Trampling of beneficial legislation by ESIC- by S.D.Puri

Trampling of Beneficial Legislation
by Employees State Insurance Corporation


(Mr. Hiren Chheda has sent this for publication as comment. But, considering the importance of the issue it is published as a Post. Readers may read the comment below too to have a complete picture of the case)

The Employees’ State Insurance Act, 1948 is a beneficial legislation. The contributions payable to the fund is in the nature of a tax and hence no “quid pro quo” is attached.

In this regard Sec. 38 of the Act mandates that all employees should be insured and Sec. 44 imposes obligations to furnish returns, maintain registers as specified therein. Regulation 11 &12 prescribe procedure for obtaining Declaration forms from employees. Sec. 14 specifies furnishing of Declaration forms with a return within 10 days of obtaining the particulars. The definition of employee in the Act is also very wide. Sec. 2(14) defines “insured person”. It covers both present and past employees against whom contributions are or were payable. Sec. 2A puts an obligation on the employer to register his factory and establishment as soon as the Act applies. There is no provision in the Act which enjoin a duty on the part of the corporation to keep on informing the employer that they are covered under the Act. Sec. 45 A to Sec. 45 I prescribe the procedure for determination and recovery of contributions. Thus it is clear that once the factory or establishment is covered u/s. 2A, all the coverable employees are automatically become insured persons

Since it is a tax, the Act does not prescribe any limitation for determination and recovery proceedings against the defaulting employer. The legislature was aware that the employer’s default may render the dependants of the deceased employees without any relief. Hence while putting an absolute bar u/s. 53 of the Act for the employees to seek relief under EC Act, 1923 or any other law, Sec. 68 mandates that ESIC must pay to the dependants of the deceased employee the dependants benefit despite violations of the provisions of the Act and recover the same from the employer as if it were an arrears of land revenue at the rate twice the amount of the contribution. Sec. 68 is in addition to other penal provisions like Sec. 39 (5), 45 (C), 85, 85 A, 85 B, 86 and 86 A of the Act and Regulation 31-B and 31-C.

However it is noticed that the beneficial provisions are misconstrued by some of the High Courts, thereby forcing the coverable employees to seek the remedy under Employees Compensation Act merely because the employer had failed and neglected to cover them and send the form no. 1 before their death under Regulation 11 &12 with returns within 10 days to the ESIC under Regulation 14 or for covering them posthumously. The High Courts, it appears, were more concerned to punish the employer who had tried to wriggle out of the financial liability cast on them in a last ditch effort unmindful of the fact that even otherwise for ESIC there is ample scope within the frame work of the Act itself to proceed against the employer.

The ESIC itself, also, it appears, is unable to comprehend these beneficial provisions in proper perspective. It is more attuned to interpret these provisions in a pedantic manner so as to deny them the dependants benefit. In the recent past after the judgement of Gujarat High Court in the case of Ranisati Processor Pvt Ltd., v. Deputy Director, ESIC, the ESIC Headquarters New Delhi has framed contradictory and conflicting policies aimed at misinterpreting the provisions of the Act and Law. For example, by their circular dated 29.09.2009 it was directed that the dependants benefits be denied if application for registration of workers with ESIC was submitted after the death of employee due to some accident at work place because according to the judgement of Hon. High Court of Gujarat, they are not liable to pay benefits to the employees/dependants if application for registration was submitted posthumously. On 06.04.2010 these instructions were modified so as to accept the declaration forms where the signature of deceased insured person is available on declaration form though submitted posthumously. On 21.10.2010 these instructions were again modified in which it was directed that declaration forms of coverable employees are to be accepted even posthumously irrespective of whether signatures/thumb impressions are there or not with further directions that the negligent employer is to be proceeded with u/s. 68 including prosecution for violations of the provisions if any. But the circular is totally silent as to how the past denied cases are to be dealt with due to change in their illegal policies undertaken at frequent intervals.

These circulars by themselves are fine examples as to how the Corporation which is responsible for implementing the beneficial provisions of the Act has misinterpreted them time to time at their sweet will even when there is no change in the law passed by legislature. One is clueless to fathom the undercurrent and the mindset of the corporation which changes its policy, depending on the judgement selectively to suit its convenience with single minded objective as to how best to deprive the benefits even when the law remaining unchanged.

