UNIT-1

The Employees State Insurance

Act (ESI), 1948
 ESI Scheme
Mission Statement :

• To provide for certain benefits to Employees in case of

Sickness, Maternity and Employment Injury and to make
provisions for Related Matters.

• ESI Scheme for India is an integrated social security scheme

tailored to provide Social Protection to workers and their
dependents, in the organised sector, in contingencies, such
as Sickness, Maternity and Death or Disablement due to an
employment injury or Occupational hazard.
 Applicability of the Act
1) This Act is extended in area wise to factories using power and
employing 10 or more persons and non-power using
manufacturing units and establishments employing 20 or more
persons and earning wages upto Rs 21,000 per month w.e.f.
1st January 2017.
2) It has also been extended to shops, hotel, restaurants, roads,
motor transport undertaking, equipment maintenance staff in
hospitals.
3) The factories and establishments shall continue to be
administered by this Act despite the number of persons employed
therein at any time falls below the aforesaid limit.
4) Employees employed by a contractor are directly covered under
ESI Act and the Schemes thereto.
 Case Laws
1) Pondicherry State Weavers’ Co-op Society v. Regional
Director, ESI, Madras,
(1983) ILLJ 17 Mad, HC) (Applicability)
• The appellant filed an application under S. 75(1)(g) of the Employees' State
Insurance Act of 1948 for a declaration, that the said Act is not applicable to it. Its
contention was that it was a registered co-operative society of weavers, that though
weavers come and work in the factory owned by the Society, the payment made to
them for the work done cannot be taken to be "wages" and that they cannot be
taken as "employees", whatever is paid to them should be taken to be dividend and
not wages.
• The application was opposed by the Employees' State Insurance Corporation on
the ground that the Act is intended to cover all persons who receive wages for the
work done by them, that merely because the workers happen to be shareholders of
the Society they do not cease to be workers and that the wages paid to them cannot
be taken to be dividends.
• The ESI Court, after considering the rival contentions, found that the Act is
applicable to all the persons working under the Society and that the fact that the
workers happen to be the shareholders of the Society will not take them out of the
coverage of the Act. The said finding is challenged by the Co-operative Society in
this appeal.
 In this case the question was whether the provisions of the
ESI Act, 1948 are applicable to Weavers Co-operative Society
whose workers are shareholders of the society ?

•The Madras HC held that a Co-operative Society, on

registration, becomes a body corporate with perpetual
succession and it is legally independent of its members who
constitute the society. Once the society is independent of its
members and has separate legal existence apart from its
members, then there is no bar for the society employing its
members. And if such members are employed they are
entitled to be covered by the ESI Act.
 2) Osmania University v. Regional Director, ESIC,
AP(1986) I LLJ 136(SC) (Applicability of the Act)
(Applicability)
• In this case the question was whether the provisions of the ESI Act, 1948 are
applicable in respect of the employees working in the Dept. of Publication and
Press of the OU?
• A Division Bench of the High Court has answered the said question in the
affirmative differing from the contrary view expressed by a learned Single
Judge, who had allowed a Writ Petition filed by the University. In the light of
the said conclusion, the Division Bench set aside the judgment of the learned
Single Judge and dismissed the Writ Petition. Under clause (4) of Section 1 of
the Employees' State Insurance Act, 1948 will apply to all 'factories' including
factories belonging to the Government other than seasonal factories. The OU
appealed to SC.
• By referring the Sections 2(12) (Factory) and clause (k) of Sec.2
(manufacturing process)of the Factories Act , 1948, the SC held that
the said Dept. is engaged in the printing of the text books, journals,
forms, stationary and other items and the activities are a
manufacturing process and therefore ‘factory’ within the meaning of
Sec. 2 (12) of the Act, justifying the application of the Act.
 Coverage

