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1 | P a g e Journal on Contemporary Issues of Law (JCIL) Vol. 3 Issue 1

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ADMINISTRATION AND ENFORCEMENT OF EMPLOYEES STATE

INSURANCE SCHEME IN INDIA WITH SPECIAL REFERENCE TO

THE STATE OF J&K: A SOCIO-LEGAL ANALYSIS

Nayeem Ahmad Bhat1

ABSTRACT

A man in society faces a number of contingencies and risks which include employment

injury, disablement, ill-health, maternity, old age, widowhood, orphan hood and last but not

the least in importance, unemployment. When faced with the above mentioned contingencies

or risks, an individual does not generally have accumulated wealth to meet them. The result is

tremendous hardships and sufferings, starvation or death. These contingencies afflicted man

from the time immemorial since he started economic activities and urged him during the

centuries to find out effective means for mitigating them. In modern times, with the

tremendous progress of industrial revolution the need to evolve a social policy by the society

itself to mitigate the above incidents has been much greater as it was increasingly felt that the

society has a great role to play in this field if it can justify its name as a welfare state. The

primary objective of being a welfare state is to provide a bulwark against certain common

risks which threaten the security of individuals and families-a bulwark which will stand in the

times of serious economic stress or readjustment as well in so-called ‘normal time’. Judged

from the above standard, we are lagging far behind. However, though the Employees’ State

Insurance Act of 1948 is the pioneer in this field in the whole of Asia, yet during the early

period of its implementation, the progress of the scheme has been slow and tardy. For the last

30 years, the implementation of the scheme has got a tremendous fillip and in order to make

the scheme popular, significant amendments have been made in 1984, 1989, 1991 and 2009.

The Employees’ State Insurance Act (ESI Act) 1948 is a social welfare legislation which

aims at bringing social and economic justice to poor labour class of the land. Its main purpose

is labour welfare. While the insured workmen avails of the pecuniary benefits allowed under

the Act in the form of sickness, maternity, disablement and dependents benefit, the extension

of medical aid and health insurance is still in a state of infancy. The establishment of well-

equipped hospitals for ready medical facilities to workmen is a far off cry. In the present

1 Ph.D Scholar (JRF), Faculty of Law, University of Kashmir.


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study, an attempt has been made by the researcher to highlight the problems confronted by

the labour class and analyze the corresponding provisions of the Employees’ State Insurance

Act of 1948 (as amended from time to time) in India with special reference to the State of

Jammu and Kashmir and to formulate solutions to certain key areas.

Key Words: Social security, Disablement, Benefits, Wage ceiling, Seasonal Factories, Health

Insurance.

INTRODUCTION

The Employees’ State Insurance Act is a legislation which aims at bringing about social and

economic justice to the poor labour class of the land. It aims at bringing labour welfare.2 But

labour welfare is an elastic term bearing somewhat different interpretation in one country

from another according to different social customs, the degree of industrialization and the

educational development of the workers. However the Act is a piece of social security

legislation conceived as a means of extinction of the evils of society, namely want, disease,

dirt, ignorance and indigence. The Act confers benefits on the employees against sickness,

maternity and other disabilities.3 Even though the Act is a pre-constitutional one, it is a post-

independence measure and shares the passion of the constitution for social justice as Articles

38,39,41,42,43 and 43-A of the Constitution show concern for the workers and their welfare.

The Employees’ State Insurance Act is designed to confer benefits on these weaker segments

in situations of distress as is apparent from the preamble.4

The Employees’ State Insurance Act extends to the whole of India. Section 1(3) of this Act

empowers the Central Government to enforce different provisions of the Act in different

States or part thereof on different dates by notification in official gazette. The Act in the first

instance applies to all the factories employing 10 or more persons without using power and

20 or more persons using power, including factories belonging to the government other than

seasonal factories but excluding mines ,railways, running sheds and naval military and air

force installations. It also covers all the employees’ including clerical and supervisory staff,

employed for wages in or in connection with the work of the factory whether employed

2 Mishra S.N. (2011). Labour and Industrial Laws, 26th Ed., Central Law Publications, Allahabad, p.505. 3 E.S.I Corporation V. M.B.Nagraj, 1982 Lab IC 374,380 (Kant). 4 Royal Talkies V.E.S.I Corporation 1978 Lab IC 1245, 1248 (SC).


