Category Archives: Inspections

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 https://flourishingesic.info/2015/08/06/clubbing-different-units-together/  Considering the depth of the comment, the write-up is hosted here as a separate post:

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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.

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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: https://flourishingesic.info/2012/11/22/esic-inspection-procedure-and-its-impact-on-society/)

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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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.

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.”

(http://www.thehindu.com/news/resources/full-text-of-budget-201516-speech/article6945026.ece)

 

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.

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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:

 Exemptions

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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:

http://labour.gov.in/upload/uploadfiles/files/latest_update/what_new/5437e6a63557bSME23.sept.pdf

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 sc.sharma56@nic.in and piyushsharma_del@yahoo.com before 10.11.2014. Part I of the series is here for the readers to have a birds-eye view of the subject)

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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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Coverage of Man-Power Supply Agencies!

Man-power supply agencies are coverable under the ESI Act as Shops, but only their offices, as the premises in which those offices are functioning are utilised to render service for a price.

The persons supplied by them to do the work of the other factories or establishments cannot be treated as employees of these Man-power supply agencies, just because they got an ESI Employer’s Code Number.

Slide2

A lot of evasion, manipulation and abuse of the benefits of ESI and denial of benefits takes place in the coverage and non-coverage of the employees deputed by these agencies, which use their employer code number to cover the non-coverable employees also.

Sweatshops

The responsibility for their coverge lies only with the ultimate employer who utilizes their services. The Principal Employer for the employees deputed by these agencies to work in other factories or establishments are only those employers who utilize the services of these employees and not the man-power supply agencies which depute them.

Relevant details in this regard are provided in the Powerpoint Presentation available in the following link:

Manpower supply agencies

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Sec. 84: Chartered Accountants, beware!

Page 148 of the Revenue Manual of the ESIC says as under:

“Self Certification of Employers in Return of Contributions – To streamline and simplify the process of Revenue enforcement and with a view to lay focus on coverage and registration of all coverable employees to enable them to avail the benefits without hassle, the Corporation in its meeting held on 16.12.2007 resolved to amend Regulation 26 and Form 5 of the ESI (General) Regulation 1950. A notification to this effect has been issued on 11.3.2008 ( Copy enclosed as Annexure 10). Accordingly, Regulation Form 5 ( Return of Contribution) has been modified . The salient features of amendment made in the Return of Contribution are as under :

  1. Self Declaration by employers regarding maintenance of records and registers, submission of Declaration Forms, distribution of Temporary Identification Certificates/Permanent Identity Cards, employees engaged directly or through immediate employers and wages paid to the workers.
  2. All the employers employing 40 and more employees shall have to append a certificate duly certified by a Chartered Accountant in the revised format of Return of Contribution.
  3. Employers employing less than 40 employees will have to provide self-certification without any certification from the Chartered Accountant in Return of Contribution. “

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ESIC inspection & Account Books of employers!

 

Can the ESI Inspector (the SSO) demand the ledger, cash books, balance sheets, Income Tax Assessment Reports, etc., of the employers?

What will happen if the employer says that he has not preserved the records as mandated by the Income Tax Act for six years or as per the Companies Act for eight years?

The Power Point Presentation provides a brief answer to these questions.

Slide

 

Click on the link below for the Power Point Presentatin

Inspection and Account Books

NB: This presention would also provide answer to the comments of Mr. Jai who said, “If an employer does not preserve records as per the Company Act and the Income Tax Act, that is none of the business of ESIC” under the thread “On Amnesty Scheme 2014: Part -II”.

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New Inspection Policy – 2014: Another merry playground for Consultants!

(An organisation entrusted with the statutory duty of providing benefits to the voiceless section of the society has to meaningfully activate Sec. 45 and detect the coverable employees and extend them the benefit provisions, in time. It is possible to do so under the existing provisions of the Act. The New Inspection Policy-2014 must be modified accordingly to help advance the purpose of the Act).

Nothing remains constant, including the Inspection Policy in the ESIC. But, when new policies are framed, the elementary requirement in the policy-making division of the authorities is to record the existing procedure and explain how that procedure is wrong, why a change is needed and how it would improve things.

We are not sure whether such exercise had been done in an intensive manner before bringing out the New Inspection Policy. It was a matter of common knowledge that the earlier New Inspection Policy of 2008 was a totally flawed one and was impractical besides inviting ridicule from the employers and staff alike. Details in this regard had been taken to the knowledge of the authorities both from within and from outside. But, nobody was listening. The attitude of self-righteousness had done great damage to the organisation and also to the working population since then. The legal luminary Nani Palkivala once said that the Income Tax Act was the playground for the lawyers and auditors. The consultants who look after the ESIC related work in factories would also say the same thing in respect of the inspection policies of the ESIC.

The details and defects in this inspection policies and procedures had, already, been brought out in the following posts in this website:
1. https://flourishingesic.info/2012/12/28/action-against-defaulters-quo-vadis-the-esic/
2. https://flourishingesic.info/2012/11/22/esic-inspection-procedure-and-its-impact-on-society/
3. https://flourishingesic.info/2013/01/10/towards-objective-test-inspections-in-the-esic/

But, the present New Inspection Policy goes still further in diluting the responsibility cast on the employers to ensure that the coverable employees are covered in time, on their own.

An employer in Rohini had been regularly paying contribution only in respect of 25 employees, but always in time. He took care to see that he was never in the Defaulters List. As the Sub-Region in charge had a doubt about the constancy in the number of employers, for years, he arranged for surprise inspection by a team of officers. They found that there had actually been 400 employees. Now, the present New Inspection Policy would entrust this analysis to the machine which would only see whether there is 30% variation in compliance meriting inspection. Naturally, the employers like the above mentioned one would be chuckling behind their chairs, when they find this peculiar yardstick entrusted to machines.

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