Category Archives: For Trainees

To all those who want to know the concepts of the ESI Scheme.

Mr. O. Abdul Hameed, former AC on ‘Clubbing different units together’ !

Mr. O. Abdul Hameed, former Additional Commissioner of the ESI Corporation, has written the following with reference to the post  Considering the depth of the comment, the write-up is hosted here as a separate post:


At a time when the service of the scheme was poor or less known, the misuse was also less. As the medical service, particularly the superficiality facilities from non-ESI hospital became available and got publicity, misuse also started. I know of a case of a medium size hotel whose owner added his wife to the muster as a clerk to get herself operated in AIIMS within one month and MD of a company who got his domestic cook into muster when he needed a major operation. There is lots of potential for misuse.

Coming to the issue of clubbing the principle is “Geographical proximity is not essential but functional integrity should be established”. Was the peanut an item of the menu, was it sold inside the restaurant and billed among other items?

If you see section 2 (12), the emphasis is on” Premise” and it is the premises that is covered and include its precincts. There is no reference to ownership or unity of ownership., and manufacturing process need not be in all part of this premises or precinct but in any part of it. Thus the premise or precinct need not be under a particular ownership or singular ownership.

Those who drafted this very long back had brain, and clarity of purpose to be achieved and not, regret to say, those who drafted some of the recent amendment.

Coming to the example of power looms mentioned above there was practice of several loom in one big shed and one or more loom owned by single person. This was not always a ploy to avoid factory act and other legislation but at times, for genuine reasons as a commune like operation.. The ESI act would apply to the entire shed but Government of India, following industry pressure asked the ESIC not to cover them, a direction which the Government had no power to give but ESIC was perforce compelled to comply.

Two illustration that I dealt-

1. Three different manufacturing units within a city, each with distance of around 10 km from one another, one making the wooden part of sewing machine, another the metal and other parts and third where all these were brought together, assembled, packed and distributed, all three belonging to belonging to one family being brothers of a Hindu undivided family.. Though all had separate sheds, electric/water connection, etc I found that no single unit can exist alone and do not produce a marketable product and they essentialy complement one another and transaction among them were not sale but good transfer.

2. Two unit within a compound, both separate sheds nearbyd by with separate electric connection, both same owner. One is printing Unit and another a binding Unity. All the printed material were bound by the second unit. I did not club them because binding Unit was charging the printing unit in the book and its income were treated to tax separately and they were also taking up binding for others and charging and printing unit was also taking up printing work without binding, though where binding was needed it was done only in the binding unit. I felt there is no functional integrity and dependence though owner is same and premises (in its broader literal sense, having been not defined) was same. Held not covered.

There can be several examples. One of the factories that I worked as GGM, we had set up a sophisticated machine shop with latest imported machine three of which can be supervised by one person. The machine shop was some distance away in separate premises and had just eight person which included two helpers. I insisted on covering them though my GM in charge f Administration felt it need not be covered, though only two helpers were to to be covered. This was because our foundry products are sold and exported after machining only.

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Clubbing different units together !

In the days of yore, inspections in the ESIC were programmed and conducted in such a manner that they would, really, detect concealed employment and be  beneficial to the insured persons. At that time the upper limit of wages for coverage was Rs. 1000 pm. If a factory employed 20 or more persons for wages, it became coverable under the ESI Act, even if the 19 persons received wages more than Rs. 1000. The remaining one person whose wages were 1000 or less became coverable. The intention was to ensure wider reach of the scheme.

There were many instances in which the middlemen worked hard to ‘help’ employers evade coverage. They followed variety of techniques for such evasion. One such technique that benefitted those employees was an ingenuous one that helped them evade not only the ESI Scheme but also the income tax and many other statutory provisions. That was the technique of splitting the unit and showing the single unit as various independent units owned by different persons. Usually, those ‘different’ persons happened to be  father, mother, wife, son, daughter, or other close relatives.

There would be a single premises in which 24 powerlooms would be functioning. It requires 6 persons for a single shift. There would, therefore, be 18 persons for three shifts. Besides, there would be two ‘khaandi’ machines to prepare shuttles. It required 2 persons per shift. In all there would have to be 6 persons for three shifts. In addition, the Folders, Clerks and others would carry the figure of total number of employees to 30. But, the employers would get the blue prints prepared showing that the 24 powerlooms belonged to four different owners. They would get factory licence also that way.

When the ESI Inspector visits the factory, they would claim that there were four different factories. There would also be four set of account books. But, when the account books are closely verified, one could see that the division was fake and the management and functioning of all the four units are integrated and there, really, is one one single homogenous  unit. The khaandi machines which would remain located in the area allotted only for one unit, as per the blueprint,  would supply shuttles to all the powerlooms. The motive power would be shown differently for different units, but electricity for lights for the entire factory would be supplied from only one unit. There cannot be reimbursement from other units, as it would provide clear evidence to the unlawful nature of such sharing. Finished products would be stored in a combined manner only in one room. The employees do not know the names of the other owners except the one who manages them every day and pays wages. In such cases, when the units showed functional, financial and managerial integrality, they would be clubbed together and covered under the ESI Act as a single unit.

There were lodges and restaurants in the same premises and the owners claimed that they were independent legal entities. But, the records would show that the employees of the lodge and restaurant were interchangeable and were paid the same wages that included the cash and food components. The restaurant was providing food to all the employees of the lodge but there was no reciprocal arrangement to reimburse the cost of food by the lodge. These instances would show more than the normal B2B relationship between the owner of the lodge and the owner of the hotel, who were just father and son, in real life. In such cases, the ESI Act was enforced against both of them, by clubbing both the lodge and hotel together.

There was a textile shop with a single brand name but,the premises of the establishment would show that it was a three-storey building housing three different units, one for mens wear, another for women and yet another for kids. The employers were not allowed to evade coverage under the ESI Act in such cases. All the three were clubbed together and covered as a single entity.

On the other hand, there were some major employers who opted for combined compliance in respect of ESI provisions, to facilitate their maintenance of records, in spite of the fact that each unit was employing more than 100 persons and were coverable independently.

While the present method, invented by the bureaucrats at the Centre, make the entire inspection procedure a tragicomedy leaving the inspectors (SSOs) to verify, at best, only the current compliance, it would be worth pondering over the manner in which surveys were conducted with adequate depth and different units were clubbed together to extend the security-net to the insured persons / employees of all those units.

