Employment State Insurance Act, 1948 and its Applicability

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 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.

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.


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. 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.

In Kanwarji Bhagirathmal (M/s) v. The Employees’ State Insurance Corporation[1] 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 Corporation[2]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, Bombay[3] A company providing air-cooling facilities to the tenants of a building by engaging more than 10 employees will attract applicability of ESI Act.

Sindhi Sehiti M.P. Transport Coop. Society Ltd., Bhopal v. Regional Director, Employees’ State Insurance Corporation, Indore[4],- 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, Madras[5],- 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 Corporation[7] -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, Bangalore[8] Use of LPG for manufacture of sweets will be treated as power for applicability of ESI Act.

Duvent Fans (Pvt.) Ltd. v. Regional Director, Employees’ State Insurance Corporation, Bangalore[9] -ESI Act will apply on all branches of an establishment when total number exceeds 20.

Southern Agencies v. Andhra Pradesh Employees’ State Insurance Corporation[10]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 Corporation[11]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 Corporation[12]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, Madras[13]Storing milk in the cold storage, collected by a cooperative society, will be the ‘manufacturing process’ for coverage under the ESI Act.

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.

  1. Fillunger & Company Pvt. Ltd. Pune v. Employees’ State Insurance Corporation, Pune[16]When ESI Act is not applicable to the Head Office, it could not be made applicable to branch offices.

Choisons v. Employees’ State Insurance Corporation[17]A petrol pump will be a factory to be covered under the Employees’ State Insurance Act if ten or more persons are employed.

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, Cannanore[19] 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 Fabrics[20] 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, Madras[21]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, Hyderabad[22]Drivers of trucks engaged on trip basis by a Transport Company will be covered under the Act.

Andhra Prabha Pvt. Ltd., Hyderabad v. SSIC, Hyderabad[23]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. Bombay[24]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, Faridabad[25]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 Corporation[26]Marketing representatives and casual employees will be counted for coverage under ESI Act.

E.I.D. Parry (India) Ltd., Vijaywada v. Employees’ State Insurance Corporation[27]Hamalies engaged for loading and unloading but also working for others will not be employees under ESI Act.

E.K. Haj Mohammadmeera Sahib and Sons v. Regional Director, Employees’ State Insurance Corporation[28]The workers engaged through the transporter for loading and unloading of raw material will be covered under the ESI Act.


[1]2005 LLR 537 (Del HC)

[2]1994 LLR 333

[3]1995 LLR 768 (Bom HC).

[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)

[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).

[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).

[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

[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)

[28] 2003 LLR 308 (Mad HC)

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