The Apex court in the judgement of ESI Corporation vs. M/s. Radhika Theatre has observed that the ESI Act shall be applicable regardless of the number of employees or regardless of the fact that the number of employees at any time falls below the limit specified by or under the ESI Act .
Factual Background of the Case:
The Respondent was running a cinema named Radhika Theatre, commenced in 1981, which till 1989, paid ESI contributions in a timely fashion. Following that, it ceased providing contributions because the number of employees fell below the required threshold of 20 and demand notices were published by the ESI Corporation. In front of the EI Court, the Theatre raised the same objections and following the dismissal of the case by the EI Court an appeal was brought before the Telangana High Court. The Theatre contended that since the addition of Section 1(6) of the ESI Act, which provided that all establishments would be subject to the ESI Act regardless of whether they engaged less people than the required number, went into effect on October 20, 1989 and it should not be enforced retrospectively. It is essential to remember that, prior to the addition of Section 1(6) of the ESI Act, only those establishments/factories employing more than 20 employees were subject to its regulations. The Corporation argued that greater amplitude should be attributed to the legislation because it is a social welfare law that considers the welfare of the workers. Accepting the argument put forth by the Theatre, the High Court allowed the appeal and held that” “…amendment to Section 1 of the ESI Act by which Sub-section (6) of Section 1 came to be inserted w.e.f. 20.10.1989, the same shall not be applicable retrospectively and the same shall not be made applicable to an establishment, established prior to 20.10.1989/31.03.1989.”
An appeal was brought before the SC.
- Whether the factory/establishment established before 20.10.1989 would be governed by the ESI Act irrespective of the number of employees?
- Whether Section 1(6) of ESI Act has retrospective effect?
Observation of the Apex Court:
The Apex Court initially considered the ESI Act’s intent, purpose, and preamble. The preamble outlines benefit for workers in the event of sickness, maternity, and workplace injuries, as well as making provisions for a few other related issues. The Court stated that the ESI Act should be given a liberal interpretation that tends to favor the beneficiaries as ESI is a social welfare law.
Prior to the insertion of Section 1(6) of the ESI Act on October 20, 1998, it was indicated that only establishments/factories employing more than 20 employees were subject to the ESI Act. Since the insertion of Section 1(6), a factory or establishment shall be governed by the act even if the number of persons employed there at any particular time fell below the limit specified by or under the ESI Act.
The Apex Court noted that the High Court had erred to the point that it had invalidated the demand notice even for the time after the 20.10.1989. As a result, the High Court’s Judgement was overruled, and the demand notice was reinstated for the time period following October 20, 1989.
Judgment of the Supreme Court:
Based on the above-mentioned reasons, the Apex court set aside the judgment of the High Court and restored the demand notices for the period post-20.10.1989. Accordingly, the present appeal was allowed.
Significance and Analysis of the Verdict:
The Apex Court, in its judgment, held that Section 1(6) of the Employees’ State Insurance Act, 1948 is retrospective in nature and applies to establishments that were already in existence prior to the insertion of the said provision. The Court further held that the provision applies even if the number of employees of the establishment falls below the specified limit at any time. The court held that the provision was introduced to provide greater security of employment to employees and to promote the cause of social justice and the provision should be interpreted in a way that is consistent with the purpose of the Act.
The Division bench of Justices M.R. Shah and C.T. Ravikumar thereby set aside the judgment of the Telangana High Court and held that the Employees’ State Insurance (ESI) Act applies to all establishments, regardless of when they were established or the number of people employed. The Court clarified that Subsection (6) of Section 1 must be applied to all establishments, regardless of when they were established or the number of people employed. This means that the ESI Act is applicable to all establishments, even those established prior to 31 March 1989/20 October 1989.
Teena Batra, Legal Executive at Legality Simplified.
Alby Stephan. K, Legal Executive at Legality Simplified.