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directly by the principal employer or through contractor. In other words, the contract labour,

badli and casual workers drawing wages upto rupees ten thousand per month shall have to

make monthly contribution to the ESIC. The Act also contains an enabling provision

permitting extension of its provisions by the appropriate government to any other

establishment or class of establishments, industrial, commercial, agricultural or otherwise.

From 1st April 2004, the Government has increased the wage ceiling to be eligible for the

Employees State Insurance (ESI) scheme from, Rs.6500 to Rs. 7500 per month. With this,

employees with monthly wages exceeding Rs.6500 but under Rs.7500 will come under the

purview of the Act. However the ceiling has now been raised w. e. f from 1st May, 2010 and

the employees of covered units and establishments drawing wages up to Rs.15000 per month

(excluding remuneration for overtime, come under the purview of the ESI Act, 1948 for

multi-dimensional social security benefits. It is important to note here that the provisions of

the ESI Act, 1948 does not apply to institutions where Civil Service Rules do apply.

The administration of the scheme has been entrusted to an autonomous statutory body known

as Employees State Insurance Corporation (ESIC) which is constituted on the basis of the

tripartite representations of the employees, employers and the government.5 The Corporation

is a body corporate having perpetual succession and a common seal with powers to sue and

be sued. Medical care being kingpin of the insurance scheme, representation has been given

to the medical profession in the corporation. The executive of the Corporation is a smaller

body called the Standing Committee which is composed of the members of the corporation

and manages the affairs and exercises powers and functions of the corporation. There is also a

Medical Benefit Council to advise the corporation and the Standing Committee on matters

relating to the administration of the medical benefits. The Council under the chairmanship of

Director-General of Health Services is an advisory body and the employees, employers,

medical profession and the nominees of both state and central government constitute the

council. The administrative structure of the ESIC has a three-tier set up, namely Regional

Boards and Local committees and Regional and Local Medical Benefit councils and their

powers and functions shall be such as may be provided by the rules under the Act.

The Act provides that all the contributions paid under the Employees’ State Insurance Act

and other moneys received on behalf of the corporation shall be paid into the Employees’

State Insurance Fund which shall be administered by the corporation for the purposes of the

5 Section 3 of ESI Act, 1948.


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Act.6 The Act makes its mandatory on all the employees in factories or establishments to be

insured under the Act. However the rates of contribution comprise of the contribution partly

paid by the employer and partly by the employee.7

The actual purpose of the ESI Act is to provide benefits as detailed in the Act to the insured

persons or their dependents.8 The benefits so provided are in the form of Sickness benefit,

Maternity benefit, Disablement benefit, Dependents benefit, Medical benefit and lastly the

benefit in the form of Funeral expenses. The sickness benefit is in the form of periodical

payment to any insured person, provided his sickness is duly certified by a medical

practitioner. The benefit is payable for all seven days of the week and shall be paid at such

rates and subject to qualifications as may be prescribed by the central government. Maternity

benefit is also in the form of periodical payment available to insured woman and is payable in

case of confinement or miscarriage or sickness arising out of pregnancy or pre-mature birth

of the child. The Maternity benefit is generally payable for a period of twelve weeks, six

weeks before and six weeks after pregnancy and shall be paid after making such contribution

and at such rates as may be prescribed by the Central Government. Similarly, any insured

person shall be entitled to periodical payments at such rates and conditions as may be

prescribed by the Central Government if he suffers from disablement benefit resulting from

an employment injury sustained as an employee. Besides these benefits there is Dependents

benefit in the form of periodical payment, if an insured person dies as a result of employment

injury and Medical benefit which is available to the insured employee or to a member of his

family to meet the out-patient treatment in a hospital or dispensary or by visits to the home of

the insured. Lastly, Funeral expenses are payable to the eldest surviving member or to such

other person who incurs the expenses and shall not be paid more than rupees ten thousand.

HISTORICAL RETROSPECT OF THE ESI SCHEME

The Employees’ State Insurance Act, 1948 is a piece of social security enactment. The

history of social security legislations in the country is of recent origin but its inception is an

old one.9A new era has dawned in the horizon of labour legislation in India with the passing

6 Section 26 of ESI Act, 1948. 7 Section 38 & 39 of ESI Act, 1948. 8 Section 46 of ESI Act, 1948. 9 Srivastava K.D. (1991). Commentaries on Employees’ State Insurance Act, 1948, 4th Ed., Eastern Book

Company, Lucknow, pp. 2-3.


