scheme.

1. Short title, extent, commencement and application

(1) This Act may be called the Employees' State Insurance Act,1948.
(2) It extends to the whole of India.
(3) It shall come into force on such date or dates as the Central Government
may, by notification in the Official Gazette, appoint, and different dates may be
appointed for different provisions of this Act and [ for different States or for
different parts thereof].
(4) It shall apply, in the first instance, to all factories (including factories
belonging to the government) other than seasonal factories:
[PROVIDED that nothing contained in this sub-section shall apply to a factory
or establishment belonging to or under the control of the government whose
employees are otherwise in receipt of benefits substantially similar or superior
to the benefits provided under this Act.]
(5) The appropriate government may, in consultation with the Corporation and
[where the appropriate government is a State Government, with the approval of
the Central Government], after giving six months’ notice of its intention of so
doing by notification in the Official Gazette, extend the provisions of this Act or

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any of them, to any other establishment or class of establishments, industrial,
commercial, agricultural or otherwise[PROVIDED that where the provisions of
this Act have been brought into force in any part of a State, the said provisions
shall stand extended to any such establishment or class of establishments within
that part if the provisions have already been extended to similar establishment
or class of establishments in another part of that State.]
[(6) A factory or an establishment to which this Act applies shall continue to be
governed by this Act notwithstanding that the number of persons employed
therein at any time falls below the limit specified by or under this Act or the
manufacturing process therein ceases to be carried on with the aid of power.]

In Kanwarji Bhagirathmal (M/s) v. The Employees' State Insurance

Corporation1 it was observed that A Halwai shop, manufacturing sweet, would
attract provisions of the ESI Act if 20 or more persons are employed without
use of electric power.

In Cricket Club of India v. Employees' State Insurance Corporation2 it was

observed that a club having kitchen will be treated as a factory and its
employees will be covered under ESI Act.

Employees' State Insurance Corporation v. Tiecicon Pvt. Ltd, Bombay3- A

company providing air-cooling facilities to the tenants of a building by
engaging more than 10 employees will attract applicability of ESI Act.

1
2005 LLR 537 (Del HC)
2
1994 LLR 333
3
1995 LLR 768 (Bom HC).

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Sindhi Sehiti M.P. Transport Coop. Society Ltd., Bhopal v. Regional Director,
Employees' State Insurance Corporation, Indore4,- ESI Act will be applicable to
a co-operative society having more than 20 employees.

Narashimha Mills Ltd., Coimbatore v. Regional Director, Employees' State

Insurance Corporation, Madras5,- A godown away from the factory will come
within the expression 'premises of the factory' for applicability and coverage
under the ESI Act.
Transport Corporation of India v. Employees' State Insurance Corporation 6 -A
notification issued by a State Government under the ESI Act will extend to all
branches of the said establishment situated even outside the State.

Madona Textiles v. Employees' State Insurance Corporation7 -Three concerns

will be clubbed together for ESI purposes when there is geographical unity and
functional integrity.

Employees' State Insurance Corporation, Bangalore v. Bhagatram & Sons,

Bangalore8- Use of LPG for manufacture of sweets will be treated as power for
applicability of ESI Act.

4
1997 LLR 543 (MP HC).

5
2000 LLR 784 (Mad HC).
6
2000 LLR 113 (SC)
7
2000 LLR 1036 (Ker HC)
8
2001 LLR 1131 (Karn HC)

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Duvent Fans (Pvt.) Ltd. v. Regional Director, Employees' State Insurance
Corporation, Bangalore9 -ESI Act will apply on all branches of an
establishment when total number exceeds 20.

Southern Agencies v. Andhra Pradesh Employees' State Insurance

Corporation10- Different sales and service outlets will be clubbed for
applicability of ESI Act even when none employed 10 or more employees.

Bata India Ltd., Calcutta v. Employees' State Insurance Corporation11- ESI Act
will be applicable upon the employees working in sales depots and offices of
Bata India since its factory is covered the Act.

