The Director General,
New Delhi 110002.
||Undermining the basic concept of social security – through definition of the terms ‘employee’ and ‘wages’ – Clause 2 (26) and Clause 2 (80) of the Code on Social Security, 2019 (Bill No. 375 of 2019 in the Lok Sabha) – representation – submitted.
||1. The Legal notice sent by me on 25.05.2020.
2. Email dated 29.05.2020 sent from the Wage Cell of the Ministry of Labour & Employment to the Director General, ESI Corporation, New Delhi.
1 . I invite your kind attention to the references cited. I submit that the Ministry of Labour has, in the reference second cited, requested for the views of the Hqrs. Office of the ESI Corporation on the issue of wrong equation of the definition of the term ‘wages’ given in Sec. 2 (y) of the Code on Wages, 2019 with the definition of the term ‘wages’ given in the Clause 2 (80) of the Bill on the Code on Social Security, 2019 (Bill No. 375 of 2019) which has been tabled on the Lok Sabha.
Successful Economy presupposes Successful Social Security:
2 . Historically, right from the day when the Royal Labour Commission had undertaken tour in the year 1929 (after the enforcement of the Workman’s Compensation Act, 1923) to study the living conditions of Indian Labour, the employers had been resisting labour welfare measures, as they were under the popular impression (popular among themselves) that the such measures would be increasing their overheads and that they could not compete in the world market. A ‘successful economy’ cannot be built without ‘successful social security’. Both are intricately intertwined, as has been demonstrated by West Germany during the period between 1945 (when Germany was defeated in the WW II) and 1971 (when its DM attained full value). Franklin D. Roosevelt has gone on record having said, at the time of signing the Social Security Act, on 14th August, 1935, that Act was, “in short, a law that will take care of human needs and at the same time provide the United States an economic structure of vastly greater soundness.”
3. “Willing participation of labour” can be obtained only through social security as observed by the Sir William Beveridge in his monumental report presented in November, 1942. Indian social security system was modelled on the report of Beveridge by Prof. Adharkar. Such willing participation would not be there if the benefits provided at the time of contingencies like sickness, accident, maternity, etc., are not really meaningful and substantial to enable the workers to sustain themselves. That was the precise reason that the term ‘wages’ under Sec. 2 (22) had been so defined in the original Act that it was not only the fixed components but also the variable components would be taken into account for determining the recovery of contribution from the employers and to pay benefits to the employees.
Inspections were meant to confirm contribution on real wages and detect concealed employment:
4. I submit that the present opportunity extended by the Ministry of Labour to examine the issue may kindly be made use of and the spirit of the definition under Sec. 2 (22) of the ESI Act,1948 maintained and those provisions retained. This is all the more essential in the context of downplaying the real importance of inspection of records of the employers to ensure proper compliance. “You don’t get what you expect. You get only what you inspect”. This is what the IAS officers are taught too at Mussorie. But the recent labour legislations are to the contrary and the result is that the workers remain uncared for.
5. 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. All the officers from the level of Insurance Inspectors (later SSOs) to the level of Deputy Directors of the ESI Corporation, who had attentively handled the subject would provide numerous evidences of the manner in which the employers tried to play with the term ‘wages’ to pay contribution on reduced amount of wages which would, in turn, result in reduced quantum of benefits to the employees facing contingencies. (More in this regard in the Appendix).
6. It is, therefore, necessary to maintain the difference in the definition of the term ‘wages’ which was conceived of in the year 1948 itself, at the time of enactment of both the Acts, the Minimum Wages Act, 1948 and the ESI Act, 1948. There cannot, therefore, be one and the same definition of the term ‘wages’ for both enactments, the Code on Wages, 2019 and the Code on Social Security, 2019.
ESI Wage Ceiling was on par with the salary of Group ‘A’ Officers:
7. Already because of the weakness of the politcians-in-power to yield to the pressure from the lobby of the employers, the ‘wage ceiling’ under the ESI Act was not kept at the appropriate original stage, especially after 1975. There was a lot of resistance from the employers to revise the wage ceiling for coverage under the ESI Act, periodically, on par with the Consumer Price Index. The ESI Scheme had, in the process, lost its original direction and, thereby, its purpose too, to cover a large section of the middle-level income earners among the Indian population. Consequently, the ESI scheme could not extend its coverage to other classes of establishments, although a provision had, thoughtfully, been made for it under Sec. 1 (5) of the ESI Act.