•The ESI Act covers employees earning wages upto

Rs. 21,000 per month, engaged either directly or
through contractor.
 1) Kerala CBSE School Management v. State of
Kerala (3 July, 2009) (Ker HC) (Coverage)
• This is one of the premier landmark judgments in relation to the ESI Act
as the basis of this case is the determination of whether a particular
institution can be covered under the ESI Act or not? and
• whether the notification dated 8.10.2007, issued by the Kerala
Government under Section 1(5) of the ESI Act, 1948, extending the
provisions of the said Act and connected cases to educational
institutions, is valid or not?
• The matter originally under contention was the release of a new
notification by the Kerala State Government in the Official Gazette,
which extended the scope of the ESI Act, i.e. which organizations could
fall under it, was extended to schools and other educational
institutions. The matter was then decided through the interpretation of
the statute in Sec. 1 of the ESI Act.
•The Kerala HC held that educational institutions, while not
being commercial in nature, nor having the functions of a
traditional factory, was not completely excluded from the
statute itself, and could still be applied as an instrument
under the ESI Act.
•The deciding contention was when the final responsibility
towards educational institutions was discussed. Since the
Central Government had a priority to control and manage
most educational institutions, the notification which
extended the provision of the ESI Act to schools was held
valid.
 2) Employees State Insurance Corporation v. Hotel
Kalpaka International (15January1993) (Coverage)
• The Respondent-Hotel which was also running a Bar for sometime,
closed down its business after several years. The Inspectors of the
appellant-Corporation verified the records of the establishment and
reported that at certain point of time the employment strength of the
establishment including the bar was more than 19.
• Therefore, the establishment was treated as covered provisionally
under the Employees State Insurance (ESI) Act, 1948. Since the final
date of coverage could be decided only after verifying all the records,
the Respondent was asked to produce them.
• The Respondent did not avail the opportunity afforded to it. Though
the Respondent sent its explanation, it was not acceptable to the
appellant Corporation and so it passed a detailed order under Sec.45-A
calling upon the Respondent to pay the contribution with interest at
6% failing which it would be recovered as arrears of land revenue.
• Since this order and the reminder thereto, did not evoke any response
from the Respondent, the appellant sent a claim in Form-19 to the
District Collector requesting him to recover the said amount.
• The Respondent challenged the proceedings by filling an application
under Sec.75 of the Act before the ESI Court, which upheld the
assessment made by the appellant-Corporation, but stated that
recovery steps were not justified after the closure of the establishment,
and only prosecution as contemplated u/s. 85 of the Act was attracted.
• The appellant-Corporation preferred an appeal against the said decision
of ESI Court. The High Court dismissed the appeal and held that since
the scheme was made after the closure of the establishment, the
appellant was not justified in proceeding against the Respondent. Being
aggrieved by the judgment of the High Court, the appellant Corporation
preferred the present appeal contending that so long as the
establishment was covered by the provisions of the Act, the Respondent
could not circumvent its liability by claiming that before actual recovery
proceedings, it had closed down the establishment.
•The SC held that admittedly the hotel industry like that of the
respondent has been notified by the Government thus extending
the provisions of the Employees State Insurance Act to hotel
industry. Therefore, on the date of commencement of its business,
namely, 11.7.1985, there was a liability on the Respondent to
contribute to the ESI fund.
 Sec.6-A: Dependant
Sec.6-A “ dependant ” means any of the following relatives of a deceased insured person,
namely : —
• (i) a widow, a legitimate or adopted son who has not attained the age of twenty-five years, an
unmarried legitimate or adopted daughter ; [(ia) a widowed mother ;
• (ii) if wholly dependent on the earnings of the insured person at the time of his death, a
legitimate or adopted son or daughter who has attained the age of twenty-five and who is
infirm ;
• (iii) if wholly or in part dependent on the earnings of the insured person at the time of his
death, —
• (a) a parent other than a widowed mother,
• (b) a minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or
adopted or illegitimate if married and a minor or if widowed and a minor,
• (c) a minor brother or an unmarried sister or a widowed sister if a minor,
• (d) a widowed daughter-in-law,
• (e) a minor child of a pre-deceased son,
• (f) a minor child of a pre-deceased daughter where no parent of the child is alive, or
• (g) a paternal grand-parent if no parent of the insured person is alive.
 Sec.2(9) “ employee ”
• Sec.2(9) “ employee ” means any person employed for wages in or in connection
with the work of a factory or establishment to which this Act applies and ——
(i) who is directly employed by the principal employer on any work of, or
incidental or preliminary to or connected with the work of, the factory or
establishment, whether such work is done by the employee in the factory or
establishment or elsewhere ; or
(ii) who is employed by or through an immediate employer on the premises of
the factory or establishment or under the supervision of the principal
employer or his agent on work which is ordinarily part of the work of the
factory or establishment or which is preliminary to the work carried on in or
incidental to the purpose of the factory or establishment ; or
(iii) whose services are temporarily lent or let on hire to the principal employer by
the person with whom the person whose services are so lent or let on hire has
entered into a contract of service ; and includes any person employed for
wages on any work connected with the administration of the factory or
establishment or any part, department or branch thereof or with the purchase
of raw materials for, or the distribution or sale of the products of, the factory
or establishment ;
 • [or any person engaged as an apprentice, not being an
apprentice engaged under the Apprentices Act, 1961 [and
includes such person engaged as apprentice whose training
period is extended to any length of time]
but does not include -
(a) any member of [the Indian] naval, military or air forces ; or
(b) any person so employed whose wages (excluding
remuneration for overtime work) exceed [such wages as may
be prescribed by the Central Government] :
• Provided that an employee whose wages (excluding
remuneration for overtime work) exceed [such wages as may be
prescribed by the Central Government] at any time after (and not
before) the beginning of the contribution period, shall continue
to be an employee until the end of that period;]
 1) ESIC v. Venus Alloy Pvt. Ltd. [SC]
Civil Appeal No. 1464 of 2019 – [arising out of SLP(C) No.
12812 of 2015] (Employee)
•The question calling for determination in this appeal by special
leave against the judgment dated 17.02.2014 passed by the High
Court of Madhya Pradesh, 2006 is as to whether the Directors of
respondent-Company, who are receiving remuneration, come
within the purview of “employee” under sub-section (9) of Sec. 2 of
the Employees' State Insurance Act, 1948?
•The respondent-Company had been covered under the ESI Act and
had been depositing the amount of contribution with reference to
the wages paid to some of its employees. However, in an
inspection carried out by the Appellant-Employees' State
Insurance Corporation it was observed that the
respondent-Company had not made the contribution in respect of
the remuneration paid (3k pm)to the Directors.
• There had been exchange of communications in regard to the liability of
the respondent - Company and ultimately, by the order dated 06.04.2005,
the Deputy Director of the appellant-Corporation called upon the
respondent to make payment of contribution in relation to the
remuneration paid to the Directors.
• Such a demand was questioned by the respondent- Company by way of an
application under Section 75 of the ESI Act that was considered and
decided by the Employees State Insurance Court. HC favored the company
and hence this SLP before the SC.
• The SC held that the High Court in the present case has been in error in
assuming that the Director of a Company, who had been receiving
remuneration for discharge of duties assigned to him, may not fall within the
definition of an employee for the purpose of the ESI Act.
• There had been no reason to interfere with the order dated 06.04.2005 as
issued by the appellant- Corporation and the impugned orders of HC are
set-aside and the application filed by the respondent-Company under Section
75 of the ESI Act is dismissed.
 Sec.2(11) “ family ”
Sec.2(11) “ family ” means all or any of the following relatives of an
insured person, namely : —
(i) a spouse ;
(ii) a minor legitimate or adopted child dependent upon the insured
person ;
(iii) a child who is wholly dependent on the earnings of the insured person
and who is —
(a) receiving education, till he or she attains the age of twenty-one years,
(b) an unmarried daughter ;
(iv) a child who is infirm by reason of any physical or mental abnormality
or injury and is wholly dependent on the earnings of the insured
person, so long as the infirmity continues ;
(v) dependent parents, whose income from all sources does not exceed
such income as may be prescribed by the Central Government ;
(vi) in case the insured person is unmarried and his or her parents are not
alive, a minor brother or sister wholly dependent upon the earnings of
the insured person.
 Sec.2(14AA) “ manufacturing process ”
Sec.2(14AA) “ manufacturing process ” shall have the meaning
assigned to it in the Factories Act, 1948 -

Sec. 2(k) “manufacturing process” means any process for—

(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing,
cleaning, breaking up, demolishing, or otherwise treating or adapting any
article or substance with a view to its use, sale, transport, delivery or
disposal; or
(ii) pumping oil, water, sewage or any other substance; or
(iii) generating, transforming or transmitting power; or
(iv) composing types for printing, printing by letter press, lithography,
photogravure or other similar process or book binding; or
(v) constructing, reconstructing, repairing, refitting, finishing or breaking up
ships or vessels; or
(vi) preserving or storing any article in cold storage.
(Osmania University v. Regional Director, ESIC, AP(1986) I LLJ 136(SC)
(Applicability of the Act).
 Sec.2 (12) “ factory ”
•Sec. 2 (12) “ factory ” means any premises including the
precincts thereof whereon ten or more persons are
employed or were employed on any day of the preceding
twelve months, and in any part of which a manufacturing
process is being carried on or is ordinarily so carried on;