Eachin Steamer Agents Association v. Employees' State Insurance

Corporation12- When there was no employer and employee relation between the
steamer agent association and steamer watchman, the full bench of the High
Court has set aside the order of the Employees' Insurance Court holding that the
association was liable to get itself covered and registered under the ESI Act.

Vellipalaym Co-operative Milk Supply Society v. Regional Director, Employees'

State Insurance Corporation, Madras13- Storing milk in the cold storage,
collected by a cooperative society, will be the 'manufacturing process' for
coverage under the ESI Act.

9
2001 LLR 783 (Karn HC).
10
2001 LLR 191 (SC).
11
2003 LLR 1018
12
2004 (I) LL] 617 (Ker HC).
13
2004 LLR 887 (Mad HC).

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Employees' State Insurance Corporation v. Chirala Cooperative Spinning Mills
Ltd.14-When a person provided with some space was running the canteen not
under the Factories Act, there will be no liability for making payment of ESI
contributions for such person(s).

Employees' State Insurance Corporation v. Duncan Gleneagles Hospital Ltd.15-

A pathological tests carried on by a laboratory, attached to a hospital, would not
come within the purview of 'manufacturing process' to attract its coverage under
ESI Act.

H. Fillunger & Company Pvt. Ltd. Pune v. Employees' State Insurance

Corporation, Pune16-When ESI Act is not applicable to the Head Office, it
could not be made applicable to branch offices.

Choisons v. Employees' State Insurance Corporation17- A petrol pump will be a

factory to be covered under the Employees' State Insurance Act if ten or more
persons are employed.

14
2005 LLR 591 (AP HC).
15
2005 LLR (SN) 1071 (Cal HC).
16
2005 LLR 1165 (Bom HC).
17
2005 LLR 1119 (Ker HC).

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Maharishi Shiksha Sansthan v. State of U.P.18-ESI Act when extended by the
State Government can be extended upon educational institutions even having
minority status.

Regional Director, Employees' State Insurance Corporation, Trichur v. Ram

Lal Textiles, Cannanore19- Workers engaged for weaving of cloth and taking
raw material to their homes will be liable to be covered under the Act.

Regional Director, Employees' State Insurance Corporation v. Fashion

Fabrics20- Temporary employees will be liable to be covered under the Act
from the date of their joining the service.

Fenner Garments v. Deputy Regional Director, Employees' State Insurance

Corporation, Madras21- Demand for payment of ESI's contributions for left out
employees, without issuing show cause notice to employer, will be illegal.

Employees' State Insurance Corporation, Hyderabad v, Raj Kamal Transport,

Hyderabad22- Drivers of trucks engaged on trip basis by a Transport Company
will be covered under the Act.

18
2009 LLR 98 (All HC).
19
1991 LLR 294 (Ker HC).
20
1991 LLR 324 (Ker HC)
21
1994 LLR 825 (Mad HC)
22
1995 LLR 20

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Andhra Prabha Pvt. Ltd., Hyderabad v. SSIC, Hyderabad23-
Apprentices/trainees other than those engaged under the Apprentices Act, 1961
are not liable to be covered under the Act.

Employees' State Insurance Corporation/ Bombay v. Western India Theatre Ltd.

Bombay24- Wireman, car cleaner and sweeper working in multi-storeyed
buildings and being paid a small amount of under services will not be covered
under the Act.

Employees' State Insurance Corporation v. Surya Printmac Industries,

Faridabad25- Employees engaged for loading and unloading for sending its
consignment will not be deemed as casual workers since not connected with the
work of the establishment hence not to be covered under ESI Act.

Ideal Trading Corporation v, Employees' State Insurance Corporation26-

Marketing representatives and casual employees will be counted for coverage
under ESI Act.

E.I.D. Parry (India) Ltd., Vijaywada v. Employees' State Insurance

Corporation27- Hamalies engaged for loading and unloading but also working
for others will not be employees under ESI Act.