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of Employees’ State Insurance Act in 1948, the first of its kind not only in India but also in

the whole of South-east Asia .Though limited in scope, inadequate in providing benefits and

securing only sickness, maternity and employment injury benefits for certain categories of

employees connected with the work of factory, yet having ushered in the first systematic

social security legislation, it has opened a new chapter in the field of labour welfare. It is a

beginning of the scheme of social security on the lines followed in countries much more

advanced economically. So it will not be out of place to mention at this stage a brief history

of the social security measures in India.

1) No Social Security Legislation prior to 1923: Upto early twenties of the last

century, there was no statutory provision for any assistance to any wage earner for

even common hazards of the life. There was no provision for the medical care if a

worker fell ill or was otherwise disabled. There was also no provision of

compensation for the loss of wages during the periods of interruption in his income

due to unemployment, sickness, disability or maternity.

2) Workmen’s Compensation Act, 1923: To fulfill the assurance given to ILO, the

government of India examined the question of enactment of the Workmen’s

Compensation Act on the model of similar British legislation. Provincial governments

were addressed on the subject and they agreed on the advisability of such a legislation

and thus in the year 1923, Workmen’s Compensation Act was passed, which marked

the beginning of social security legislations in India.

3) Provident fund Act and Maternity Benefit Acts: After the passing of Workmen’s

Compensation Act in 1923, the government of India enacted the Provident Fund Act

in 1925 which was made applicable to railways and government industrial

establishments. This period also witnessed the enactment of Maternity Benefits Act

by some provincial governments on the recommendations of the Royal Commission

of Labour in 1929, such as the Delhi, U.P and Bombay Maternity Benefit act.10 But

these Acts fell short of the ideals of social insurance and also failed to provide

adequate security. There was no provision for compulsory insurance of the

employer’s liability.

10 Mallick M.R. (1995). Commentaries on the Employees’ State Insurance Act, 3rd Ed., Eastern Law House

Private Ltd, Calcutta, p.7.


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4) ILO Convention 1927: The ILO adopted a number of conventions regarding social

security since its inception in 1919. At its 10th Session the ILO adopted the

conventions regarding the health insurance and as member country India was to

consider whether it would ratify the said conventions.11 So in1928 the Indian

legislative assembly considered the said question of ratification. However, an official

resolution was moved opposing the ratification. Thereafter an amendment moved by

Shri N.M. Joshi, urging ratification was lost and the official resolution was passed.

The government of India however did not entirely drop the matter but referred it to

the provincial governments for advice. Most of the provincial governments set up

special committees. These committees recommended the introduction of a insurance

scheme of sickness, unemployment, old age, marriage and funeral rites but it did not

suggested any administrative machinery for implementation.

5) Royal Commission on Labour, 1929: Thereafter the problem came up for

consideration by the Royal Commission on Labour which was appointed in 1929. The

Commission inter-alia recommended a scheme of health insurance for industrial

workers on contributory basis financed by the employers and by small deductions

from the wages of workers. Though the Commission realized the difficulties in the

formulation of health insurance for the workers were many and formidable, it

attempted a broad outline of tentative scheme and suggested that in the initial stages

the scheme should be operated on an experimental basis and on the basis of single

establishments.12 The Commission also dealt with the payment of gratuity to railway

employees in its report.13 The matter was then considered by the Labour Minister’s

Conference in 1940 and 1941 and also on other tripartite conferences but without any

substantial results.

6) Third Labour Ministers Conference: Accordingly, when the Third Labour

Minister’s Conference was held in 1942, the Government of India placed before the

conference for its consideration a tentative scheme of sickness insurance for factory

workers. The scheme was of limited scope and was to cover in the first instance only

jute, textile and heavy engineering industries. However this renewed interest evinced

by the government of India in the framing of an actual scheme of health insurance for

factory workers was due to the publication of famous Beveridge Report in U.K

11 Sickness Insurance (Industry) Convention, 1927, (No.24) ILO. 12 Government of India, Report of the Royal Commission on Labour in India, 1929, p.269. 13 Ibid.


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in1942, the Wagner-Murry-Dingell Bill in U.S.A in 1943 an Marshall Plan in Canada

in 1943.