Those employers who want to make right compliance under the ESI Act, may find it helpful to verify for themselves whether they meet the following parameters. That will help them to provide ESI Coverage to their employees by clubbing various units together under Reg. 38 of the ESI (General) Regulations, 1950. For more on this issue, please click on the following link:

Clubbing of units

There was a peanuts vendor who was employing three persons in his shop. His small shop was adjacent to that of a hotel. The hotel had, at that time, been covered as a factory and it had been complying with the provisions of the ESI Act. When the ESI Inspector visited the hotel for the purpose of inspection, he found that there were only 22 employees in the Attendance Register but the hotel owner was paying contribution for 25 persons every month. When asked, the hotel owner, the employer, clarified that the owner of the neighbouring peanut shop was paying money to him and he, in turn, was paying contribution in respect of three of his employees in the pea-nut shop. On investigation, the employees of the pea-nut shop were delinked.

That pea-nut vendor said that he had, earlier, been working in a textile mill in Maharashtra and that he knew the importance of and the benefits provided by the ESI Scheme.


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Dog-feed expenses: Wages u/s 2 (22) !


The ESI Act was enacted only with the objective of providing a variety of benefits to the working population. The provisions for inspection mentioned in the statute are, therefore, not contradictory to this objective but only to ensure and further that objective. The perception that the inspection procedure in the ESI Act is intended to harass the employers is not correct and has been orchestrated by vested interests with ulterior motive. One may recall that when the Government of the UK had brought in many labour reforms through the Factories Act 1802 (also called the “Health and Morals of Apprentices Act”, which regulated factory conditions, especially in regard to child workers in cotton and woollen mills), provisions were made to impose fine between £2 to £25 on the factory owners for violation of law. But, the Act did not yield the desired results, as it failed to include any provision for supervision to make sure the law was being followed. It was in the year 1833 that the concept of inspection was born and the sufferings of the workmen at the hands of greedy employers came to be preventable.


But, in India, the importance of inspection is diluted again and again for the past seven years in the ESIC. Adding to the misery of the workforce is  the amendments in other labour laws and dilution in their implementation, All these have practically converted the entire labour force of India  into Slave Labour. The latest dilution in inspection of the factories and establishments, in the guise of mechanisation and centralisation, results in the sufferings of the honest and innocent workmen as the employers have come to know that they would not, in practice, face any penal action for non-payment of contribution on all items of ‘wages’ in respect of all ‘employees’. The drastic reduction in revenue that flows in, on its own, through Sec. 39 & 40 of the Act is a clear indicator of this fact. India is virtually sliding backwards to the pre-1833 era of the UK.

It is a fact that large number of employers try to avoid paying contribution in respect of “all” (as mandated by Sec. 38) the persons employed by them for wages. They resort to various methods of manipulations of their records to conceal the “employment of persons’ and “payment of wages”.

Such concealed employment can be detected only through proper inspection including Ledger Verification in a thorough manner. A simple visit by the Inspector or his going around the factory cannot help detecting such cases.

 You get only what you inspect.

Proper and in-depth inspections alone can ensure that all the coverable employees have been covered without being left out, and that contributions are paid on their behalf on all items of wages. Simply expecting that the employers would pay contribution on all items on which it is payable, just because there is a law to that effect would not work.”You don’t get what you expect. You get only what you inspect”. This is what the IAS officers are taught too.

Besides, when contribution is not paid on all items of wages, the benefits payable becomes only be a pittance and would not help sustenance of the family of the insured persons during the periods of sickness, maternity, etc.,

Sec. 45 (1) and (2) are there in the ESI Act is, therefore, intended to safeguard the benefit provisions and they are there in the Statute to protect the interest of the employees. (For more on the need for inspections:

Voucher Verification

The most essential component of inspection is “voucher verification”. The inspectors (SSOs) of the ESIC and the officers who conduct test inspections are specially trained on this aspect, so that they can detect concealed employment and omitted wages. “The books of accounts would not be of much use without the vouchers, records, papers, etc., on the basis of which such books have been prepared” (Circular dated 27.06.1961 of the Department of Company Affairs).

Any expenditure without proper voucher is to be frowned upon. Instances are numerous when wages were hidden in a voucher pertaining to different kind of expenditure. Likewise, many employees were paid through a voucher created in the name of a single person. The inspector, therefore, goes through vouchers with adequate care and caution.

But, in the peculiar circumstances of our society, there are many instances where genuine expenditure on certain other items are booked in the ledger, without there being any supporting voucher. Such expenditure does not, actually, represent the wages paid by the employer to his employees. What should the inspecting authorities do, then? Can they treat all such voucher-less expenditure, automatically, as wages and claim contribution from the employer? Do they have discretion to ignore such vouchers in toto? Where, then, is the line that differentiates genuine or arbitrary exercise of such power of discretion?

A case of huge expenditure without vouchers

There was a hotel of repute in a prime locality in a city. A minimum of five thousand customers visit the hotel every day to take food. The inspecting authority of the ESIC was pouring through the ledger and vouchers. He found that a large chunk of money accounted for as expenditure in the ledger under a head of account without any voucher for any day. The amount was too huge to ignore. The head of the account was ‘Purchase of Vegetables’. An inspecting authority is not there just to report the expenditure to the Regional Office and believe that he has done his work. He must, being the man on the spot, make genuine efforts to collect all the relevant documents and evidences and arrive at his findings and report the details to the Regional Office for decision. What did he do, in this case?

The employer explained that as a caterer he had to buy vegetables from various vendors, both retail and wholesale, in the market early in the morning at about 3.00 am, every day, depending upon the price and quality. No vegetable vendor would give receipts for the transactions. Not every vegetable vendor is running his trade in an organised form. So, obtaining vouchers from vegetable vendors is simply impossible, practically, he said. And, what he said was true, the inspecting authority knew.

He, therefore, verified the expenditure incurred by the hotelier for purchase of Rice, Wheat, Rava and Maida. He prepared a chart comparing the total expenditure incurred for purchase of these items with the expenditure incurred for the purchase of vegetables. He went through the ledgers once again to ensure that the expenditure for purchase of vegetables had not been booked under any other head of account. He arrived at the fact the expenditure shown under the head ‘Purchase of Vegetables’ had been incurred only for purchase of vegetables although it was not supported by vouchers. He reported all these facts along with his findings that the expenditure on purchase of vegetables was not wages, although the expenditure every year on that count was very huge. His report was examined in depth at the Regional Office and the Regional Director accepted his findings. (Even if the Regional Director had differed, he cannot blame the inspecting authority for his findings. Because, the inspecting authority had given not only his findings / opinion but also all the relevant facts on which he based his opinion and had left the decision to the Regional Office. If the Inspecting authority had reported only the quantum of expenditure as per the ledger figure, he would have been guilty of non-exercise of the power vested in him and transferring his work to the Regional Office. If he had reported only his opinion that said item of expenditure was not wages, he would have made his position vulnerable, in the event of the higher authority taking a different stand. In this case, the inspecting authority had given a speaking and convincing report, the contents of which proved that the inspection had, really, been purposeful.)