•but does not include a mine subject to the operation of the

Mines Act, 1952 or a railway running shed.
 Sec.2(15) “ occupier ”
Sec.2(15) “ occupier ” of the factory shall have the meaning
assigned to it in the Factories Act, 1948.
Sec. 2(n) “occupier” of a factory means the person who has ultimate control
over the affairs of the factory, Provided that—
(i) in the case of a firm or other association of individuals, any one of the
individual partners or members thereof shall be deemed to be the
occupier;
(ii) in the case of a company, any one of the directors shall be deemed to be
the occupier;
(iii) in the case of a factory owned or controlled by the Central Government or
any State Government, or any local authority, the person or persons
appointed to manage the affairs of the factory by the Central Government,
the Stale Government or the local authority, as the case may be, shall be
deemed to be the occupier.
 1) Kirloskar Brothers Ltd v. ESIC
24 January, 1996
(Principal Employer’s liability)
• In these appeals a question that arises for consideration is: whether the
Employees' State Insurance Act, 1948 would apply to the regional offices of the
appellant at Secunderabad in Andhra Pradesh and Bangalore in Karnataka
States?
• The appellant had established its registered office at Poona for sale and
distribution of its products from three factories - one situated at Kirloskarvadi,
second at Karad in State of Maharashtra and the third one at Deewas in the
State of Madhya Pradesh.
• Admittedly factories situated in Maharashtra are not covered under the Act.
They set up regional offices at several places.
• The Governments of Andhra Pradesh and Karnataka have applied the provisions
of Section 2(g) of the Act to the aforesaid regional offices situated at
Secunderabad and Bangalore and the respondent had issued notice
under Section 3(9) of the Act calling upon them to contribute their share of the
health insurance of the workmen working in the respective regional offices.
•Disputing the liability, the appellant filed application before
Insurance Court under Section 75 of the Act. The Court had held
that the appellant's regional offices are covered under the ESI
Act and accordingly it directed them to pay their contribution.
The High Courts of Andhra Pradesh and Karnataka have upheld
the said orders. Hence these appeals by special leave.
•The SC held that the test of predominant business activity or
too remote connection are not relevant. The employees need
not necessarily be the one integrally or predominantly
connected with their entire business or trading activities. In
interpreting the provisions of the Act, they must be read in the
light not only of the objects of the Act but also the
constitutional, fundamental and human rights. Thus, the
appellant was held liable to pay contribution.
 Sec.8 Employment
The concept of employment implies three essential
elements:
1) Employer,
2) Employee and
3) the contract of service.
•The employment is a contract of service between the
employer and employee where under the employee agrees
to serve the employer subject to his control and supervision.
•Employment is not confined to actual work or place of work.
It extends to all things which the employee is entitled by the
contract of employment expressly or impliedly to do.
 Sec.2(8) “ employment injury ”

•Sec.2(8) “ employment injury ” means a personal injury to

an employee caused by accident or an occupational disease
arising out of and in the course of his employment, being
an insurable employment, whether the accident occurs or
the occupational disease is contracted within or outside the
territorial limits of India.
 1) Indian Rare Earths Lt. v. Subaida Beebi
(1981) II LLJ 247 (P&H, HC)
(in the course of employment)
• In this case an employee involved in an accident while travelling by his
cycle to the workplace. The employer provided for bus subsidy to his
employees but the concerned employee was not residing on any of the bus
routes and hence he used to go to by bicycle on way to workplace a car
dashed against him on the public road and he died.
• It was held that although travelling by bus was an implied condition of
service but in view of the fact that the concerned employee was not on any
of the bus route, the experience of employment and circumstances obliged
him and the company allowed him to ride a bicycle to reach the workplace.
• In other words, it was an implied condition of the employment that he
travels to his workplace from his residence and back home by bicycle.
Therefore, the employee was in the course of employment from the
moment he began to ride the bicycle for reaching his work place. so the
wife was entitled to ESI benefits.
 Sec.2(15A) “ permanent partial
disablement ”
•Sec.2(15A) “ permanent partial disablement ” means such
disablement of a permanent nature, as reduces the earning
capacity of an employee in every employment which he was
capable of undertaking at the time of the accident resulting in
the disablement :
•Provided that every injury specified in Part II of the Second
Schedule shall be deemed to result in permanent partial
disablement.
Sec.2(15B) “ permanent total disablement
”
•Sec.2(15B) “ permanent total disablement ” means such
disablement of a permanent nature as incapacitates an
employee for all work which he was capable of performing at
the time of the accident resulting in such disablement :
•Provided that permanent total disablement shall be deemed to
result from every injury specified in Part I of the Second
Schedule or from any combination of injuries specified in Part II
thereof where the aggregate percentage of the loss of earning
capacity, as specified in the said Part II against those injuries,
amounts to one hundred percent or more.
 1) A. Trehan v. M/S. Associated Electrical Agencies & Anr.
(1996 SCC (4) 255)
(Employment injury, ESI Benefits and compensation under
the EC Act, 1923)
•In this case, the plaintiff was under the employment of defendant 1 for
carrying out television repairs. On July 17, 1987, he was injured during
the course of employment while repairing a television set, when a
component burst and he suffered injuries on his face.
•After claiming relief from the ESIC Corporation under Section 46 of the
Act, he then filed an appeal asking for compensation 7 lakhs under the
Employees’ Compensation Act, which required an amount paid by the
defendant.
•This was challenged by the defendant in the Bombay High Court via an
appeal, which contested their payment of the compensation, and
called into usage Sections 38 and 46 of the ESI Act, which lay the
foundation for the insurance offered by the Act. (Section 38
guaranteeing that every worker is insured and Section 46 defining the
relief available to workers).
•This was further verified by the High Court, whose Division Bench
further stated that the worker’s appeal for the amount to be paid
by the plaintiff could not be upheld. Instead, he would receive
appropriate relief, to be determined by the ESIC.
•The SC held that the view taken by the High Court with respect to
the object of Section 53 of the ESI Act and the nature and the
effect of the bar created by it appears to be correct.