7) Adarkar Report: A milestone in the area of social insurance scheme was reached

with the appointment of a committee presided over by the Prof B.P.Adarkar of

Allahabad University as an officer on special duty for the purpose of formulating a

scheme of health insurance for industrial workers in India. Professor Adarkar,

popularly known as “Chota Beveridge” spent nearly a year and a half in the

preparation of the scheme and submitted it to the Government of India on 15 August;

1944.

8) Towards The First Social Insurance Legislation: The Adarkar Report was

considered by the Tripartite Labour Conference in October 1944 and later by the

Standing Labour Committee in March 1945. After the Report was submitted, the

government of India requested the ILO to send some experts to examine the Report in

the light of conditions prevailing in India and give recommendations on which it

should be modified. Thereafter, a high powered committee consisting of Mr.M.Stack

and Mr.R.Rao, as experts of the ILO were given the task of investigating the scheme

put forth by Prof. Adarkar. Accordingly, the Government of India modified the

Adarkar scheme on the recommendations of ILO experts and published “a unified

scheme of social security” to cover health insurance, maternity benefit and

employment injury. The scheme finally emerged in the form of Workmen’s State

Insurance Bill, 1946 and was introduced in the Constituent Assembly on 6th

November, 1946.

On 21st November 1947 the government came forward with a motion to refer the bill to a

select committee. The select committee made certain amendments to the bill and those

amendments were accepted by the house. These amendments were; Thus the bill as amended

by the select committee with the name of Employees’ State Insurance Bill was passed on 2nd

April 1948, and received the Governor-General’s assent on 19th April 1948.

Thus was born in the world of labour legislations in India a new Act, namely, the E.S.I Act

1948. This Act is not merely the first measure of social insurance in the country but also the

first major social security programme in the whole of South-East Asia. However the Act has


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been subsequently amended from time to time to incorporate certain modifications and

developments in the field by the:

1) Act No.53 of 1951.

2) Act No.44 of 1966.

3) Act No.51 of 1970.

4) Act No.38 of 1975.

5) Act No.45 of 1984.

6) Act No.29 of 1989.

7) Act No.18 of 2010.

It is important to note here that Parliament of India by an amendment extended the E.S.I Act

to the state of Jammu and Kashmir by omitting the words “except the state of Jammu and

Kashmir” from section 1(2) of the latter Act. However the recent amendment Act of 2010

which became effective from 01-06-2010 is a specific piece of document and has

incorporated certain important changes to keep up with the pace of developments in the field

of labour laws and society in general.

ADMINISTRATION OF THE ESI SCHEME

The Employee’s State Insurance Scheme is a social welfare measure aimed to provide the

better work and living opportunities to the labour class in India. To ensure the proper

management and enforcement of the Scheme, the administration of the Scheme has been

entrusted to some key functionaries, like Employees’ State Insurance Corporation (ESIC),

Standing Committee and Medical Benefit Council etc.

The Central Government may by notification in the Official Gazette establish Employees’

State Insurance Corporation for the administration of the scheme of Employee’ State

Insurance in accordance with the provisions of the Act.14 The Corporation shall have a body

corporate by the name of Employees’ State Insurance Corporation having perpetual

succession and a common seal and shall by the said name sue and be sued. The effect of

declaring the Corporation as a body corporate is that it becomes a legal entity like an



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individual anyone who trusts it, trusts that legal person and must look to its assets for any

claim against it.15 A decree or award against the corporate body (i.e., Corporation) is not

enforceable against the individual members but only against the assets of the corporate

body.16

The Act provides for the constitution of the Standing Committee which is the executive body

of the E.S.I. Corporation to administer the day to day functioning. The Standing Committee

shall be constituted from amongst the members of the Corporation. This Committee subject

to the control and superintendence by the Corporation is entrusted with the administration of

the affairs of the Corporation.17

The Act18 also provides for the setting up of a Medical Benefit Council to advise the

Corporation on medical questions and on other matters pertaining to the administration of the

medical benefits.

The Act19 empowers the Corporation to appoint Regional Boards, Local Committees,

Regional and Local Medical Benefit Councils in such areas and in such a manner and

delegate to them such powers and functions, as may be provided by the regulations 10 and

10-A of the General regulations.