Another case of huge but sporadic expenditure

There was an inspector of the ESIC, who was known among employers of the area for his sincerity, honesty and pleasing manners. (It is appropriate to mention in the context the fact that the employers do always collect information about the nature and disposition of the inspecting authorities of various departments, whenever a new incumbent assumes charge in their area). This inspector of the ESIC was conducting regular inspection of the factory of an employer who was employing around 40 employees in his factory, situated in a semi-urban area with a sufficiently large lawn and backyard with many trees all around.   The inspecting authority, while verifying the ledger, came across a head of account titled ‘Dog-feed Expenses’. He thought that the entries of expenditure under that head of account showed the cost of food and, possibly, other maintenance charges to rear the dogs in the premises of the factory. But, he found some peculiarity in the pattern of expenditure. The expenditure had not been incurred every month in a uniform pattern. There was some expenditure in a month. There was no expenditure at all next month. There was huge expenditure in the subsequent month. The inspector was puzzled.

He, therefore, asked for the vouchers. But, the clerk of the employer did not produce them. The inspector insisted on the production of those vouchers. Yet, no voucher was produced and no explanation offered. The inspector, therefore, completed the inspection otherwise and, then, wanted to meet the employer. It was around 3.00 pm, when he was ushered in to meet the employer. The inspector conveyed his findings to him. The employer was listening and was agreeing with him about the defects pointed out by the inspector.

The inspector, then, asked the employer about the expenditure shown as ‘Dog-feed expenses’. The employer said that it was not wages. But, he expressed his inability to produce vouchers for that expenditure. He was also not able to explain how and why the expenditure was sporadic and not uniform every month, if the amount was spent to feed the dogs.

The employer maintained silence. The inspector said that, because of the non-production of vouchers in spite of specific demand, all the items of expenditure under that head of account, could be presumed to be wages and contribution claimed on those omitted wages. The employer thought over for some time and said that he would pay contribution on those omitted wages. He was, still, not ready to explain what that expenditure was. The inspector said that he might have to pay interest and damages too on that expenditure. The employer said that he knew that.

The inspector recorded these facts and issued Visit Note and wound up the inspection. He did not receive the ‘cover’ repeatedly attempted to be given to him by the clerk of the employer, during the course of the day and at the time of leaving the factory. The employer was impressed as he had already heard of the reputation of that inspector. He, therefore, volunteered to walk along with the inspector to the front gate to see him off. The inspector could not see any dog anywhere in the factory precincts and asked the employer about it. The majestic-looking turbaned employer put his hand on the shoulders of the inspector, hugged him and replied, softly, with a smile, that the expenditure booked under that head of account was not the money spent to feed the real dogs. It represented the amount demanded by and paid to the officers of various departments as bribe and to the political parties as donations. That was the reason for the sporadicity of the expenditure, he said. Both of them burst into laughter.

The employer, then, asked the inspector to keep the information confidential and said that he was revealing it only to him, in appreciation of the commitment of the inspector to remain honest by choice.

If only all the employers follow suit ……

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Beware of the Demolition Squad, Mr. Prime Minister! ESIC is the symbol of Civilisation!!

During a meeting of the ILO in the year 1922, When many other countries had introduced various social security measures the Indian Government was wavering. So one member said that among the civilised countries, India was the only country where there was no social security measure. That was an indication that the world considered social security measures as an index of civilisation. The nature of benefits provided in every country under the Social Security Scheme is the indicator of the degree of civilisation achieved by the people of that county.

When Mr. Joshi, the Indian member heard the aforesaid comment in the world body, he got provoked and said that India would bring in legislation for compensation for employment injury. The Workman’s Compensation Act, came into existence next year in 1923 only because of that promise of Mr. Joshi, the Indian representative, in that world body. That was how India took her first step to enter into the civilised world.

The Royal Commission of Labour which toured India for two years from 1929 to 1931 submitted its report stating that the incidence of sickness was more in India than in any other country and the need for sickness insurance was more in India than in any other nation.

The Beveridge Report

The Committee headed by Sir William Beveridge examined the issues pertaining to labour  for one and a half years and submitted, in November 1942, an exhaustive report which paved way for a civilised society. His report aimed at ‘shaping the economy to serve the people’, while the rich and powerful had vested interest in ‘shaping the people to serve the economy’.

Sir William Beveridge in 1944. He became hero overnight when his report was tabled in the House of Commons in December, 1942. Photo Courtesy: The Guardian, U.K.

Sir William Beveridge in 1944. He became hero overnight when his report was tabled in the House of Commons in December, 1942. Photo Courtesy: The Guardian, U.K.

ESI Corporation was not born in a day. It took more than a year and half for Prof. Adharkar to go through the report of Sir William Beveridge to adapt it to Indian conditions. Comprehensive analysis was made on the issues relevant to our nation. The report was submitted by him on 15.08.1944. Consequently, when the ESI Act was enacted in 1948, the responsibility of running the Scheme was vested in the Government.

Art. 41 insists on “Public” Assistance

The founding fathers had rightly entrusted the responsibility of running the Social Security Scheme to the Government only. That was why Art. 41 of the Constitution directs, as under:

“The State shall, within the limits of its economic capacity and development, make effective provision for securing the right
◦ to ……,
◦ to …………,
◦ to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases of undeserved want”.
The Art. 41, thus, gives direction to the State that in cases of Sickness, disablement and in other cases of undeserved want, the State is to provide “PUBLIC ASSISTANCE” . The State cannot, therefore, make provisions for “private assistance” and wash its hands of the affairs. The responsibility for Maternity relief was placed on the shoulders of the Government only as per Art. 42.

ESIC reviewed repeatedly

The scheme was made operational in 1952. Many Committees had reviewed the ESI Scheme periodically. They were: The ESIS Review Committee (1966), the Estimates Committee of Parliament (1969-70), the Committee on Perspective Planning (1972), the High Powered Committee on Amendments to the ESI Act (1978), the ESIS Review Committee (1982), Committee on Perspective Planning (1993) and The Report of the Working Group on Social Security for the Tenth Five Year Plan (2002-2007). The meeting of this Working Group said, as under in its Minutes dated 03.07.2001:

“There is need to take new initiatives to extend the spread and reach of the existing social security schemes being administered by the Employees’ State Insurance Corporation and Employees’ Provident Fund Organisation.“

Six Principles of Beveridge

Beveridge had codified Six Principles of Social Insurance. Two among them were the element of compulsory contribution from each insured person and his employer and the “Unification of Administrative Responsibility” through a single Social Insurance Fund. The report of Prof. Adharkar also emphasised the same. The Scheme in India is run by the Government to assure the insured population and the employers that the funds would be managed as per rules, the scheme would be run corruption-free and the defaulting employers and erring employers would be penalised by the State itself. That was a guarantee to other employers and employees that there would be equality in applying law. The grievance redress mechanism under any Government would be open and transparent.