•(Note: Section 53: Bar is against receiving or recovering any

compensation or damages under the Workmen's Compensation
Act or any other law for the time being in force or otherwise in
respect of an employment injury).
 2) Western India Plywood Ltd v. P. Ashokan
(Civil Appeal No.1404 of 1988) SC (Double jeopardy)
• In this case, the defendant, P. Ashokan, was appealing to claim damages
from the appellant, his employer, ‘Western India Plywood Ltd.’ as
compensation for an injury which he had suffered during the course of
employment. However, the defendant had already claimed
compensation from ESIC for his injuries as he was insured under the ESI
Act.
• The appeal was filed in lieu of the existence of Sections 53 and 61, the
former restricting compensation to be availed from the Workers’
Compensation Act, and the latter restricted compensation being availed
from any law or action other than the ESI Act. This bar would only hold if
the employee who had suffered the injury had received adequate
compensation for the same.
• (Sec.61. Bar of benefits under other enactments —When a person is entitled
to any of the benefits provided by this Act, he shall not be entitled to receive
any similar benefit admissible under the provisions of any other enactment).
•The three bench of Kerala HC attempted to define what could
constitute as ‘adequate compensation’ if an injury had been
suffered, for which the reliefs received by the ESIC under
Sections 38 and 46 of the ESI Act were eligible as ‘adequate
compensation’.

•The final judgment of SC laid down by the bench was to both,

restrict the employee from getting double relief as compensation
from his employer, and to define the objective of Section 53,
which was then laid down as not only a bar to guarantee only the
required amount of relief for an injury by ESIC, but also to save
the employer from facing more than one claim in relation to the
same accident, i.e. an indirect form of double jeopardy, in which
he may have to compensate twice for the same injury.
 WAGES FOR ESI CONTRIBUTIONS
TO BE DEEMED AS WAGES NOT TO BE DEEMED AS WAGES
1) Basic pay
1) Contribution paid by the employer to
2) Dearness allowance any pension/provident fund or under
3) House rent allowance ESI Act
2) Sum paid to defray special expenses
4) City compensatory allowance entailed by the nature of
employment Daily allowance paid for
5) Overtime wages (but not to be taken the period spent on tour
into account for determining the 3) Gratuity payable on discharge
coverage of an employee) 4) Pay in lieu of notice of retrenchment
6) Payment for day of rest compensation
5) Benefits paid under the ESI Scheme
7) Production incentive 6) Encashment of leave
8) Bonus other than statutory bonus 7) Payment of Inam which does not
form a part of the terms of
9) Nightshift allowance employment
8) Washing allowance for livery( a
10) Payment for un-substituted holidays speacial uniform)
11) Meal / food allowance 9) Conveyance
12) Suspension allowance
 Sec.2(22) WAGES
Wages means all remuneration paid or payable in cash to
an employee, if the terms of the contract of employment,
express or implied, were fulfilled and includes any payment
to an employee in respect of any period of authorised leave,
lock out, strike which is not illegal or layoff and other
additional remuneration, if any, paid at intervals not
exceeding two months, but does not include:-
a) Any contribution paid by the employer to any pension
fund or Provident fund under this Act;
b) Any traveling allowance or the value of any traveling
concession;
c) Any sum paid to the person employed to defray (provide
money to pay) special expenses entailed on him by the
nature of his employment ; or
d) Any gratuity payable on discharge.
 WAGES
The above definition has three parts :
1) All remuneration paid or payable in cash to an employee
following from the term of employment (including
agreement) express or implied. The periodicity of
payment is not relevant in this case.
2) Any additional remuneration even if not flowing from any
agreement or settlement but paid at intervals not exceeding
two months.
3) The exceptions as provided in Clause (a) to (d) above. Any
remuneration paid or payable under para 1 and 2 is wages
and chargeable to contribution whereas any amount paid
towards items mentioned in clause (a) to (d) are not wages
and therefore no contribution is chargeable on the amount.
 1) M/s. Whirlpool of India Ltd. v. Employees’ State Insurance Corporation
Civil Appeal No. 1983 of 2000 (From the Judgment and Order dated 23.7.98 of
the Punjab and Haryana High Court in L.P.A.No.297 of 1998)(Arising out of
SLP(C) No. 4029 of 1999) SC (Wages and Contribution)
• The question for decision is whether payments towards production incentive made
by the appellant to its workers under the ‘Production Incentive Scheme’ falls
within the scope and ambit of ‘wages’ as defined in Section 2(22) of the Act and
also the effect of payments being made quarterly i.e. at intervals exceeding two
months?
• The appellant under a ‘Production Incentive Scheme’ pays to its workers
production incentive at the rates specified in the Scheme besides normal wages.
For the purpose of calculating contributions towards Employees’ State Insurance
Fund, the payment of production incentive by the appellant to its workers is not
treated by it as ‘wages’ within the meaning of the term as defined in Section
2(22) of the Employees’ State Insurance Act, 1948.
• The respondent -Employees’ State Insurance Corporation treating the said
payment as ‘wages’ issued a demand to the appellant for payment of
contributions towards the Employees’ State Insurance Fund. This led to filing of
an application under Section 75 of the Act by the appellant before Employees’
• The ESI Court allowed the application and quashed the demand. It held that the
payment was made quarterly and was not ‘wages’ under the Act as it did not fall
either under the first part of Section 2(22) or under third part thereof. The
payment made by the appellant, it was held, did not fall under the first part of the
definition of ‘wages’ as there was no agreement between the appellant and its
workers for payment of production incentive and also that it did not fall under the
third part of the definition as the actual payment was made quarterly which
means at intervals exceeding two months.
• The appeal filed by the Corporation against the order of the Employees’ Insurance
Court was allowed by a learned Single Judge of the High Court holding that the
production incentive was calculated on the basis of the extra work done by the
workers in each month but to avoid contribution under the Act, the payment was
postponed and was made quarterly. The Letters Patent Appeal of the appellant
was dismissed and, therefore, the present appeal.
• The SC held that the payment of production incentive, on the facts of present
case, does not fall either under the first part or last part of the definition of term
‘wages’ as defined in Section 2(22) of the Act and set aside the judgment of the
High Court and restore that of Employees’ Insurance Court.
 Finances
• The Scheme is primarily funded by contribution raised
from Insured Employees and their employers.
• Payable such as –