The Corporation may appoint such persons as Social Security Officers as it thinks fit, for the

purposes of this Act, within such limits as it may assign to them.20 A Social Security officer

may for the purposes of enquiring into the correctness of any of the particulars stated in any

return referred to in section 44 or for the purposes of ascertaining any of the provisions of this

Act has been compiled with-

(a) require any principal or immediate employer to furnish to him such information as he

may consider necessary for the purposes of this Act; or

(b) at any reasonable time enter any office, establishment, factory or other premises

occupied by such principal or immediate employer and require any person found in

charge thereof to produce to such Social Security Officer and allow him to examine

15 Jhansi Co-operative Oil mills v. Makhan Lal, AIR 1975, AII 492. 16 AIR 1931 Pat 32. 17 Section 8 of ESI Act, 1948. 18 Section 10 of ESI Act, 1948. 19 Section 25 of ESI Act, 1948. 20 Section 45 of ESI Act, 1948.


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such accounts, books and other documents relating to the employment of persons and

payment of wages; or

(c) examine, with respect to any matter relevant to the purposes aforesaid, the principal or

immediate employer, his agent or servant or any person found in such factory,

establishment, office or other premises;

(d) make copies of, or take extracts from, any register, account book or other document

maintained in such factory, establishment, office or other premises;

(e) exercise such other powers as may be prescribed.

A Social Security Officer shall exercise such functions and perform such duties as may be

authorized by the Corporation or as may be prescribe by the regulations and shall for the

purposes of section 44 carry out re-inspection or test inspection of the records and returns

submitted for verifying the correctness and quality of the inspection carried out.

The employer is required under the Act to produce any documents when so called upon by

any inspecting authority of the Corporation. Failure to produce a register by employer on

demand is breach and is punishable.21 The production of evidentiary documents under a

compulsory process offends Article 20(3) of the Constitution if the documents are reasonably

likely to support the case of prosecution against such person.22 The powers of the Social

Security Officer to call for and examine any register can be exercised when he visits any

factory. He has no power to call for production of registers and documents at his office.23

BENEFITS UNDER THE ESI SCHEME AT A GLANCE

Employees State Insurance Scheme is a multidimensional social security system tailored to

provide socio-economic protection to workers and their dependents covered under the

scheme. Besides full medical care for self and dependents of the insured persons, they are

also entitled to variety of cash benefits in times of physical distress due to sickness,

temporary or permanent disablement resulting in the loss of earning capacity and

confinement in respect of the insured women. Dependents of insured persons who die in 21 Employer v. Alibhai, AIR 1963 Nag 79. 22 Sharma v. Satishchandra, AIR 1954 SC 300. 23 State of Saurashtra v. Pitamber Sarjibhai, (1954) I L.L.J.138.


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industrial accidents or because of employment injury or occupational hazards are entitled to

monthly pension called the dependents benefit. At an average the E.S.I Corporation makes 40

lakh to 50 lakh individual payments each year amounting to hundreds of crores of rupees

through its wide spread network of local offices in the implemented areas. The scheme

contained under the E.S.I Act makes provisions for following benefits24-

(1) Sickness and Extended Sickness benefit;

(2) Maternity benefit;

(3) Disablement benefit;

(4) Dependents benefit;

(5) Medical benefit;

(6) Funeral benefit.

TABLE 1.0

ESI BENEFITS AT A GLANCE

Benefit Contributory conditions Duration Rate

1. SICKNESS

BENEFIT

Payment for at least 78 days in

the relevant contribution period.

91 days in two consecutive

benefit periods.

Standard benefit rate (not less than 70%

of average daily wages).

2. EXTENDED

SICKNESS

BENEFIT

Continuous employment for a

period of two years and payment

of contribution for at least 156

days in four contribution

periods.

309 days duration has

been extended beyond 400

days (91 days S.B. plus

309 days E.S.B.) to two

years in deserving cases.

140% of the standard benefit rate (not

more than 80% of wages).

3. ENHANCED

SICKNESS

BENEFIT

Same as for sickness benefit.

7 days for vasectomy and

14 days for tubectomy

extendable in cases of

post-operative

complications.

Twice the standard benefit rate but not

less than full wages.

4. DISABLEMENT

BENEFIT

(EMPLOYMENT

INJURY OR

OCCUPATINAL

DISEASE)

Fifty per cent more than the standard

benefit rate (not less than 90% of average

daily wages).

a. Temporary

Disablement

No condition. Till the incapacity lasts.



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Benefit

b. Permanent

Disablement

Benefit

No condition. For life.