There is no doubt that these misinterpretations have a colossal impact on the beneficiaries. It has victimised them and their dependants who have to run pillar to post in search of relief thereby forcing them to enter into costly litigations and yet compelling them to live in lurch and in a state of despair. It is noticed that there are plethora of cases rejected illegally on these grounds in West, Central and Southern regions of the country.
It is hoped that the ESIC may reconsider all these cases and that the policy of the ESIC should be based on a firm footing in accordance with law without any scope for variation in terms of conflicting judgements delivered from time to time by the Courts. If this is done it will go a long way in correctly implementing the beneficial legislation entrusted to ESIC. The thrust must therefore be how to give relief to the beneficiaries and not how to deny it.
Advocate S. D. Puri



Filed under Labour Bill of 2014

2 responses to “Trampling of beneficial legislation by ESIC- by S.D.Puri

  1. The above post reflects the views of the employers. But, the ESIC has to differ. The ESI Act has been enacted relying upon mutual trust. Each and every employer was presumed to be honest and sincere while complying with all the provisions of the Act. That was the only reason why compliance was made mandatory but inspection was made optional. Sec. 44 uses the word ‘shall’ repeatedly to make the employer comply with the provisions of the Act. But, Sec. 45 (1) of the Act uses only the clause ‘may appoint’ when it deals with the manner in which inspections would be conducted to monitor the compliance on the part of the employers.
    The experience of the ESIC is that there are substantial number of employers who want to avoid proper compliance in the normal circumstances, but want to pass on the burden to the ESIC when some accidents take place in their factories. There are blacksheep in every sphere of Indian society. We find dishonest employers, consultants and ESIC officials. The ESIC is the custodian of funds contributed by the honest employers and employees covered by the ESI Scheme. That fund should not be allowed to be exploited to help the the dishonest employers escape liability with the aid of cunning consultants and corrupt ESIC Officials.
    If the employer fails to comply with Reg. 12 of the ESI (General) Regulations, 1950, “before taking any person into employment”, it is only fair that he pays from his own pocket under the Employee’s Compensation Act. Unless such a pain is there, the funds of the ESIC accumulated through the contribution of honest workers would be used only to help the dishonest employers.
    Unless the ESIC is permitted to appoint proportionate number of inspectors (Social Security Officers) to monitor the performance of every employer every year, the ESIC should not be vested with the responsibility of shouldering the burden of the non-complying employers.
    The best course is that the ESIC should make the annual inspections mandatory and appoint proportionate number of inspectors to conduct inspections every year. There has to be one inspector for every 250 factory and establishment. The inspectors (Social Secruity Officers) must be trained properly.