1) Employees’ Contribution – 1.75% of the Wages

2) Employers’ Contribution – 4.75% of the Wages
TOTAL - 6.5 % of the Wages

Employees in receipt of an average daily wage of Rs.40/- or

less, are exempted from Payment of their share of
contribution (w.e.f 8.4.2000) but are entitled to all social
security benefits under the Scheme.
 ESIC Contribution Rates

ESIC contribution rates (Reduced w.e.f. 01/07/2019)

Particulars Current Rate Reduced Rate

Employer Share 4% 3.25%

Employee Share 1% 0.75%

Total 5% 4%
 Contribution & Benefit Period
• Employees covered under the ESI Act, are required to pay
contribution towards the scheme on a monthly basis. A
contribution period means a six month time span from 1st April
to 30th September and 1st October to 31st March.
• Cash benefits under the scheme are generally linked with
contributions paid. The benefit period starts three months after
the closure of a contribution period. The two type of periods are
elucidated below.

Contribution Period Benefit Period

1st April to 30th 1st January to 30th
September June of the following year
1st October to 31st March 1st July to 31st Dec.
 1) Employees State Insurance Corporation and another v.
Mangalam Publications (India) Private Ltd.
(AIR 2017 SC 4525)
(Wages and ESI Contribution)
• The respondent is an establishment covered by the provisions
of Employees State Insurance Act, 1948. It is a private limited company
engaged in the business of printing and publishing of a daily Malayalam
newspaper called “Mangalam”; the respondent has more than 250
employees including working and non-working journalists.
• In order to have a uniform formula regarding the wages payable to the
employees of newspaper companies like the respondent, the Central
Government appointed Wage Boards from time to time to study and
submit reports from time to time. Earlier, the Wage Board headed by
Justice Bachawat, known as ‘Bachawat Wage Board’ was constituted
and the Board submitted its recommendations. Thereafter, the
Government of India appointed a new Wage Board, headed by Justice
Manisana which was called as ‘Manisana Wage Board’.
• As per the recommendations of ‘Manisana Wage Board’, the
Government of India issued a notification dated 24.09.1996 fixing
interim rates of wages in respect of working journalists, non-working
journalists and newspaper agency employees at the rate of twenty per
cent of the basic wages and an additional amount of Rs.100/- per
month, with effect from 20.04.1996.
• As per the said notification, the respondent started paying interim
relief to its employees, and paid such interim relief from 01.04.1996 to
31.03.2000.
• However, the respondent did not pay the statutory contribution
under the ESI Act for the period during which it paid interim wages to
its employees. The ESI contribution due on interim wages paid by the
respondent from 01.04.1996 to 31.03.2000 worked out to
Rs.2,53,272/- (however, as per demand notice dated 02.11.2000, the
figure is Rs.2,58,061.50).
• The SC held that the interim relief paid by the respondent to its
employees is not a “gift” or “inam”, but is a part of wages, as defined
under Section 2(22) of the ESI Act.
•In view of the above, the SC held that the payment made by way
of interim relief to the employees by the respondent for the
period from 1.04.1996 to 31.03.2000 comes within the
definition of “wages”, as contained in Section 2(22) of the ESI
Act, and hence the respondent is liable to pay ESI contribution.

•The SC set aside the judgment of the Kerala High Court and that
of the ESI Court is restored. The appellant is held to be entitled
to recover the ESI contribution from the respondent for the
period from 01.04.1996 to 31.03.2000 as per demand notice
dated 02.11.2000.
 2) Regional Director, ESI Corpn v. Kerala State
1995 Supp (3) SCC 148 (ESI Contribution)
• In this case drugs and pharmaceuticals company, certain employees were engaged
through contractor. After the construction of the plant, the contractor and his
employees were no longer connected with the respondents. Thereafter corporation
made a demand for contribution in respect of such employees towards insurance,
the contributions was refused.
• The Supreme Court observed that both the insurance court and high court
misconceived both the object of the ESI Act and the purpose of the insurance
scheme under it. The contribution which is levied on the employer in respect of the
employees engaged by him directly or through another agency is for the benefit of
all workmen in general who are covered by the Act. The contribution is irrespective
of the fact whether the employees get or do not get the said benefit.
• There is thus no quad pro quo between the persons insured and the benefit
available under the Act. As regards the finding that the workmen were
unidentifiable, what is forgotten is that under the Act, once an establishment comes
to be covered by the Act, the employer becomes liable to pay the contribution in
respect of employees in his employment directly or indirectly. The contribution
which has become payable for the relevant period has to be paid even if the
employees concerned are no longer in employment or unidentifiable on the
 Advantages to Employers
1) Employers are absolved of their liabilities of providing medical facilities to
employees and their dependants in kind or in the form of fixed cash allowance,
reimbursement of actual expenses, lump sum grant or opting for any other
medical insurance policy of limited scope unless it is a contractual obligation of
the employer.
2) Employers are exempted from the applicability of the: -
(a) Maternity Benefit Act, 1961
(b) Workmen's’ Compensation Act, 1923
in respect of employee covered under the ESI Scheme

3) Employers have their disposal, a productivity , well secured workforce, an essential

ingredient for better productivity.
4) Employers are absolved of any responsibility in times of Physical distress of workers
such as sickness, employment injury or Physical disablement resulting in loss of wages,
as the responsibility of paying cash benefits shits to the corporation in respect of
insured employees.
5) Any sum paid by way of contribution under the ESI Act is deducted in computing
‘income’ under the Income Tax Act, 1961.
 Benefits to Employees(Sec.46)
ESI Scheme Major Social Security Benefits in Cash
and Kind include …

1. Medical Benefit – for self & Family

2. Sickness Benefit – for self
3. Maternity Benefit - for self
4. Disablement Benefit
a)Temporary Disablement Benefit – for self
b)Permanent Disablement Benefit – for self
5. Dependants’ Benefit – for dependants in case of
death due to employment injury.
 Other Benefits to Employees
● In addition, the Scheme also provides some other
need based benefits to insured workers. These
are:

i) Funeral Expenses – to a person who performs the

last rites of Insured Person(IP).
ii) Rehabilitation allowances – for self
iii) Vocational Rehabilitation - for self
iv) Old age Medicare – for self and spouse
 Medical Benefit …

● Medical Benefit means Medical care of IPs and their families,

wherever covered for medical benefit.