5. DEPENDANTS

BENEFIT (for

death due to

employment

injury or

occupational

disease).

No condition. To immediate dependents.

Fifty per cent more than the standard

benefit rate (not less than 75% of average

daily wages).

6. MATERNITY

BENEFIT

Payment of contribution for 70

days in immediately preceding

two consecutive contribution

periods.

12 weeks of which not

more that

six can precede the

expected date of

confinement; 6 weeks for

miscarriage.

Double the standard benefit rate (not less

than full wages).

7. MEDICAL

BENEFIT

No condition (insured person

and his family are eligible from

the date of entry of insured

person into insurable

employment).

To start with for a period

of 3 months or till the spell

of treatment lasts

whichever is later and

thereafter based on

payment of contribution.

Full medical care (all) facilities including

hospitalization for insured persons and

members of their family.

8. OTHER

BENEFTTS

a) Funeral expenses

No condition (i.e., merely by

virtue of being an insured

person).

Actual expenditure on funeral not

exceeding Rs. 10,000.

b) Rehabilitation

Allowance No condition.

For each day on which

insured person remains

admitted in Artificial

Limb Centre for

fixation/repair or

replacement of artificial

limb.

Double the standard sickness benefit rate

but not less than full wages.

c) Vocational &

Rehabilitation

Insurable employment upto 40%

permanent disablement and

below 45 years age.

Till such training lasts at a

recognized centre/institute.

d) Medical Benefit to

retired and

disabled Insured

Persons

On payment @ Rs. 10/- per

month in lump-sum for one year

in advance.

Period for which

contribution is paid, till

attaining the age of

superannuation.

Full medical care for self and spouse

only.

e) Medical Bonus No conditions other than

insurable employment of

Rs. 2,500 is paid as a lump

sum grant towards

At places where necessary medical

facilities are not available under the ESI


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self/spouse. confinement expenses to

an insured woman, wife of

insured person.

Scheme.

ROLE OF JUDICIARY

The Employees’ State Insurance Act of 1948 is the first social security legislation in our

country brought immediately after independence for employees of factories and

establishments. Though the Act is the pioneer in the field in the whole of Asia yet during the

early period of its implementation, the progress of the scheme had been very slow and tardy.

For the last three decades, the implementation of the scheme has got a tremendous fillip and

in order to make the scheme popular, significant amendments to the Act have been made in

1984, 1989, and 2009. Under the new amendments all the factories governed by the Indian

Factories Act have been brought within its fold in areas where the Act has been implemented.

Shops and Establishments have also been covered by the Act in various States. Both Supreme

Court and High Courts of various States have interpreted several expressions in the Act in a

liberal manner to extend the nature and scope of the Act, regard being had to the fact that the

Act is a social welfare legislation.

In Kanwarji Bhagirathmal v. Employee’ State Insurance Corporation,25 the Delhi High

Court held that preparing of Halwai sweets and salted eatables by the appellant is a

manufacturing process and since 20 persons were working in the manufacturing process, the

establishment was covered by the Employees’ State Insurance Act, 1948.

In Qazi Noorul H.H.H. Petrol Pump and Another v. Deputy Director, E.S.I. Corporation,26

the appellant was running petrol retail out let. He challenged a demand by respondent for

E.S.I. contribution in a writ petition. The High Court dismissed it and the matter went to

Supreme Court on appeal. Dismissing the appeal, the Supreme Court observed that under

Section 2(k) (ii) of the Factories Act pumping oil was a manufacturing process and it had the

same meaning in Section 2(14-AA) of the Employees’ State Insurance Act, 1948.

Therefore, it was held that once the statute was clear, there was no need to go into the object

of the statute and the E.S.I Act was therefore applicable to the appellant.

25 (2005) II L.L.J. (Kerala). 26 (2009) IV L.L.J.653 (S.C).


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In Sumangali v. Regional Director, E.S.I Corporation,27 the Corporation clubbed Rose

Fabrics, Jos Brothers Silk and Sarees and Jos Associates and issued notice claiming coverage

of E.S.I Act to all of them. Dismissing the appeal the Supreme Court held that when the

factual findings recorded by the Courts show that there was unity in management, supervision

and control, geographical proximity, financial unity, general unity of purpose and functional

integrity between different units, then for the sake of E.S.I. coverage, the different units could

be treated as ‘one establishment’; the findings of court below need no interference and the

clubbing of establishments were justified.