Best financial management in ESIC

The Scheme had been run in a satisfactory manner, in spite of many negative actions of the corrupts and zombies, within the organisation and in the enforcing machinery of various State Governments. If the political leaders had been more committed in the welfare of the people, the Scheme could have done much better. Even in spite of all the pitfalls, the Scheme had been better managed financially than any other public sector autonomous body until the year 2007. Better than private units. The Economic times 05.02.2003 would testify to it.

Economic Times 5 2 2003 copy

Overbearing and misguiding bureaucracy

Any dilution of the the scheme would be challengeable successfully in Court of Law and would expose the Government having fallen victims to the misleading notes of the bureaucrats. Politicians falling victims to the bureaucracy had been brought out very clearly in the famous serial ‘Yes, Minister’. Indian scenario is not different in any manner. Occasions are numerous when the elected Ministers just sign on files as desired by the bureaucrats. India has seen many bureaucrats becoming Ministers and Prime Ministers too, only because the elected politicians could neither understand nor cope with the tactics used by the bureaucrats to bend them to the will of the latter.

During the discussion in the House of the People on 23.03.1992, Mr. A. B. Vajpayee blamed that the bureaucrats were more responsible for creating economic crisis than the political leadership. His statement is one of the many evidences available to prove that the Ministers are led and are not obeyed by the bureaucrats.

The following are the excerpts from the Indian Express dated 24.03.1992:
“Mr. Vajpayee hit out at the bureaucrats, five or six of them, who kept shuttling between the Prime Minister’s office, the North Block and the Planning Commission, and also the IMF, and said they were more responsible for creating the current economic crisis than the political leadership. These officers should not be entrusted with negotiating the Dunkel proposals at the GATT meetings, he cautioned”.

Intention is only to “reduce” benefits 

Private players are free to provide any kind of benefit that matches and surpasses the ones provided under the ESI Act. There is no need for any adventurous dilution of the provisions of ESI Act. There must be proper in-depth study before embarking on any such adventures. If needed, even a pilot project can be formulated and tested. The international experience on such privatisation must be examined. The information already received by the ILO on this issue was only in the negative about such privatisation. There should, therefore, be no reliance only on the filenotings of the bureaucrats to tamper with the existing system just in order to facilitate private players in social insurance. That would result in the private players playing havoc with the living conditions of the working population.

They enter into this field to make money, to prepare profit and loss account while the ESIC as a State machinery prepares Income and Expenditure account. Any hasty measure to allow private players by diluting the provisions of Exemptions under Sec. 87-91 would, clearly, prove that the intention of the rulers is only to reduce the quantum of benefits that are made available now to the working population in the organised sector.

Customer Satisfaction Survey

The Government of Gujarat had conducted a Customer Sastisfaction Survey among the public when Mr. Narendra Modi was Chief Minister of Gujarat in the early 2000s about the services rendered by various departments, as informed by Shri Hasmukh Adhia, IAS, Secretary, Administrative Reforms & training and Director General, SPIPA, Government of Gujarat, during his lecture in the Indian Institute of Managment, Ahmedabad.

Similar survey proposed in the year 2006 in the ESIC had not materialised. One such survey among the beneficiaries of the ESI Scheme would not be out of place, now, before venturing on misadventures. Gujarat Gas Company Limited conducted Customer Satisfaction Survey to understands its own strength and weaknesses.


It was adjudged the best managed company of the year 2004-05 by the Business Today.


Beveridge worked hard and conducted extensive study on various issues for one and a half years to prepar his monumental document and when it was made public,  he became a national hero overnight in the United Kingdom. In India, the bureaucrats do not show any intention to study the issues and impacts by conducting any study but work hard to demolish the scheme overnight.

A cursory survey had been conducted in Mumbai once in the 1990s. It showed that 85% of the employers wanted the scheme while 85% of the employers did not want it. The Regional Directors of Maharashtra would testify to it. So, any radical change in the concept and structue must be preceded, necessarily, by proper study and analysis from all angles.

ESIC can work wonders

We reiterate that as far as the ESIC is concerned the System is correct but the men need to change their attitude. That can be done, when the political leadership is committed to run the Scheme corruption-free. When done, ESIC can work wonders for the improvement of the nation’s economy and prove to the world that our nation is really a civilised nation.

What is more, India can even surpass many nations and reach the top in the Human Development Index. The Scandinavian countries top the Index at present, only because of social security measures which are run corruption-free. That is civilisation.

For more, read ‘Barbarism and Civilisation: History of Europe in our time – Bernard Wasserstein. 

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Attachment of Immovable Property by ESIC & EPFO !

The procedure followed for the recovery of arrears from the defaulters is common for both the ESIC and the EPFO. The provisions of the Second Schedule to the Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962 as were in force as on 01.04.1989 are followed by both the organisations. The procedure followed by the Recovery Officers and the rights of the defaulters and the general public are brought out in the Power Point Presentation given below.

Click on the slide below to reach the Presentation


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Wages: The foresightful Sec. 2 (22) !

It was 1989-90. An employer, a well-known business magnate, having many business interests in many fields, had paid Rs. 10 as Attendance Bonus to his employees who attended factory on all the 26 working days in a month. The Insurance Inspector (Now, SSO) reported that the employer had not paid contribution on that amount. Notice in Form C-18 (Ad hoc) was issued in 1991-92. The amount claimed as contribution on omitted wages was around Rs. 1600/-.

The employer’s representatives attended hearing and explained their stand. They said that it was not an amount paid as per any settlement between the employees’ union and the management. It was not a bilateral decision. It was an unilateral one and could be withdrawn at any time. It was paid quarterly and not monthly. The employer was, therefore, not required to pay contribution to the ESIC on this expenditure, they said. When asked, pointedly, how the employees were made to understand that they would be paid Attendance Bonus if they had attended factory on all the 26 days, the representatives said that the management had put up a notice in the canteen to that effect, wherein it had also been mentioned that it was unilateral, that it could be withdrawn at any time and that it would be paid once in a quarter.

Final orders were issued under Sec. 45-A, after the hearing was over, determining the contribution payable. Employer’s contentions were recorded and reasons given.