● The Standard medical care consists of out-door treatment,

in-patient treatment, all necessary drugs and dressing,
pathological and radiological specialist consultation and care,
ante-natal and post natal care, emergency treatment etc.

● Out-door medical care is provided at the state Insurance

Dispensaries or Mobile Dispensaries manned by full-time
doctors (service’ system) or at the private clinics of Insurance
Medical Practitioners (Panel System).
 Medical Benefit …

● Insured worker and members of his family are eligible for medical
care from the very first day of the worker coming under ESI
Scheme.
● A worker who is covered under the scheme for first time is eligible
for medical care for the period of three months. If he/she
contributes at least for 78 days in a contribution period the
eligibility is there up to the end of the corresponding benefit
period.
● A worker is also eligible for extended sickness benefit when he/she
is suffering from any one of the long term 34 diseases listed in the
Act. This is admissible after the worker has been under ESI these
conditions are satisfied medical benefit is admissible for a
maximum period of 730 days for the IP and his/ her family.
 Sickness Benefit …
• Sickness signifies a state of health necessitating
Medical treatment and attendance and abstention
from work on Medical grounds. Financial support
extended by the corporation is such a contingency
is called sickness Benefit.

● Sickness Benefit represents periodical payments

made to an Insured Person for the period of
certified sickness after completing 9 Months in
insurable employment.
 Sickness Benefit …
• To qualify for this benefit, contributions should
have been payable for atleast 78 days in the
relevant contribution period.
• The Maximum duration for availing sickness
Benefit is 91 days in two consecutive benefit
periods.
• Standard benefit rate – this rate corresponds to the
average daily wage of an Insured Person during the
corresponding contribution period and is roughly half
of the daily wage rate.
 Extended Sickness Benefit …
• Extended Sickness Benefit is a Cash Benefit paid for prolonged
illness (Tuberculosis / Leprosy, Mental and Malignant diseases)
due to any of the 34 Specified diseases.

• The Insured Person (IP) should have been in continuous

employment for a period of 2 years and should have
contributed for atleast 156 days in 4 preceding contribution
periods.

• The daily rate of Extended Sickness Benefit is 40% more than

the standard Sickness Benefit rate admissible.

• After exhausting sickness Benefit Payable for 91 days the

Extended Sickness Benefit is payable upto further period of 124
/ 309 days that can be extended upto 2 years in special
 Enhanced Sickness Benefit …

• Cash Benefit for IP undergoing sterilisation

operation of vasectomy / tubectomy for family
planning.
• The contributory conditions are the same as for
claiming sickness benefits.
• The daily rate of this benefit is double the standard
benefit rate. Say, not less than the daily wage.
• The benefit rate of this benefit is double the
standard benefit rate. Say, not less than the daily
wage.
• The benefit is available upto 7 days for vasectomy
 Maternity Benefit
• Maternity Benefit is cash payable to an Insured women for the
specified period of abstention from work for confinement or
mis-carriage or for sickness arising out of pregnancy,
“confinement” “premature birth of child or miscarriage”
“confinement” connotes labour after 26 weeks of pregnancy
whether the result issue is alive or dead.
• “Miscarriage” means expulsion of the contents of a pregnant
uterus at any period prior to or during 26th week of pregnancy.
• Criminal abortion or miscarriage does not, however, entitle
to benefit.
• The contribution condition is the same as for Sickness Benefit.
• The daily benefit rate is double the sickness Benefit rate and
is thus roughly equivalent to the full wages. Benefit is paid for
Sundays also.
 Maternity Benefit…
The Benefit is paid as follows (Duration)
a) For Confinement
• For a total period 12 Weeks beginning not more than
6 weeks before the expected date of child birth, if
the insured women dies during confinement or with
in 6 weeks thereafter, leaving behind the living child,
the benefit continues to be payable for the whole of
the period.
• But if the child also dies during that period, the
benefit will be paid upto and including the day of the
death of the child.
 Maternity Benefit…
b) For Miscarriage
For the period of 6 weeks following the
date of miscarriage.
c) For sickness arising out of pregnancy,
confinement, Premature birth of child or
miscarriage :
• For an additional period or upto four weeks.
• In all the cases, the benefit is paid only if the
insured woman does not work for remuneration
during the period for which benefit is claimed.
• There is no waiting
period.
 Maternity Benefit…
Medical Bonus
• Medical Bonus is lump sum payment made to an
Insured woman or the wife of an insures person
in case she does not avail medical facility from
an ESI hospital at the time of delivery of a child.
This bonus of Rs. 250/- has been increased to
Rs. 1000/- from 1st April 2003.
 Disablement Benefit …
a) Temporary disablement benefit :
• In case of temporary disability arising out of an
employment injury or occupational disease.,
• Disablement benefit is admissible to insured person
for the entire period so certified by an Insurance
Medical officer / Practitioner for which IP does not
work for wages.
• The benefit is not subject to any contributory condition
and is payable at a rate which is not less than 70% of
daily average wages.
• However, not payable if the incapacity lasts for less
than 3 days excluding the date of accident.
 Permanent disablement benefit
• In case an employment injury or occupational disease results in permanent,
partial or total loss of earning capacity -
• Periodical payments are made to the IP for life at a rate depending on the
actual loss of earning capacity as may be determined and certified by a
duly-constituted Medical Board.
• The rates of Disablement Benefits are determined in accordance with the
provisions of Rule 57 of ESI (Central) Rules, 1991.
• In order to product erosion in real value of the periodical payments of
Permanent Disablement benefits, against rise in the cost of living index,
periodical increases are granted, based on actuarial ( analysing statistics)
calculation.
• Commutation of periodical payments into lump sum (one time payment) is
permissible where the permanent disablement stands assessed as final and
daily rate of benefit does not exceed Rs. 1.50. per day.
• Commutation of Permanent Disablement Benefit into lump sum payment is
also allowed in case the total commuted value does not exceed Rs.10000/-
(The ceiling is now being raised to Rs.30000/-).
 Dependants' Benefit …

• Dependents Benefit is a monthly pension payable to the

eligible dependents of an insured person who dies as a
result of an Employment Injury or occupational disease.
• Beneficiaries and Duration of benefit
a) Widow during life or until remarriage.
b) Legitimate or adopted son until age 18 or if legitimate son is
infirm, till infirmity lasts.
c) Legitimate or adopted unmarried daughter until age 18 or
until marriage, whichever is earlier, or if infirm, till infirmity
lasts and she continues to be unmarried.
• In the absence of any widow or legitimate child, the
benefit is payable to a parent or grandparent for life, to
any other male dependent until age 18 or to an unmarried
or widowed female dependent until age 18.
 Dependants’ Benefit …
How much …

• The total divisible benefit is equivalent to the temporary

disablement benefit rate (roughly 70% of the wage rate). The
widow / widows share 3/5th of the benefit and the legitimate or
adopted son and daughter 2/5th each of the benefit. If the total
benefit so divided exceeds the full rate, there is a proportionate
reduction in the respective shares of the beneficiaries.