23
1996 LLR 827 (AP HC)

24
1996 LLR 51 (Bom HC)
25
2000 LLR 110 (P&H HC)
26
2001 LLR 1055 (Gau HC)
27
2002 LLR 753 (AP HC)

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E.K. Haj Mohammadmeera Sahib and Sons v. Regional Director, Employees'
State Insurance Corporation28- The workers engaged through the transporter for
loading and unloading of raw material will be covered under the ESI Act.

CONSTIUTIONALITY OF THE ACT

In Anand Kumar Bindal vs Employees' State Insurance Corporation29 Section

1(3) of the Act was challenged to be ultra vires of A. 14 of the constitution and
for providing uncontrolled discretion vesting wide powers with the Central
Government without laying down any policy for its guidance for the
enforcement of different provisions of the Act. Mootham, C.J., obderved:
“in order to attract the operation of this Article it is necessary to show that the
power of differentiation does not rest on any reasonable basis having regard to
the object which the Legislature had in view. The Legislature in enacting this
statute intended that the benefits which it provided should, as circumstances
rendered it practicable, become available to" the employees in all factories
throughout India excluding of course the State of Jammu and Kashmir. If this
be, as I hold it is, the object which the Legislature had in view, further difficulty
disappears, for the Act is of such a nature that it is reasonable, if not imperative,
that a large measure of discretion be conferred on the Central Government with
regard to the manner in which it should come into force... The discretion which
is vested in the Central Government under Section 1(3) is undoubtedly very
wide, but I am not prepared, taking into account what I conceive to be the
policy of the Legislature and the administrative difficulties of operating the Act,

28
2003 LLR 308 (Mad HC)
29
AIR 1957 All 136

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to hold that that discretion involves a contravention of the provisions of Article
14.”

In Matajog Dobey v. H.C.Bhari30 it was held that:

“A discretionary power is not necessarily a discriminatory power and abuse of
power is not easily to be assumed where the discretion is vested in the
Government and not in a minor official.”
In Hindu Jea Band, Jaipur v. Regional Director, E.S.I, Jaipur and State of
Rajasthan31 the Constitutionality of Section 1(5) was challenged. The State of
Rajasthan issued a notification under S. 1(5) of the Act bringing within the
purview of the Act the shops in which 20 or more persons had been employed
for wages on any day on the preceding 12 months. Contributions were asked to
be paid from a firm carrying on business of playing music on occasions such as
marriage and others. The liability to pay contribution was challenged on the
ground that the place where the firm was carrying on business was intermittent
and of seasonal character. It was held that the word ‘shop’ has not been defined
in the Act and this word cannot be construed narrowly because notification has
been issued under section 1(5) of the Act which is beneficient Legislation. It is
obvious from the meaning given in Collins Dictionary that “shop is a place
where services are sold in retail basis”. The firm has been making available on
payment of price the services of the members of the group of musicians
employed by it on wages. Hence the place where the firm has been carrying on
business is a shop and the establishment is covered by the notification.
It was further held that the power conferred on the State government by
Sec. 1(5) does not suffer from vice of excessive delegation of essential
legislative powers. Application of the Act to business carried on during certain

30
AIR 1956 SC 44
31
1987 SCR (2) 377

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seasons only of the year is not violative of Art. 14, Art. 19(1)(g) and Art. 21 of
the Constitution of India.

In E.S.I. Corporation v. K. Janardhana Rao32 the State Government extended

the provisions of the Act top restaurants and hotels situated in particular places
in the State. It was held that the notification was neither violative of section 1(5)
nor Article 14 of the Constitution. The expression “any other establishment or
class of establishments” in section 1(5) to which the appropriate Government
intended to extend the Act may be classified either on the basis of the nature of
the of the establishments or on the basis of other geographical situation or on
the basis of both of them.

32
AIR Kant 146

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 Bibliography

 Labour Law- Avtar Singh

 Labour and Industrial Law- S.N.Misra (25th edition, Central law

Publications)

 Labour Law – S.C. Jains

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