The High Court referred to the Supreme Court’s ruling in Board of Control of Cricket in India v. Regional Director, Employees State Insurance Corp. (2022), which established that an establishment qualifies for ESI registration only if it systematically engages in business activity involving the sale or purchase of goods or services through employees.
The Kerala High Court has ruled that registration under the Kerala Shops and Commercial Establishments Act does not automatically qualify an entity for coverage under the Employees State Insurance Act, 1948 (ESI Act). The court clarified that self-employed individuals, even if part of an association, would not be considered employees under the ESI Act unless they are formally employed by the association.
Background of the Case
The dispute arose from the revocation of the ESI Code granted to the Kerala Electrical Wiremen and Supervisors Association. The Association had voluntarily registered under the ESI Act and was allotted an ESI Code. However, after inspections by ESI officials, it was found that the members were self-employed electricians and not employees of the Association. Consequently, the ESI registration was revoked as the Association was not found to have employed any individuals.
The Association challenged this revocation before the Employees Insurance Court (EI Court). The EI Court ruled in favor of the Association, overturning the cancellation of the ESI Code. However, it also clarified that self-employed members cannot be covered under the ESI Act. The EI Court stated that the Association could register only its direct employees under the ESI Act.
Both the Association and the ESI Corporation challenged the EI Court’s decision before the Kerala High Court. While the Association sought recognition for its self-employed members under the ESI Act, the ESI Corporation contested the EI Court’s decision in its entirety.
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Key Legal Questions Considered by the High Court
Justice Syam Kumar VM framed three key legal questions for consideration:
- Interpretation of ‘Employee’ Under Section 2(9) of the ESI Act:
- Whether the EI Court erred in interpreting the term ’employee’ to exclude self-employed persons forming an association and registering as a society under the Travancore Cochin Charitable Societies Act.
- Shops & Commercial Establishments Act Registration and ESI Eligibility:
- Whether registration under the Shops and Commercial Establishments Act automatically qualifies an entity for ESI registration, regardless of the nature of the business activity.
- Authority to Revoke ESI Registration:
- Whether the ESI Corporation has the authority to revoke a voluntarily obtained ESI registration if the eligibility requirements are not satisfied upon inspection.
High Court’s Observations and Rulings
- Definition of ‘Employee’ Under ESI Act:
The High Court upheld the EI Court’s interpretation, ruling that the term ’employee’ under Section 2(9) of the ESI Act does not include self-employed individuals. The court found no evidence that the Association’s members were employees. The members were working under a self-employment scheme and receiving remuneration, which disqualified them from being treated as employees under the Act.
- Shops & Establishments Act Registration Not Sufficient for ESI Eligibility:
The Court referred to the Supreme Court’s ruling in Board of Control of Cricket in India v. Regional Director, Employees State Insurance Corp. (2022), which established that an establishment qualifies for ESI registration only if it systematically engages in business activity involving the sale or purchase of goods or services through employees.
The High Court emphasized that mere registration under the Shops and Commercial Establishments Act does not entitle an entity to ESI benefits unless it satisfies the fundamental requirement of employing individuals for business purposes.
- Authority to Revoke ESI Registration:
The High Court confirmed that the ESI Corporation has the authority to revoke registration if it finds that the eligibility conditions under the ESI Act are not met. The Court underscored that ESI benefits should only be provided to genuinely eligible individuals, and misuse of welfare measures must be prevented.
“ESI benefits are meant for deserving individuals. Just as some employers may try to evade ESI obligations by hiring just below the statutory limit, there may also be attempts to misuse ESI benefits by those not legally entitled to them,” the Court observed.
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Final Verdict
- The High Court dismissed the appeal filed by the Association.
- The appeal filed by the ESI Corporation was partly allowed, reinstating the cancellation of the Association’s ESI Code.
- The court ruled that only employees, not self-employed members, are entitled to ESI coverage.
Case Details
- Case Name: PN Uma Shanker, Secretary, Kerala Electrical Wiremen and Supervisors Association vs The Deputy Director (In Charge) ESI Corporation and others
- Appeal Nos.: 12/2023 and 2/2024
- Counsel for the Association: Adv. Jacob Chacko
- Counsel for ESI: Advs. Adarsh Kumar and Shashank Devan
Conclusion
The ruling reinforces the principle that ESI benefits are meant for genuine employees and cannot be extended to self-employed individuals or associations that do not meet the statutory definition of an establishment under the ESI Act. The judgment also clarifies the authority of the ESI Corporation to scrutinize and revoke voluntarily obtained ESI registrations if eligibility criteria are not met.
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