It was explained in the order issued under Sec. 45-A that

  • the very fact that the employer had displayed a notice in the canteen proved that the Attendance Bonus had been paid as per specific terms of contract.
  • there was an express contract, and that it was not unilateral, because there had been clear communication of mind, the consensus ad idem, and the ingredients of offer and acceptance were there.
  • the amount was ‘payable’ every month but was postponed and paid once in three months.
  • the amount being ‘payable’ every month, this case fell within the first portion of the definition of the term wages and not within the third portion of it.

Contribution was, therefore, claimed on the entire amount. After a few months, the employer’s representative who came to the Regional Office for some other purpose, said that the CEO had ordered the issue to be challenged in the court of law.

When asked how the CEO expected to win the case, the representative said that the CEO referred the matter to court, because he was paying a standing counsel every month without getting any work done by him. He therefore, wanted to give some work to the standing counsel. The employer paid the dues later with further interest, after the court verdict.

What are those different parts of the definition of the term ‘wages’? Wages Page 1 Another major employer did not pay contribution on Conveyance Allowance. When the ESIC asked for contribution, the employer went to court, where his stand was upheld. The judge had reasoned that the ESIC would not have claimed contribution if the employer had given season-tickets to his employees or reimbursed the expenditure. As the employees actually incurred expenditure on conveyance, it was not wages, the Court reasoned.

But, the fact was that it was not a case of reimbursement. The payment was not in kind. It was an amount paid in cash. The court had traversed the extra mile arguing that the ESIC would not have demanded contribution, if the employer had reimbursed it or had given season tickets. The court had overlooked the fact that the employer had, actually, paid in cash. This fact on record had been ignored by the court. The argument could also be that the employer could have given to his employees grocery, cloth and other domestic requirements too and then paid less contribution only on the remaining carry home pay.

What happened in this case was that our counsel had failed to bring it to the knowledge of the court the first part of the definition of the term ‘wages’ which refers to the payment in ‘cash’. When an amount is paid in cash, the liability to pay contribution arises automatically, unless exempted under the fourth part of the definition of the term ‘wages’. Because, there is no system to ensure that the employee spends a particular allowance only for that purpose.

The Act, therefore, does not lay stress on the nomenclature used by the employers to pay remuneration to his employees. ESIC is not obliged to give cognizance to the terminology used by the employer in this regard. Wages Page 2 ESIC officers would see only whether the payment fell within the parameters specified in the definition. Many such attempts at evasion to pay contribution had been resisted successfully, only because of the great definition of the term ‘wages’ under Sec. 2 (22). Otherwise, the contribution would have been very less resulting in meager amount of cash benefits to the working population, making it difficult for them to sustain themselves during the period of sickness and disability.

The term ‘wages’ had, thus, been defined in a very thoughtful and foresightful manner in the year 1948. It has withstood numerous onslaughts from various minds with fertile imagination.

Compare this with the contents of Sec. 45 AA which had been drafted very loosely and rushed through as an Amendment in the year 2010 making one wonder whether law-making process in the nation had become so ineffective and inefficient in the nation.

It is time the ESIC turned a new leaf and sent its young officers for training on Legislative Drafting conducted by the ILDR of the Ministry of Law & Justice, to prevent recurrence of such anomalous situations. Legislative drafting NB: The Note in Pdf is available in the following link:

Training Note Wages

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Sorry! No ‘hostages’ there, Mr. Finance Minister!

The following are the excerpts from the speech of the Finance Minister, Mr. Arun Jaitely while presenting the Budget of the Government on 28.02.2015:

“61. Madam Speaker the situation with regard to the dormant Employees Provident Fund (EPF) accounts and the claim ratios of ESIs is too well known to be repeated here. It has been remarked that both EPF and ESI have hostages, rather than clients. Further, the low paid worker suffers deductions greater than the better paid workers, in percentage terms.

62With respect to the Employees Provident Fund (EPF), the employee needs to be provided two options. Firstly, the employee may opt for EPF or the New Pension Scheme (NPS). Secondly, for employees below a certain threshold of monthly income, contribution to EPF should be optional, without affecting or reducing the employer’s contribution. With respect to ESI, the employee should have the option of choosing either ESI or a Health Insurance product, recognized by the Insurance Regulatory Development Authority (IRDA). We intend to bring amending legislation in this regard, after stakeholder consultation.”



We, first of all, thank Mr. Arun Jaitely that he has chosen to consult the stakeholders before making amendments to further his observations on ESI Scheme.

In regard to his proposal to allow option to the employees to choose either ESI or a Health Insurance product, recognized by the IRDA, we have already brought out the well-known fact the medical benefit provided by the ESIC is just one of the many benefits and that it has close connection with important cash benefits like Sickness Benefit, Extended Sickness Benefit and also Sickness arising out of pregnancy and Sickness arising out of Confinement, Sickness arising out of premature birth of child or miscarriage.

In the present write-up we would like to remind the Minister just one fact which might not have been brought to his notice by the overzealous bureaucrats who wanted to please him so that he could, in turn, please the private players who would be pleased if the ESIC, which affects their area of operation, is not there.

The Minister has gone on record having said that the ESIC does “have hostages, rather than clients”.

The fact is that the ESI Scheme is run by government. Mr. Arun Jaitely belongs to that Government now. And his statement implies that he is of the opinion that the Government of India does have hostages through its ESI Scheme and not clients.

But, the employers through whom and with whose  active co-operation the scheme is run, would not and cannot say that they are held hostages. The ESI Act is not a compulsory provision. Because, the employers are free to get themselves and their employees totally exempted from ESI coverage.

Sections from 87 to 91-AA deal with exemptions. If the employers are able to provide benefits which are ‘substantially similar’ or ‘superior’ to those provided by the ESI Corporation, they can, as a matter of right, demand exemption from coverage under the ESI Scheme.

It is so simple. There is a format in the ESIC offices for this purpose. There are three columns in it. The first one lists out the benefits provided by the ESI Scheme. The next column is to be filled in by the employer recording the benefits that he provides. The third column is intended to be filled by the employer wherein he would say whether, in his own assessment, the benefits provided by him are ‘substantially similar’ or ‘superior’. Let them assess themselves first that way, before coming to the Minister and saying that the ESIC is holding them and their employees hostages.

The ESIC had successfully challenged all the employers, on many an occasion, whether they were ready to provide benefits on par with those provided by the ESIC. But, none came forward.

The Private Players do not want to provide all the benefits provided by the ESIC. Their intention is not to provide ‘social security’ but to ‘earn profit and throw a portion of it to all the political parties’.

But, ESI Act is for the welfare of humanity. It has kindness in-built. The deficiencies in providing service were and are only man-made and they can be set right by committed leadership backed by the Labour Ministry committed for honesty and transparency in running the organization. “Cleaning corruption is like cleaning the stair-case. It must start from the top”. There had been many an illustrious era that the ESIC has seen in its 63 years of existence, although it had seen many dark spells too.

