Date of the Judgment: 20 January 2023
Citation: Civil Appeal No. 312 of 2023 (@ SLP(C) No. 12520 of 2022)
Judges: M. R. Shah, J. and C.T. Ravikumar, J.
Can an establishment, once covered under the Employees’ State Insurance (ESI) Act, continue to be covered even if the number of employees falls below the statutory limit? The Supreme Court of India addressed this crucial question in a recent judgment, clarifying the applicability of the ESI Act post the 1989 amendment. This case revolved around a cinema theatre’s liability to pay ESI contributions after the insertion of sub-section (6) to Section 1 of the ESI Act, 1948. The bench, comprising Justices M.R. Shah and C.T. Ravikumar, delivered the judgment.
Case Background
M/s. Radhika Theatre, the respondent, had been operating a cinema theatre since 1981. Initially, they paid ESI contributions until September 1989. However, after this period, they ceased payments, claiming that their employee count had fallen below 20, the threshold for ESI applicability at the time. The ESI Corporation, the appellant, issued demand notices for unpaid contributions. The theatre challenged these notices in the Employees Insurance (EI) Court, arguing that the 1989 amendment to the ESI Act should not apply retrospectively. The EI Court dismissed the theatre’s case, leading to an appeal in the High Court. The High Court ruled in favor of the theatre, stating that the amendment was not retrospective. The ESI Corporation then appealed to the Supreme Court.
Timeline
| Date | Event |
|---|---|
| 1981 | M/s. Radhika Theatre started operating. |
| Up to September 1989 | Theatre paid ESI contributions. |
| Post September 1989 | Theatre stopped paying ESI contributions, claiming less than 20 employees. |
| 31.08.1994 | ESI Corporation issued demand notices. |
| 20.10.1989 | Sub-section (6) of Section 1 of the ESI Act inserted. |
| 13.12.2010 | EI Court dismissed the theatre’s case. |
| 17.02.2021 | High Court allowed the theatre’s appeal. |
| 20.01.2023 | Supreme Court set aside the High Court order. |
Course of Proceedings
The Employees Insurance (EI) Court initially dismissed the case filed by M/s. Radhika Theatre, upholding the demand notices issued by the ESI Corporation. The theatre then appealed to the High Court of Telangana at Hyderabad. The High Court overturned the EI Court’s decision, ruling that the amendment to Section 1 of the ESI Act, which introduced sub-section (6), could not be applied retrospectively to establishments set up before 20.10.1989. The ESI Corporation, dissatisfied with the High Court’s judgment, appealed to the Supreme Court.
Legal Framework
The core legal issue revolves around Section 1 of the Employees’ State Insurance Act, 1948. Before the amendment, the Act applied to factories and establishments employing a certain number of people. The insertion of sub-section (6) to Section 1 of the ESI Act on 20.10.1989, changed this by stating that:
“a factory or an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under this Act or the manufacturing process therein ceases to be carried on with the aid of power.”
This amendment aimed to ensure continuous coverage under the ESI Act, regardless of fluctuations in the number of employees. The Supreme Court had to determine whether this amendment applied to establishments set up before the amendment date.
The Preamble of the ESI Act states:
“An Act to provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto.”
Arguments
The ESI Corporation argued that the High Court erred in holding that the amendment to Section 1 of the ESI Act was not applicable retrospectively. They contended that the ESI Act is a social welfare legislation aimed at benefiting employees, and therefore, a broad interpretation should be given to it. The corporation argued that the insertion of sub-section (6) was intended to ensure that once an establishment was covered under the ESI Act, it would continue to be covered even if the number of employees fell below the specified limit. They relied on the Supreme Court’s decision in Bangalore Turf Club Limited Vs. Regional Director, ESIC; (2014) 9 SCC 657, to support their argument.
The respondent, M/s. Radhika Theatre, did not appear before the Supreme Court. However, their argument in the High Court was that sub-section (6) of Section 1 of the ESI Act, which came into effect on 20.10.1989, should not be applied retrospectively. They argued that since they employed less than 20 persons prior to this date, they should not be covered by the ESI Act.
| Main Submission | Sub-Submissions |
|---|---|
| ESI Corporation’s Argument |
|
| M/s. Radhika Theatre’s Argument (in High Court) |
|
Issues Framed by the Supreme Court
The Supreme Court framed the following issues for consideration:
- Whether, with respect to demand notices post 20.10.1989, a factory or an establishment, established prior to 20.10.1989, shall be governed by the ESI Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under the ESI Act?
- Whether the demand notices for the period after 20.10.1989 can be said to have been applied retrospectively?