• The amount of pension paid to the dependents of a deceased

insured person is reviewed vis-à-vis the cost of living index and
increases are granted from time to time to compensate for
erosion in its real value.
 Other Benefits …
(i) Funeral Expenses

• Funeral Expenses are in the nature of lump

sum payment up to a maximum of Rs.2500/-
made to defray the expenditure on the funeral
of deceased IP. The amount is paid either to
the eldest surviving member of the family or,
in his absence, to the person who actually
incurs the expenditure on the funeral.
 Other Benefits …
Rehabilitation Allowance
• The corporation, vide its Resolution dated 22/12/1979, resolved to grant
rehabilitation Allowance to the IPs, for each day, on which they remain
admitted in an Artificial limb centre. On the rates, which generally confirm
to double the Standard Sickness Benefit rate. The above benefit was
introduced with effect from 1/1/1980.

Vocational rehabilitation:
• This is generally payable to permanently disabled employees. They can avail of
this benefit for undergoing vocational and physical rehabilitation.

Old age medical care:

• This is payable for employees retiring on superannuation or under VRS. Even
persons who leave employment after suffering a permanent injury and their
spouses can avail this benefit. The compensation amount here is generally Rs.
120 per month.
 Levy of Interest & Damages …
● Under Section 39(5)(a) of the ESI Act, read with Regulation 31(A) of
the ESI (General) Regulations 1950, the employer is liable to pay
simple interest at the rate of 15 percent per annum in respect of
each day of default or delay in payment contributions. In addition,
under the Provision of Regulation 31- C of ESI (General) Regulations,
1950, read with Sec.85(B)(i) of the ESI Act, the Corporation is
empowered to recover damage as under:

Period of delay in Rate of Damages on

payment of Contribution the amount due
i) Up to less than 2 months 5%
ii) 2 months and above but less than 4 months 10%
iii) 4 months and above but less than 6 months 15%
iv) 6 months and above 25%
• Interest and damages can also be recovered as arrears of land
revenue Section 45(c) to Section 45(I) by the Recovery Officer of
ESI Corporation.
 Obligation of the Employers …
1) Get your Factory / establishment registered with in 15 days
after the Act becomes applicable. Submit Form 01 to the
Regional office for this purpose. Obtain Employer’s code No.
for use in all ESIC Forms / documents and correspondence
with the offices of the ESI Corporation.

2) Fill up Declaration Forms in respect of all coverable

employees and submit the same to the Regional Office/ Local
Office of the corporation well before the ‘Appointed Day’ and
obtain insurance Numbers from the concerned Local Office/
Regional Office. In respect of newly appointed employees, fill
up the declaration Form soon after appointment of such
employees and submit the same to the Local Office
Concerned.
3) Pending receipt of identity cards/ identity certificates you
may issue “certificate of employment” in Form 86 to the
covered employee(s) enabling them to avail cash/medical
Benefits.
4) Pay ESI contribution (Employer's Share @4.75% and the
Employees' share @ 1.75% of the wages) with in 21 days of
the month following, in which the wages fall due.
5) Maintain an Accident Book as prescribed under the Factory
Act / ESI Act.
6)Submit an Accident Report to the Local Office / ESI
Dispensary concerned immediately in respect of accidents
that could result in death or disablement and within 24 hours
of its occurrence otherwise. Minor accidents which do not
cause absence from work need not be reported.
7)Grant leave to insured employees on the basis of sickness
certificates issued by any authorised ESI doctor.
 8) Maintain the following records/ registers properly for the
purpose of inspection:

1. Attendance Registers / Muster Rolls (in respect of all

employees including those employed through contractors)
2. Wage register
3. Cash Book / Bank Book
4. Account Books including Ledgers and Vouchers,
Balance Sheet.
5. Employees’ Register
6. Accident Book
7. Returns of Contribution
8. Return of Declaration Forms
9. Copies of Challans
10. Inspection Book
11. Submit return of contribution within 42 days of the expiry
of contribution period.
12. Intimate the date of closure of shifting (Temporary or
Permanent) of the Factory / Establishment to the Regional
office / Local Office within seven days of its closure or
shifting.
13. Promptly report change in business activity, ownership of
the concern or its management.
14. Ascertain the liability towards ESI dues, while taking over
the ownership of any factory/establishment by purchase,
gift, lease or license or in any other mannerwhatsoever as
new owner is liable to discharge the past liabilities if any.
 Recovery of contributions
Sec. 45-B. Recovery of contributions — Any contribution payable
under this Act may be recovered as an arrear of land revenue.
Sec. 45-C. Issue of certificate to the Recovery Officer. —
•(1) Where any amount is in arrear under this Act, the authorized
officer may issue, to the Recovery Officer, a certificate under his
signature specifying the amount of arrears and the Recovery
Officer, on receipt of such certificate, shall proceed to recover the
amount specified therein from the factory or establishment or, as
the case may be, the principal or immediate employer by one or
more of the modes mentioned below: —
•(a) attachment and sale of the movable or immovable property of
the factory or establishment or, as the case may be, the principal
or immediate employer;
•(b) arrest of the employer and his detention in prison;
•(c) appointing a receiver for the management of the movable
or immovable properties of the factory or establishment, or,
as the case may be, the employer:

•Provided that the attachment and sale of any property under

this section, shall first be effected against the properties of
the factory or establishment and where such attachment and
sale is insufficient for recovering the whole of the amount of
arrears specified in the 18 certificate, the Recovery Officer
may take such proceedings against the property of the
employer for recovery of the whole or any part of such
arrears.