ESIC has the capacity and can make the nation strong economically, if it is well-run.

We, therefore, request the Hon’ble Finance Minister not to rely only upon the convenient filenoting submitted by his pliant bureaucrats without studying the 210 years-old poignant and heart-rending history behind the ESIC.


The Finance Minister may better advise the employers to give all kinds of cash and medical benefits to their employees in a better manner than what is provided by the ESIC and seek proper exemptions as per the existing law itself. There is no need for amendments of any kind to the ESI Act, 1948, if the advice given to him by the bureaucrats was to free the ‘hostages’. For ready reference, we provide, in the following link, a presentation on the provisions in the ESI Act, 1948 that govern Exemptions:


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Sickness Benefit and Extended Sickness Benefit: The impact of Budget.

This is the second article in the series, on the announcement of the intention of the Government to free the employees from being held hostage by the Government of India itself, through ESIC. The former one is available at

The essential questions now, after the employees choose private operators for medical benefit, are “Who will provide Sickness Benefit? And, on whose certificate? And, what is the monitoring mechanism?”

Or, has the BJP chosen to do away with the Sickness Benefit altogether?

Have the officials who suggested this proposal examined all the issues of various dimensions involved in it?

The people who are farm workers are paid only for the day of actual work. If they fall sick they would not be able to go for work and will be confined to bed to take rest. There would be no income for them for those days of abstention from work. On the other hand, they would have to spend money for medical treatment during that period. That expenditure must be meted out from their savings or by borrowing.

The same was the case with industrial workers before the ESIC came on the scene. It was this kind of situation, the loss of income during certain period coupled with the necessity of incurring medical expenditure during the same period, that was sought to be answered to by the ESI Scheme. Once covered under the ESI Scheme, the employees get medical treatment and medicines from the ESI medical institutions. The period for which they are required to be on abstention from duty is decided by the medical officers of the ESIC who issue certificate to that effect. The employees get around 60-70% of their wages in cash for those periods of abstention as Sickness Benefit for a maximum of 91 days in two consecutive Benefit Periods, which is actually one full year.

Now that the overenthusiastic BJP regime has declared its intention to free the employees from being held hostages by the Government of India (as invented by Mr. Jaitely), will the BJP stalwart explain the consequences of his decision on Sickness Benefit?

Maybe, they would not want to step back for reasons of prestige. They may even declare that the private medical institutions would issue certificates, which must be honoured by the ESIC Branch Offices.

Or, they may say that there will be no Sickness Benefit at all.

Anyway, if the former is the solution given by them, another question arises. The Medical Officers of the ESIC are monitored through a system of Medical Referees of the same organisation. What will be the system to monitor the private agencies that provide treatment and issue certificate to the employees?

Extended Sickness Benefit

Moreover, what will be the fate of the celebrated and important Extended Sickness Benefit?

No certification in the UK for Cash Benefit

Significantly, there is no system of certificates being issued by the medical officers in the UK. They provide only treatment and recommend the period of leave. It is the employees who decide the period of abstention and get cash benefit for those periods from post offices. Can Mr. Jaitely usher in that era? In India, we could not bring it into force for the past 40 years, only because of the general tendency of choosing to remain on leave for the entire period of 91 days. Our society did not become that mature, at least, up to 1989.

That was the reason for the introduction of the words ‘strike’ in Sec. 63 and Sec. 97 (iv-b) of the ESI Act in the year 1989. One would be happy if the Indian society has become so mature that the Government considered it unnecessary to retain these checks and balances.

Or, another method is to make the Sickness Benefit totally unattractive, by reducing the percentage of the benefit. But, as per ILO mandate, it cannot be reduced below 45% of the wages earned.

So, the alternative is to change the beautiful, time-tested and war-withered-veteran, the Sec. 2 (22) and modify the definition of the term ‘wages’.

Wages can, hereafter, be defined as the basic pay only which may be decided only by the employer and it may even, for example, be just 10% of the total wages. So, even if the Sickness Benefit were increased to 100%, the quantum of benefit would not be attractive to the Insured Person.

No need to worry how he would sustain his family during the period of Sickness and Extended Sickness that runs into two years, i.e, 730 days. Mr. Jaitely, the Finance Minister, has now the authority to believe that such people would fend for themselves.

Adharkar was prophetic!

Pity, a Noble scheme of the Government of India has fallen, for quite some time, already, into the feeble hands of the corrupt and inept! Prof. Adharkar was prophetic. He said that the success of the ESI Scheme depended not only on the honest working of the ESI Act by all concerned. But, by introducing some more measures by the Government. He wanted that the ESI Scheme should not be “saddled with burdens legitimately belonging to other branches of social insurance”. Therefore, while formulating the ESI Scheme, he made four assumptions for its success. They are:

  • Adoption of a scheme for Unemployment Insurance and creation of new employments in the post war period,
  • Establishment of a scheme of Old Age Pension,
  • Adoption of certain pre-medical measures like education in health and improvement in environment hygiene besides regulation of wages and rigorous enforcement of factory laws and, finally,
  • National Health Drive.

While some steps had been taken in respect of items 1 and 2 during the past 60 years, the required importance has not been given to items 3 and 4. Consequently, Adharkar’s  dreams which were actually achievable and have been achieved in many countries are becoming distant dreams for Indian common people, with the present Government vying with the former one in diluting labour laws. Moreover, ESIC is blamed when it faces and suffers from the negative impact of the non-performance of the politicians on these four areas.

The root cause of all evils!

The only solution for all the problems is to compel all the political parties to make the source of funds of all these parties totally transparent. That alone will strike at the root cause of all the ills plaguing the nation in various spheres.