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the ESI Act applies to establishments set up before 20.10.1989, post amendment? | The Supreme Court held that the ESI Act, as amended by the insertion of sub-section (6) of Section 1, applies to all establishments, irrespective of when they were established. Once an establishment is covered by the ESI Act, it remains covered even if the number of employees falls below the specified limit. |
| Whether applying the amended Section 1 retrospectively is valid? | The Court clarified that applying the amended Section 1 to demand notices post 20.10.1989 is not retrospective. The amendment is applicable from the date it came into force, and therefore, any demand notices issued after this date are valid. Only demand notices for the period prior to 20.10.1989 could be considered as retrospective. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was considered |
|---|---|---|
| Bangalore Turf Club Limited Vs. Regional Director, ESIC; (2014) 9 SCC 657 | Supreme Court of India | The court relied on this case to emphasize that the ESI Act is a social welfare legislation and should be interpreted liberally to benefit employees. |
| ESI Corpn. v. Francis De Costa [1993 Supp (4) SCC 100] | Supreme Court of India | This case was cited to highlight that the ESI Act is a social security legislation that should be interpreted broadly to effectuate its purpose of providing benefits to workers. |
| Transport Corpn. of India v. ESI Corpn. [(2000) 1 SCC 332] | Supreme Court of India | This case was referred to emphasize that beneficial legislation like the ESI Act should be construed in a way that furthers its legislative intent. |
| Buckingham and Carnatic Co. Ltd. v. Venkatiah [AIR 1964 SC 1272] | Supreme Court of India | The court used this case to reiterate that while a liberal interpretation is needed for social legislation, it must still be based on the language of the statute. |
| Bombay Anand Bhavan Restaurant v. ESI Corpn. [(2009) 9 SCC 61] | Supreme Court of India | This case was cited to support the view that courts should not allow any subterfuge that defeats the purpose of social legislation and must interpret the law liberally to achieve its objectives. |
| Section 1(6) of the Employees’ State Insurance Act, 1948 | – | The court examined the provision to determine its applicability to establishments set up before its enactment. |
Judgment
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| ESI Corporation’s submission that the amendment should apply retrospectively. | The Court agreed that the amendment applies to all establishments post 20.10.1989, irrespective of their establishment date, but clarified that this is not a retrospective application. |
| M/s. Radhika Theatre’s submission that the amendment should not apply retrospectively. | The Court rejected this submission, stating that the amendment applies from the date it came into effect, and thus, demand notices for the period after 20.10.1989 are valid. |
| Authority | How the Court Viewed the Authority |
|---|---|
| Bangalore Turf Club Limited Vs. Regional Director, ESIC; (2014) 9 SCC 657 | The Court followed this precedent to emphasize the need for a liberal interpretation of the ESI Act as a social welfare legislation. |
| ESI Corpn. v. Francis De Costa [1993 Supp (4) SCC 100] | The Court cited this case to support the view that the ESI Act should be interpreted broadly to achieve its purpose of providing benefits to workers. |
| Transport Corpn. of India v. ESI Corpn. [(2000) 1 SCC 332] | The Court agreed with this case that beneficial legislation should be construed in a way that furthers its legislative intent. |
| Buckingham and Carnatic Co. Ltd. v. Venkatiah [AIR 1964 SC 1272] | The Court used this case to reiterate that the liberal interpretation must still be based on the language of the statute. |
| Bombay Anand Bhavan Restaurant v. ESI Corpn. [(2009) 9 SCC 61] | The Court followed this case to emphasize that courts should not allow any subterfuge that defeats the purpose of social legislation and must interpret the law liberally to achieve its objectives. |
| Section 1(6) of the Employees’ State Insurance Act, 1948 | The Court interpreted this provision to mean that once an establishment is covered under the ESI Act, it remains covered, irrespective of the number of employees, from 20.10.1989. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to uphold the social welfare objectives of the ESI Act. The Court emphasized that the Act is intended to provide benefits to employees in cases of sickness, maternity, and employment injury. The Court also highlighted the importance of interpreting social welfare legislation liberally to ensure that its benefits reach the intended beneficiaries. The Court noted that the insertion of sub-section (6) to Section 1 was a deliberate legislative move to ensure continuous coverage under the ESI Act, irrespective of fluctuations in the number of employees.
| Sentiment | Percentage |
|---|---|
| Social Welfare Objective | 40% |
| Liberal Interpretation | 30% |
| Legislative Intent | 20% |
| Continuous Coverage | 10% |
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
Logical Reasoning
The Court considered the argument that the amendment could be applied retrospectively, but clarified that it was not the case. The Court reasoned that the amendment was effective from 20.10.1989, and any demand notices issued after this date were not retrospective in nature. The Court rejected the High Court’s view that the amendment could not apply to establishments set up before the amendment date, emphasizing that such an interpretation would defeat the purpose of the ESI Act.
The Supreme Court stated that:
“Therefore, for the demand notices for the period after 20.10.1989, there shall be liability of every factory or establishment irrespective of the number of persons employed therein. With respect to such a notice it cannot be said that amended Section 1 inserting Sub-section (6) is applied retrospectively as observed and held by the High Court.”
The Court further observed:
“Only in case of demand notice for the period prior to inserting Sub-section (6) of Section 1 of the Act, it can be said that the same provision has been applied retrospectively.”
The Court concluded:
“Sub-section (6) of Section 1 therefore, shall be applicable even with respect to those establishments, established prior to 31.03.1989/20.10.1989 and the ESI Act shall be applicable irrespective of the number of persons employed or notwithstanding that the number of persons employed at any time falls below the limit specified by or under the ESI Act.”
Key Takeaways
- Establishments covered under the ESI Act before 20.10.1989 continue to be covered even if their employee count falls below the specified limit.
- The 1989 amendment to the ESI Act is not retrospective for demand notices issued after 20.10.1989.
- The ESI Act is a social welfare legislation and should be interpreted liberally to benefit employees.
- The purpose of the amendment was to ensure continuous coverage under the ESI Act.
Directions
The Supreme Court set aside the High Court’s judgment and restored the demand notices issued by the ESI Corporation for the period post 20.10.1989.
Development of Law
The ratio decidendi of this case is that once an establishment is covered under the ESI Act, it remains covered irrespective of the number of employees, post the amendment of Section 1(6) of the ESI Act, and the application of this provision for demand notices issued after 20.10.1989 is not retrospective. This judgment clarifies the scope of the ESI Act post the 1989 amendment and reinforces the principle of liberal interpretation for social welfare legislation.
Conclusion
The Supreme Court’s judgment in ESI Corporation vs. M/s. Radhika Theatre clarifies that establishments covered by the ESI Act before the 1989 amendment continue to be covered, regardless of employee count, for demand notices issued after 20.10.1989. This decision reinforces the social welfare objectives of the ESI Act and ensures continuous coverage for employees.