    • My immediate reaction to views of Sh SD Puri, is, strong disagreement with every single proposition and conclusion he made. It is time to stop inspection altogether and re-designated SSO should be used to educated, help and assist employers and IP through workshops, seminars and compliance-training. If the delivery of scheme is good, timely and effective, there will be no need for inspection and the employees and their Unions will come forward to seek registration and compliance. Improved primary medical care, and satisfactory specialist care will ensure better satisfaction thereby coverage. Inspection has been found harassment , intimidating and often corrupt. Many of the inspectors do not know the law itself (not to speak of the spirit or the logic of the law,) often lacks the expertise to examine modern book keeping methods, and IT enabled accounting system and find no time to understand manufacturing process and then find out potential areas of workers not registered. No effort whatever is made by SSOs of ESIC to identify the workers, enforced their registration and issue I.Cards. Total amounts booked under certain head is reported, which could take few minutes and shaw cause notices are issued asking Employers to pay contribution on the total. For eg Shaw cause asked employer to pay contribution for “General repairs” “Repair and Maintenance” “Factory Upkeep and maintenance” of “Furniture Repair”, which is nothing but laughable to say the least, since ESI act does not require payment of any contribution for these payment, but only for workers drawing 15000 or below , whether they are paid wage under any of these heads or not.
      Mr Puri’s contention that if employer fail to register employees under Reg 12 of Regulation, they will have to pay compensation under WC act or other law/scheme is totally wrong and against the law and I am sorry to say, express lack of knowledge on the very fundamental of the Scheme. Regulation is only a procedureal requirement and does not override the law. Sec 52 mandating depndants benefit talk of an “insured Person” dying due to Employment injury and Section 2 (14) defines insured person as a “Person who is or was employee in respect of whom contribution are or were payable and Sec 2 (8) defined Employment injury as personal injury to “an employee”. I shall emphasis the term “contribution are or were Payable” and term “who is or was employee”. Sec 2 (9) says an employee is a person employed for wages….in a factory/establishment to which the act applies. None of these provision defines an Employee/Insured person as one “who is registered under ESI act or Registration” or one “who is registered and in respect of whom Insurance Number is obtained and identity card is issued” or “One in respect of whom contribution is paid”. In fact Section 52, which is the charging section in so far as Dependant benefit is concerned, talk only about “person in respect of contribution was payable” ( and I repeat, not paid). Section 50, 51 being charging section for Maternity benefit and Disablement benefit also talks only about a “Insured woman, or a Person” and no where registration, actual receipt of contribution in the kitty of ESIC, possessing I.Card or Insurance number etc is not mentioned. Now go to Rule 55, read with Section 49, being entitlement section/rule for Sickness benefit (which include ESB etc) and here also we see that reference is to a “Person in respect of whom contribution were payable” ( and NOT, I repeat, paid). It is exactly so in case of Rule 56 regarding Maternity benefit. What we find that actual receipt of Contribution into fund of ESIC, actual registration or obtainment of insurance number or Identity card is not a pre-condition for eligibility to any of the benefit. The remedy for Corporation is in Section 68, where also it is mandated that even if employers fail to pay contribution (which mean the required level of contribution) and as a result the IP got reduced benefit or no benefit at all, ESIC should pay the entitled benefit and recover from Employer double the contribution plus the difference of benefit paid.
      I beleive many of the hand outs, Employers guide, seminar papers etc has clarified this and whenever we were asked as to why ESIC seek arrears of old contribution due without identifying the coverable workers, our answer was exactly this, that since ESIC taken the liability of all the coverable employees whether they are registered or not or whether contribution was paid or not, we are entitled to claim omitted contribution for past period, and SC in several cases has upheld this principle.
      I must add two personal experience here, though there are hundreds like that. In a case where the employer has not registered a coverable worker , the worker met with an accident and filed WC case which was awarded. ESIC was not in picture nor a party in the case. The matter went to HC where employer lost and ESIC was still not a party. The clever advocate of HC, while discussing with employer found that the worker ought to have been covered, though not registered moved SLP in Supreme Court taking umbrage under Section under Section 61, compelling worker to go to ESIC. As the ESIC was not a party even in SLP, SC directed ESIC to file an affidavit clarifying the position and I had no hesitation to file affidavit stating that even though no contribution was received and the worker was not even registered, ESIC is legally liable to pay benefit. After payng benefit, we literally threw the book at the Employers, by conducting special vigilance inspection and taking all kind of legal action against them and as a result over 100 workers were suddenly registered. Second case is we had a major file in the Vishakphatanam HPCL oil refinery and about 26 or so casual/temporary workers lost their life. In fact only one of them were registered under ESIC and it was sad that one worker joined work just previous day. We accepted all the death as due to Employment injury and in one of the fastest claim settlement with helpt of DC of the area, we paid first DB claim to all family member on the next schedule wage day, in a function in Vishakapatanam.
      It is sad that suddenly ESIC is taking a different stand. Recently I saw a report in Time of India ( where ESIC director has taken a stand in Court that no benefit is payable if Contribution is not paid. Of course HC rightly rejected ESIC stand and order payment. What is sad is that how ESIC took such a stand after all these years and why the IP or Employer was forced to go High court. I feel the officers responsible should pay the court expenses from their pocket and also pay interest on delayed benefit payment and ESIC to apologize to the concerned worker or Employer
      My view are only on the comment of Shri Puri. Time permitting I will comment on the view of Sh Hiren Chedda.
      I agree there are misuse of law, but remedy is not to throw the baby with bath water out of the window.

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