8. It is, therefore, necessary to examine the issues under Sec. 2 (9) of the ESI Act also while examining the impact of Sec. 2 (22) as both are inter-twined. In the context, I would like to submit a few facts for your kind consideration:
a. When the ESI Act was enacted in the year 1948, the wage ceiling for the purpose of coverage was Rs. 400 pm excluding overtime allowances, as per the proviso to Sec. 2 (9) of the Act. At that time, the total salary of a District Collector was less than that. “A princely sum of Rs. 350 was what used to be the total salary of an IAS (ICS) officer at the start of his services in 1949”. It would show that the framers of the Act conceived of the extension of social-security-net not just to the ‘downtrodden’ but to the well-enlightened and well-paid employees too.
b. In the year 1966, this wage ceiling was increased to Rs. 500 pm (excluding overtime allowance), through a formal amendment to the Act, by the Parliament of India. At that time, the Basic Pay for a new entrant IAS officer in the Junior Scale was Rs. 400 pm in the scale of Rs. 400-400-500-40-700-EB-30-1000 (Ref: Page 109 – Chapter 11 – All India Services – Report of the Third Central Pay Commission – Vol I – Published by the Ministry of Finance, Government of India). A new entrant IAS officer was drawing a total salary of less than Rs. 500 pm in a ‘C’ class of the city.
c. Another relevant and interesting fact in this regard was that as per Sec. 17 (1) of the original ESI Act, permission of the Central Government was required to be obtained by the ESI Corporation, only for the creation the posts which carried the pay scale, the maximum of which was Rs. 500. This figure of Rs. 500 in the year 1948 which was the maximum of the required pay scale for such creation of posts would amply illustrate the importance of the wage ceiling of Rs. 400 pm, at that time, (excluding over time allowance) prescribed for coverage of employees in the factories and establishments. That was the then-intended reach of the ESI Act. (Later this provision has been shifted to subordinate legislation, through an amendment in the year 1975, and now such a permission of the Central Government is sought only for the posts in NFSG as per Rule 20 of the ESI (General) Rules, 1950. )
d. In the year 1975, the wage ceiling for coverage was increased to Rs. 1000 pm, through another formal amendment, by the Parliament of India. At that time, the Third Pay Commission had given its report, according to which the Pay Scale of Income Tax Inspector was 425-700. The Customs Inspector was also drawing in the same scale of 425-700. Thus, when the ESI Act was amended in the year 1975 increasing the wage ceiling to Rs.1000 pm (excluding over time allowance), a new entrant Income Tax Inspector was drawing around Rs. 500 pm only as his total salary in a C class city. A new entrant Class I officer, like the Deputy Director in the ESI Corporation or the Assistant Provident Fund Commissioner in the EPF Organisation then, was drawing less than Rs. 1000 pm as his total salary, as his Scale of Pay was only Rs. 700 – 1300, after the enforcement of the Third Pay Commission Report.
e. Given the above scenario, the impact of coverage of the employees in the factories and establishments drawing wages up to Rs. 1000 (excluding over time allowance) could be easily understood. On numerous occasions, during the personal hearings afforded to employers as per Sec. 45 (A) of the ESI Act, 1948, the Deputy Directors of the ESI Corporation had to encounter the employer’s staff members who were drawing more than the Deputy Directors of the ESI Corporation. It was only in the year 1982 that the salary of the Income Tax Inspectors in the ‘C’ class cities crossed the limit of Rs. 1000 pm, and started overtaking the wage ceiling prescribed under the ESI Act for the coverage of the Insured Persons, which continued to remain at Rs. 1000 (excluding over time allowance).