• (2) The authorized officer may issue a certificate under

sub-section (1) not withstanding that proceedings for
recovery of the arrears by any other mode have been taken.
 1) Kishore Lal v. Chairman, ESIC
(2007 III LLJ 181(SC) ( Jurisdiction)
• In this case the appellant was an employee insured with respondent ESIC. He filed a
complaint under the Consumer Protection Act, 1986 for negligence in the treatment of
his wife by the ESI dispensary. The Dt; State and National Consumer Forums dismissed
his compliant. He approached the SC through SLP.
• The SC dealt with two questions which arose in this appeal.
1) whether the jurisdiction of Consumer Forum was ousted by Sec. 75(3) of the ESI Act,
1948. The SC held it wasn’t.
2) Whether the service rendered by an ESI hospital is gratuitous or not, and
consequently whether it falls within the ambit of `service' as defined in
the Consumer Protection Act, 1986?
• The SC held that the appellant is a consumer within the ambit of Section 2(1)(d) of the
Consumer Protection Act, 1986 and the medical service rendered in the ESI
hospital/dispensary by the respondent Corporation falls within the ambit of Section
2(1)(o) of the Consumer Protection Act and, therefore, the consumer forum has
jurisdiction to adjudicate upon the case of the appellant. The SC further hold that the
jurisdiction of the consumer forum is not ousted by virtue of sub-section (1) or (2) or
(3) of Section 75 of the Employees' State Insurance Act, 1948.
• For the aforesaid reasons, the appeal is allowed. The impugned order is set aside and
the matter is remitted back to the District Consumer Disputes Redressal Forum,
Sonepat, for decision in accordance with law laid down herein.
 2) Spencer & Co. Ltd. Ernakulam v. Regional Director, ESIC,
Trichur (1991)I LLJ541 (Kerala HC) ( Jurisdiction)
• The registered office of the company was situated outside State of
Kerala, at Madras and the company was allegedly having its two
branches, one each in Fort Cochin and Ernakulum.
• It was held that in the absence of a finding that employees working in
the Fort Cochin branch are under the control or supervision of the
Ernakulum branch or that they were doing work connected with the
work of Ernakulum branch or the vice versa there is no jurisdiction for
linking the employees of the two branches. Ernakulum branch is not
acting as area office under which Fort Cochin branch is functioning.
• Therefore Fort Cochin branch is an independent establishment and will
not be covered by the notification issued regarding application of the
ESI Act in respect of Ernakulum branch.
So, the question, whether the provisions of the Act are attracted in
regard to a particular branch depends upon the notification issued by
the concerned State?
• The HC held that the employees of Ernakulam Branch are not under
the control and supervision of the Fort Cochin Branch or they are
doing the work of the Fort Cochin Branch. There is no case that the
Ernakulam Branch is acting as an area office under which the Fort
Cochin Branch is functioning. In these circumstances, the HC held that
there is no justification for linking the employees of Fort Cochin
Branch with the Ernakulam Branch employees and applying the
provisions of the Act read with clause (3) of the notification issued by
the Government of Kerala under Section 1(5) of the Act.
• So, HC didn’t agree with the conclusions of the Employees' Insurance
Court.
 PENALTIES
Different punishment have been prescribed for different types
of offences as follows:
• Sec. 84. Punishment for false statement - Whoever, for the purpose of
causing any increase in payment or benefit under this Act, or for the
purpose of causing any payment or benefit to be made where no payment
or benefit is authorized by or under this Act, or for the purpose of avoiding
any payment to be made by himself under this Act or enabling any other
person to avoid any such payment, knowingly makes or causes to be made
any false statement or false representation, shall be punishable with
imprisonment for a term which may extend to six months or with fine not
exceeding two thousand rupees, or with both.

• [Provided that where an insured person is convicted under this section, he

shall not be entitled for any cash benefit under this Act for such period as
may be prescribed by the Central Government.]
•In terms of Section 85: Punishment for failure to pay
contributions, etc. - (i) six months imprisonment and fine
Rs.5000, (ii) one year imprisonment and fine.

•In terms of Section 85-A: Enhanced punishment in certain

cases after previous conviction: Imprisonment up to five years
imprisonment and but not less to 2 years.

•Besides these provisions, action also can be taken under section

406 of the IPC in cases where an employer deducts
contributions from the wages of his employees but does not
pay the same to the corporation which amounts to criminal
breach of trust.
 THE ESI SCHEME TODAY

•State/Union Territories covered - 29

•No. of implemented Centers - 782
•No. of Employers covered - 1.25 crore
•No. of Insured Person - 1.29 crore
•No. of Beneficiaries - 5 crore
•No. of ESI Hospitals - 145
 Coverage (As on 31st March, 2010)

No. of Insured Person family units - 99,48,605

No. of Employees - 89,00,526

Total No. of Beneficiaries - 3,64,96,589

No. of Insured women - 16,43,250

 Amendments, 2019
Recently, the government has amended the ESI Act 1948 and has
introduced certain new provisions for the workers and employers. These
new provisions are made effective from 1st October 2019.
1) COMPULSORY ESI REGISTRATION OF EMPLOYEES
• As per the new provision, the employees of the organized sector are
now compulsorily required to obtain ESIC registration online within 10
days from the date of their appointment. Henceforth, the ESIC online
portal shall now allow a maximum 10 days only to the employers for
providing ESI registration to their new joinee.
2) COMPULSORY ESI REGISTRATION CARD
• Another new provision of the ESI Act states that the employees who
have already obtained the ESIC registration will now have to collect their
Biometric scanned ESI registration Permanent Card from the nearest
ESIC Branch Office. The employers are now required to provide the ESI
registration Card to all their employees, which will serve as the evidence
of ESI registration.
3) TIMELY DEPOSIT OF ESI CONTRIBUTION
• As per the ESI Act, a certain contribution has to be deposited against
employees as well as employers within the due date. Now a new rule
suggests that ESI contribution against employees has to be deposited
within 42 days from the end of the month of the ESI contribution. The
employer shall not be able to deposit the employee’s ESI contribution
after 42 days, and shall have to bear the penalty of ₹10,000/-.

4) THRESHOLD LIMIT FOR EMPLOYEE’S ESI CONTRIBUTION

• Another new provision has now introduced a threshold limit for
employee’s ESI contribution. Accordingly, the employees whose wage is
₹176/- per day or less need not to pay ESI contribution. Their share of
ESI contribution shall be borne by the Government. Nevertheless, the
Employer shall still have to bear their share of ESI contribution.
Thank You