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Builders : Germans : : Sellers : Indians – Part I

Presentation 1

(Dear Readers, The nation is now in the throes of crisis. Present rulers intend to deny the benefits of 14 labour welfare enactments to the workforce in the factories that employ up to and including 39 ‘workers’ for wages, excluding the ‘persons’ who are performing in administrative, supervisory or managerial functions. This will result in abundant supply of Slave Labour to facilitate Money Sharks to exploit and squeeze labour and share the spoils between them and the politicians who are powerful. The text of the Bill is available in the following link:

The issues involved are going to be analysed in this web-site, in detail. Readers may convey their views to the Ministry of Labour in and before 10.11.2014. Part I of the series is here for the readers to have a birds-eye view of the subject)


It was 11.10.2014. When we sneaked into Heaven, we happened see three persons sitting under a tree in the morning sun. On closer view we found that they were the souls who worked for the welfare of humanity, when on earth. They were Otto Von Bismarck, the Iron Man of Germany, Sir William Beveridge, Father of the Welfare State, and Ernest Bevin, the Minister of Labour in the Cabinet of Winston Churchill. All of them looked sad and it seemed that they were concerned about certain issues. We made an attempt to overhear their conversation. Ernest Bevin said, “Mr. Beveridge! I share your concern. I did not know how the Indian bureaucrats put forward such cases before lawmakers. Although it is said, on theory, that the Executive must do what the Legislature says, the reverse is always the case in India, in practice. I find that the Indian politicians do not know the subjects much and are falling victims to the manipulations of the bureaucrats and become willing tools in their hands. I am afraid what the future holds for the common men in India”. “Yes, many Indian politicians want only the post and glory. They do not want to work to understand the issues and explain their enlightened stand in the forum to which they have been elected. This was the attitude of the politicians of India even when they were members of the Constituent Assembly. Wwhen crucial subjects were discussed in the Constituent Assembly, the members were not ready to extend their stay in Delhi but wanted to catch their trains to go back. They subordinated the national interests to their own personal interests, although they visited Delhi at government’s expense, at that time. The trend continues even now.”

Bureaucrats manage the Politicians

“Yes. I find that it is because of the incompetence of the legislators who know only how to manipulate people to win elections. They do not have the capacity or inclination  to understand and analyse the macro-issues affecting the nation. As a result, many bureaucrats have been, directly, made ministers in the central cabinet, to man important portfolio. The elected MPs are just looking at them helplessly. Consequently, the other bureaucrats also find it convenient to keep the legislators as ignorant as possible,  forever, so that their bureaucracy can have upperhand in the governance of the nation.” “I agree. In India, except in exceptional cases, it is the bureaucracy that runs India. The business-magnates, therefore, find it easy to get things done their way, by patronising the bureaucrats who take care to manipulate the opinions of the Legislature. During the discussion in the House of the People on 23.3.1992, Mr. A.B. Vajpayee blamed that the bureaucrats were more responsible for creating the economic crisis than the political leadership. His statement is one of the many evidences available to prove that the politicians are led by and not obeyed to by the bureaucrats. What has been depicted in the famous serial ‘Yes, Minister’ is  applicable more to India than any other country.” Slide2 At that moment, Prof. Adharkar came to the meeting spot. The others welcome him and asked him if he had seen the draft of the “The Small Factories (Regulation of Employment and Conditions of Services) Bill, 2014”, proposed to be made law. Prof. Adharkar, who looked downcast, did not give any reply but sat down on the floor, near Bismarck. Ernest Bevin prodded Adharkar to speak. Adharkar just threw his hands in despair and did not say anything. Bismarck patronisingly patted Adharkar on his back and said, “What can he do, friends? He had done whatever he could and his role was over on 15.08.1944 when he handed over his report to the Government. But, does anyone care to read it, now? He had enumerated some Fundamental Principles also for the success of social security in India. That too is not read by anyone. At least, the present day politicians can read the 1929-31 report of the Royal Commission of Labour. Many findings reported therein are relevant in the present context too. But, nobody cares, now. That was not the case then. Those were the days when politicians were really concerned about the real welfare of the people. It is natural that Mr.Adharkar is upset.” Beveridge said, “Yes. But, now a days the politicians in India run after moneybags and believe that the poor can be quietened by propaganda and repression. In short, the politicians believe that they can flourish by making the rich really happy and by making the poor believe they are happy.”. Adharkar looked at the other three. He said, “What the Bill is going to do is to take India back to the pre-1923 situation. It was only in 1923 that the Workman’s Compensation Act was enacted. Before that, there was no labour welfare measure at all. Even this was enacted in 1923 only because of some provocative remarks by others in the ILO meeting in 1922. All other labour welfare legislations like the Factories Act, Employees’ State Insurance Act, Minimum Wages Act, etc., came after Independence as a bouquet. But, this Bill intends to undo all this.”

 Bismarck pleased the workers and not the employers

Bismarck agreed. “When I wanted to build a mightier Gemany, I laid stress on labour welfare. I set up separate hospitals for factory workers. I brought into force the Accident Insurance Act in 1883, Maternity benefit provisions in 1884, Sickness and Old-age Pension in 1889 and so forth. The nation flourished because the government took care of the people in the lower strata who work on the field by providing them security for livelihood and incentive to work. Even after Germany was devasted after Second World War, it re-emerged to become a mighty economic power and its monetary unit attained full value within 26 years in 1971. But, India which got peaceful transition of power in 1947 has not seen its rupee attain full value till date. The Indian politicians, in my assessment, do not care for the real development of the nation.” Adharkar said, “Yes. In India, politics is the means for making money. Those who have talent enter politics, become leaders and amass wealth. Those who are not fit for anything also enter politics, work as party-workers with the aim of sharing the party-money. They are in politics not for service to the society but to earn their livelihood. The former and the latter make a perfect combination to cheat the public. You see, Tony Blair. He was worried how he could settle his debts, after he ceased to be the Prime Minister of England. But, in India you cannot find a single Municipal Councillor with debts after his tenure even for a single term. The system is corroded so much. There is, therefore, nobody to care for the commoners. The Bill is just symptomatic of this rot that has set in.” “Is the system so rotten?”, asked Beveridge. Adharkar nodded. “Yes. That is why none of the major political parties is ready to disclose the source of their income to the public, through website, in spite of the direction of the Central Information Commission to that effect. A political party supposed to work for the public and collects money as donations from public for the proclaimed public cause, is duty bound to disclose its complete source of income. But, the politicians are mortally afraid to make the source public, only because they remain there as politicians, just in order to apportion that party money among themselves for their personal consumption. As long as the Indian politicians, including the so-called Communists, fight shy of disclosing their complete source of income, they will run after the moneybags only. They will use their legislating power to further the interests of only the rich, who pay them donations heftily as a quid pro quo. This is the root cause of this kind of Bills. This does not take into account the welfare of the workers. Their tall talks about welfare of the people, patriotism, etc., are nothing but farce.”