f. In the year 1984 the wage ceiling was increased to Rs. 1600 pm under Sec. 2 (9), excluding over time allowances. But, soon, as per the Fourth Pay Commission recommendations, from 01.01.1986 onwards, the Pay Scale of the Income Tax Inspectors overtook, again, the wage ceiling prescribed under the ESI Act. The Pay Scale of the Income Tax Inspectors was increased to Rs. 1640-2900 and the salary of the Deputy Directors in the ESI Corporation and the Assistant Provident Fund Commissioners in the EPFO were fixed in the Pay Scale of 2200-4000.
g. Thereafter, the wage ceiling for coverage of insured persons under the ESI Act was not increased at any time on the pattern of the increase made earlier through amendments made to the ESI Act in the year 1966 or 1975, to keep within coverage the insured persons who were drawing wages on par with the salary of the central governments at the middle management level in the Central Civil Service, let alone the position conceived of in 1948 to keep within coverage all those drawing wages even above the salary of the District Collectors.
h .The initial salary of a District Collector now in a ‘C’ class city with a Grade Pay of Rs. 8700, the salary of a new entrant Income Tax Inspector with a Grade Pay of Rs. 4600 and the salary of the APFC with a Grade Pay of Rs. 5400, at present, are far above the wage ceiling of Rs. 21000 presently fixed for coverage of employees under the ESI Act. It is only the salary of the MTS, whose cadre is the lowest point of entry into Central Civil Service ranges from 18000 to 20000 now and is below the wage ceiling of Rs. 21000 pm (excluding over time allowance) prescribed under the ESI Act for coverage of insured persons working in factories and establishments.
I submit that the aforesaid facts would convince everyone how the enlightened section of the employees of the factories and establishments were silently made to keep themselves away, in phases, from the ESIC and from having active participation in monitoring the functioning of the ESI Scheme.
9. The employees’ representatives in the supreme body of the organisation could not get better feedback from such enlightened well-paid employees of the factories and establishments. They, in turn, could not represent the cases of the employees before the the ESIC administration, especially about the medical benefits provided by various state governments, especially the state governments of Bihar, MP, Rajasthan, and UP.
10. A social security scheme, which was originally intended to cover not only the so-called ‘blue-collared workers’ but also the ‘white-collared employees’ was, thus, made to leave out the white-collared employees in bulk during the course of just three decades from 1952. It is significant to point out at this juncture that in the year 1947 when the Bill was prepared, it was called only as “Workman’s State Insurance Bill” on the lines of the Workman’s Compensation Act, 1923. But its name was changed later as “Employees’ State Insurance Bill” considering the extent of its intended reach.
Social Security a ‘service’ not a ‘business’:
11. It is submitted that if the present definition of the term ‘wages’ as per Clause 2 (80) and the definition of the term ‘employee’ as per Clause 2 (26) of the present Bill on the Code on Social Security is made law, the coverage of employees for the purpose of providing social security benefit would not only be infinitesimal but also insignificant. Providing Social Security to the people of the nation, which is a ‘Service’ to be provided by the sovereign government, will get converted by the aforesaid two definitions into ‘business’ by and for the private ultra-rich.
No proper study for Social Impact Assessment:
12. All these modifications have, apparently, been done without conducting any study on the Social Impact on the Indian society. It is submitted that the report of the Second National Commission of Labour cannot be cited as a ruse for these micro level changes which would are intended to have far-reaching deleterious effect on the Indian society as a whole. It is a fact that the Second National Labour Commission did not say anything about drafting a labour law, a Social Security Code, to facilitate handing over the ESIC Medical Colleges along with major hospitals to ‘any person’ or any ‘organisation of persons’, by inserting such questionable phrases as has been recorded in Clause 41(5) of the draft Code dated 17.09.2019 and Clause 39(5) of the Bill 375 of 2019 respectively.