In Bal Chandra Agarwal and Another v. Union of India and others,28 the petitioners firm

was registered under the West Bengal Shops and Establishments Act, 1963 as a commercial

establishment. The Employees’ State Insurance Act was made applicable to the firm which

was challenged by it. It was held by the High Court that the petitioner establishment is

engaged in rendering services to its customers by providing technical services and such

selling of services by the firm brings the establishment within the purview of Section 1(5) of

the Act.

It was held in Bharat Commerce and Industries Ltd., Birlagram Nagda v. Regional

Director, Employees’ State Insurance Corporation, Indore and Others,29 that an apprentice

could not be held to be an employee within the meaning of Section 2(9) of the Employees’

State Insurance Act, 1948.

In Managing Director Hassan Co-operative Milk Producer’s Society union Limited v.

Assistant Regional Director, Employees’ State Insurance Corporation,30 the supreme court

held that the Section 2(9) of the Employees State Insurance Act, 1948 required as conditions

for treating workers of immediate employer to be employees of principal employer either that

they should be employed in the premises of factory or establishment or that they worked

under the supervision of the principal employer.

In Kumbukonam Milk Supply Co-operative represented by its Secretary v. Regional

Director, Employees’ State Insurance Corporation, Madras,31the milk co-operative society

was doing the work of preserving milk in cold storage. The Regional Director, ESIC treating

27 (2008) III L.L.J. 861 (S.C). 28 (2002) III L.L.J. 127 (Cal). 29 (2005) III L.L.J. 482 (M.P). 30 (2010) II Lab. L.J. 860 (S.C). 31 (2003) III L.L.J. 416 (Mad).


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this activity of the society as manufacturing process and the society as factory demanded

contribution under the ESI Act of 1948 which was contested by the society. The High Court

held that activity of preserving any article such as milk in cold storage is a manufacturing

process and the hence the petitioner was a factory within the meaning of Section 2(12) of the

Act and was liable to pay contribution.

In Hotel New Nalanda v. Regional Director E.S.I. Corporation,32 the question was whether

E.S.I Act, 1948 would apply to the appellant Hotel or not. The Employees’ Insurance Court

held that it would not apply but the High Court held that Act would apply to it. Hence an

appeal was preferred before the Supreme Court. The Supreme Court held that the finding of

Employees Insurance Court that the appellant did not use power in manufacturing process,

was not so perverse as to merit interference in appeal by the High Court under Section 82(2)

of the E.S.I. Act, 1948. The Supreme Court pointed out that the use of power in

manufacturing process should be direct and proximate. Mere presence of a refrigerator and a

grinder in a tourist home letting out rooms to people, even though they were connected to the

main power line, would not necessarily lead to the interference that the establishment was a

factory as defined in the Section 2(12) of the Act.

In Bombay Anand Bhavan Restaurant and Another v. Deputy Director, E.S.I. Corporation

and Another,33 the Supreme Court observed that the use of L.P.G. satisfied the definition of

“Power” in Section 2(g) of the Factories Act, 1948 as it was mechanically transmitted and not

something generated by human or animal agency. Since the establishment of appellants

involved manufacturing process as per Section 2(12) of the E.S.I. Act, 1948 read with Section

2(k) of the Factories Act, 1948, the Supreme Court held that they could be termed as

“factories” and E.S.I. Act apply to them.

In Christian Medical College v. Employees’ State Insurance Corporation,34 the college had

a department called the Equipment Maintenance Department which maintains the equipments

in the Hospital such as X-Ray, ECG, Radiation equipment etc. It was held by the Supreme

Court that if any repairing work took place as in the present case, with a view to use the

equipment in the other limb, namely the Hospital, such a department was clearly covered by

32 (2009) IV L.L.J. 21 (S.C). 33 (2009) IV L.L.J. 413 (S.C). 34 (2001) I L.L.J. 18 (S.C).


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the term ‘factory’ in the E.S.I. Act, 1948 and hence the Act became applicable to the

department.

In Employees’ State Insurance Corporation, Sub-Regional Office, Hubli v. Belgaum Milk

Union, Belgaum,35 the amount paid to employees for work done on holidays was held to be

wages under Section 2(22) of the E.S.I. Act. The amount paid for work on holidays is

additional remuneration paid at intervals not exceeding two months and hence wages for

which contribution under the Act would be payable.