Indian politicians pave way for  Forced Labour 

Adharkar continued, “These bureaucrats do, however, have a sense of sadistic humour. They call this Bill a part of ‘reforms’. “Yes, I noticed too” said Beveridge. He continued, “Earlier, these bureaucrats called a bill that permits exploitation of work force as the ‘Bill for improving Safety and Health of Workers’. The Indian politicians and bureaucrats believe in forced labour. But, that will not help evolve a civilised nation, as explained in the  Charter of the International Labour Organisation. All along, I had been saying that the making of a nation is possible only with “willing participation of labour”. But, the Indians do not care”. Slide 3 Ernest Bevin interjected. “I find Indian politicians and bureaucrats pursuing a path which is not followed by the UK, Germany, Japan, Switzerland or the Scandinavian countries. These leaders in India mislead the masses. A simple analysis of the employment position in the beverage industry after the entry of two MNCs would show that the opportunity of employment has become less than what it was in 1990. Profit is the only motive for the businessmen now a days, especially those of MNCs. I had said, in the year 1945 itself, after the Second World War was over, that such profit-motive of the businessmen had resulted in world war. I stressed on the need for providing basis economic security to create fairer conditions of living for the working population also. But, Indian politicians do not realise the need for taking real care of their working population. The business organisations like Times of India editorially welcomes such anti-poor, anti-labour and pro-rich policies as ‘labour reforms’ (14.10.2014). India, with this kind of politicians around, is in the throes of crisis.”

ESI Act aims at extending coverage

“I agree”, said Adharkar, “Our ESI Act was intended to provide social security to the employees in the organised sector and its aim was to cover the factories with ten or more employees and also to extend the scheme to establishments in industrial, commercial and agricultural sectors and thereafter to other areas too. But, the proposed Bill, says that the ESI Act and many other Acts are not applicable to ‘Small factories’ which term has been defined as “any premises wherein a manufacturing process is carried on and which employs less than forty workers”. The exploitation of common man by the economically mightier rich will be more acute, if and when this Bill becomes an Act. The protagonists of this Bill have not explained how the ESI Act and other Acts had worked against the interests of the nation. But, they won’t as their aim is to placate the moneybags and, specially, the MNCs, only and not the commoners”.

 Institutional Economists work for better world

Beveridge said, “ See,  what Communism could not achieve has been achieved by Social Security. The rulers must aim for less gap between the rich and poor. That alone will make the nation civilised and the people happy. But, the basic flaw is that  the Indian politicians do not care for Institutional Economics which focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Indians can do wonders if they fine tune the organisations discharging the work mandated by the Acts to work effectively. But, they propose to drive those organisations out from the factories employing less than 40 workers”. All others were listening to Beveridge with rapt attention. Beveridge continued, “One must read, at least, Edwin E. Witte. He  said that “All or most of the institutional economists have been pragmatists, studying facts, not for their own sake, but to solve problems and to make this a better world to live in”. But, Indian politicians are in a hurry to please the rich and ditch the poor. As you said, unless the source of income of the political parties in India is made transparent, India will continue to be run only by the educated dupes.  It will not become a civilised nation. A nations social security measures and their effective implementations are the symbol of civilisation. One can refer to the Human Development Index in this regard.  Seen in this background, “The Small Factories (Regulation of Employment and Conditions of Services) Bill, 2014” is a move in the wrong direction, where there will be total slavery in the nation. I feel sorry for the common people of India”. Bismarck said, “ I feel very sorry for the poor in India. We, the Germans, built our nation. But, the Indians sell their nation”. Bevin

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Keep alive the Employers’ Liability Act, 1938!

Employers Liability Act, 1938 has been legislated with the objective of ruling out certain defences in suits for damages arising out of injuries sustained by workmen. Under the Common law, in case of civil suits for damages resulting from injuries sustained by workmen the employer can plead the Doctrine of Common Employment, by which the employer is not normally liable to pay damages to a workman for an injury resulting from the default of another workman and the Doctrine of Assumed Risk, by which an employee is presumed to have accepted a risk if it is such that he ought to have known it to be part of the risks of his occupation.

The Royal Commission on Labour viewed both these doctrines as inequitable and recommended with a majority that a law should be enacted to abolish these defences in case of all workmen.

Employers’ Liability Act, 1938 says clearly who the employer is in respect of the workers deputed by the contractors and man-power supply agencies to work in the factories and establishments of other employers. The definition in this Act helps understanding the definition of the term ‘Workman’ in the Workman’s Compensation Act, 1923 (now Employee’s Compensation Act, 1923), the definition of the terms like ‘employee’, ‘principal employer’ and ‘immediate employer’ in the ESI Act, 1998, the definition of the terms ‘workman’, ‘contract labour’ and ‘contractor’ in the Contract Labour (Regulation & Abolition) Act, 1970. This Employers’ Liability Act, 1938 would help bridge many gaps that may arise between various other labour welfare enactments. This Act is resorted to for clarification and protection, when there is flaw or doubt in other enactments. This is a protective umbrella for workmen and had been enacted after due deliberations. This has withstood the test of time.

The utitlity of the Employer’s Liability Act, 1938 and the way it helps understanding the subject matter pertaining to the employees employed through contractors including the outsourcing agencies can be seen from the exhaustive Powerpoint Presentation (containing 206 slides) available in the article given in the following link:

The Powerpoint presentation explains how this Act supplements and aids interpretation when doubts are raised by the employers in regard to their liability towards the workmen engaged through contractors or in respect of employees whose services are utilised through outsourcing methods.   The history behind this Act and its contents are very useful to explain the concept of contract labour in various seminars of employers, with the help of this Act.

Employers’ Liability Act defines and restricts the occasions and the extent to which public and private employers shall be liable in compensation in case of injuries to their employees occurring in the course of their employment and particularly abolishing the common law rule that the employer is not liable if the injury is caused by the fault or negligence of a fellow servant and also the defences of contributory negligence and assumption of risk.

There is no harm in retaining the Statute as a live enactment, especially when the legislators of these days had shown no interest in proper discussion and understanding the intricacies of amendments proposed by bureaucrats. (Ex. the amendments proposed in 2009 to the ESI Act, 1948 contained so many serious flaws that affect the functioning of the organization till date). It is therefore proper to retain the Employer’s Liability Act, 1938 in the Statutes without repealing it.

  1. Definitions:-

 In this Act, unless there is anything repugnant in the subject or context,–      (a) “workman” means any person who has entered into, or works under a contract of, service or apprenticeship with an employer whether by way of manual labour, clerical work or otherwise, and whether the contract is expressed or implied, oral or in writing; and       (b) “employer” includes any  body of persons whether incorporated or not, any managing agent of an employer, and the legal representatives of a deceased employer, and, where the services of a workman are temporarily rent or let on hire to another person by the person with whom the workman has entered into a contract of service or apprenticeship, means such other person while the workman is working for him.

The definition in this Act helps fix tortious liability on the employers not covered by any other enactment,too. Retaining it on the statute books will not be harmful to anyone.

Repealing it can be harmful to the working population in various contingencies. The text of the Employers’ Liability Act, 1938 is available at:

and also at

(although it is written as Employees Liability Act, 1938 there).

Those who agree with this proposition may convey their views to

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