West Bengal ESI Hospitals well-run and incentive grant provided:
13. It is submitted that providing social security to the working population is a sovereign function of the State just like running the nation through Revenue Departments or maintaining law and order through Police Department and administering justice through Courts of Law. Just because there is deterioration in services in certain pockets because of the corrupt politician-bureaucrat nexus, as is said to be there in Revenue Department and Police Department or the political interference said to be there in the Judiciary, there is no proposal coming up from any quarters to dispense with these departments or institutions but to insulate them from corruption and political interference. The concept of the ESI Scheme cannot also be derided and attempted to be dispensed with, for the very same reason. Experience has demonstrated, on many occasions, that the ESIC could be run finer and could be run corruption-free, when there is no political interference in the administration of the organization. The Scandinavian countries top the Human Development Index consistently for long, only because the organizations which provide social security benefits there are run corruption-free.
14. The Chief Minister of West Bengal had said, “The excellent performance of the ESI Hospitals in West Bengal run by our labour department has been recognized by the Centre. An incentive grant of Rs 22.33 crore has been provided, which is first time ever to be received by any ESI Hospital in the country,” (Times of India 09.11.2014).
Judiciary wanted to impose costs on the draftsmen and the legislators:
15. Lord Justice Scrutton observed the following in Roe vs. Russel (1928) :“I regret that I cannot order the costs to be paid by the draftsmen of the Rent Restriction Acts, and the members of the Legislature who passed them, and are responsible for the obscurity of the Acts.” (Page 94- The Closing Chapter – Lord Dennings). The Act passed by the British Parliament was so ambiguous that Lord Scrutton regretted his inability to impose penalty (cost) on the persons who brought into existence such a loosely drafted law.
16. Another Judge Sir Ernest Gowers who said the following in the Plain Words case in the year 1948 as the duty of the draftsmen (Page 95 ibid.): “…. to try to imagine every possible combination of circumstances to which his words might apply and every conceivable misinterpretation that might be put on them, and to take precaution accordingly. ….All the time he must keep his eyes on the rules of legal interpretation and the case law on the meaning of particular words [and on the previous statutes on the same subject-matter] and choose his phraseology to fit them.”. We the Indians, who are said to have adopted the British system of governance more, have to demonstrate that we are capable of framing laws in a proper manner. But the present Bill No. 375 of 2019 does not fit into the parameters of proper law.
Nexus between Clauses 2 (26), 2 (80) and Clause 39(5):
17. I submit that the phraseology of Clauses 2 (26) and 2 (80) read with the phraseology of Claus 39 (5) give a discerning reader reason to believe that there is close nexus between the purpose for which these clauses have been inserted the way they are. I submit that I have used the phrase ‘reason to believe’ in the foregoing sentence with all its legal import as elucidated by the Hon’ble Supreme Court of India in Sony India Ltd Vs. Commissioner of Income Tax on 12.05.2005. The contents of Clause 39 (5) on the one hand and the contents of Clauses 2 (26) and 2 (80) on the other, lead one to the belief that there is a rational connection between the two. The contents of Clause 39 (5) do have a relevant bearing on Clause 2 (26) which leads to the formation of the aforesaid belief.
18. I, therefore, pray that action may kindly be taken to retain in the Bill on the Code on Social Security, 2019 (Bill No. 375 of 2019) the definition of the term ‘wages’ as given in Sec. 2 (22) of the ESI Act, 1948. In the alternative, the contents of Cl. 2 (80) of the said Bill No. 375 of 2019 may be caused to be re-examined and the following words and phrases deleted from the definition of the term ‘wages’ as given therein:
a. The phrase ‘any conveyance allowance or” appearing in the Exclusion Clause (d) of the definition has to be deleted;
b. The phrase ‘house rent allowance” appearing in the Exclusion Clause (f) of the definition has to be deleted;
c. The phrase ‘any overtime allowance” appearing in the Exclusion Clause (h) of the definition has to be deleted;
d. The phrase ‘any commission payable to the employee” appearing in the Exclusion Clause (i) of the definition has to be deleted;
e. The first proviso should be totally deleted as it does not have relevance in a social security enactment. In other words, this proviso starting with the phrase “provided that for calculating” and ending with the phrase “added in wages under this clause” requires to be deleted in toto.
Copy submitted to
The Secretary, Ministry of Labour & Employment, GOI, New Delhi.
The Secretary, Ministry of Law & Justice, GOI, New Delhi.