In Employees’ State Insurance Corporation v. Lucktax III Bangalore,36 Quality Incentive

Scheme was introduced by the employer company to get more work from the employees. The

scheme could be withdrawn at any time by the employer. Under the circumstances, it was

held that the payment made under Quality Incentive Scheme to get more work from the

employees and liable to be withdrawn at any time did not fall within the definition of wages

so as to attract liability for contribution under the Employees’ State Insurance Act, 1948 over

this payment.

WORKING OF ESI SCHEME IN J&K

Employees’ State Insurance Scheme of India is a multi-dimensional social security system

tailored to provide socio-economic protection to the worker’s population and their

dependents covered under the scheme. Besides full medical care for self and dependents, that

is admissible from day one of the insurable employment, the insured persons are also entitled

to a variety of cash benefits in times of physical distress due to sickness, temporary or

permanent disablement etc; resulting in the loss of earning capacity, the confinement in

respect of insured women, dependents of the insured persons who die in the industrial

accidents or because of employment injury or occupational hazards are entitled to a monthly

pension called the dependents benefit.37 The scheme is at present applicable to over five lakh

industrial units in India and covers about fifteen million employees (52.44% of the organized

sector) across the length and breadth of country.

35 (2003) II L.L.J. 1040 (Kant). 36 (2002) II L.L.J. 631 (Kant). 37 Retrieved from http://www.esic.nic.in (last accessed on 27/01/2017)


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In the year 1970, Parliament of India by Amendment Act no. 51 extended the ESI Act of

1948 to the State of Jammu and Kashmir by omitting the words “except the State of Jammu

and Kashmir” from section 1(2) of the latter Act. However, ESI scheme was first

implemented in the State of J&K on 16.10.1989 covering about seven thousand workers in

the centers at Jammu, Kathua and Srinagar.38 The scheme was further extended to certain

establishments under section 1(5) w. e. f. from 08.03.2002 and to educational institutions w.

e. f. 25.11.2005. Similarly the scheme has been extended to include Public Sector

Undertakings (PSU’s), Government Corporations, Universities, Hospitals, Railways and

Independent contractors employing 10 or more persons. Furthermore, the ESI scheme has

been implemented in two more centers viz, Samba and Katra w. e. f. 16.03.2009 and

Udhampur and Kandrorian (Katra) centers w. e. f. 01.01.2011. Till February 2003, the

scheme was administered by the Regional Office, Punjab. The Regional Office of Jammu and

Kashmir was set up in March 2003. The Regional office of J&K caters to the needs of cash

benefits through its three branch offices located at Srinagar, Jammu and Katra and three pay

offices located at Udhampur, Samba and Katra. Similarly Medical benefits are being

provided through a fifty bedded ESI Model Hospital, Bari Brahmana and eight dispensaries

out which four are located in Kashmir division and four in Jammu division. Further tie-up

arrangements for secondary care and super-specialty treatment have been made at Srinagar,

Jammu, Udhampur, Kathua and Samba. Table 1.1 given below gives the list of implemented

areas in the State of J&K as on 31.03.2011.

38 Retrieved from http://www.esicjk.org (Last accessed on 27/01/2017)


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TABLE 1.1

LIST OF IMPLEMENTED AREAS AS ON 31.03.2011 (JAMMU & KASHMIR)

Sr.

No. Name of centre

Name of

District

Date of

implementation

Date of extension

of Medical Care to

families

Date of extension

under section 1(5)

1.

Jammu city up to Municipal limit and

cantonment Board limit. Industrial Area

Bari Brahamana, Birpur, Village Smailpur

& Village Kartholi. Village Miran Sahib,

Muthi, Gangyal, Main Sarkar, Main

Charkan, Basi Khurd and Bishnah

Jammu 16.10.89

16.10.89

[Vide SRO-Dated

06/10/89]

8.3.2002

[Vide SRO Dated

08/03/02]

2. Industrial Area Kathua, Chak Raju, Chak

Ram Singh, Jagatpur and Chak Khuni Kathua 16.10.89 16.10.89 08.03.02

3.

Srinagar Division. Municipal limit of

Srinagar City and Srinagar Cantt.

Village Khonmoh, Pampore, Wuyan,

Lethpora, Khrew.

Srinagar 16.10.89 16.10.89 08.03.02

4. Rangreth Budgam 16.10.89 16.10.89 08.03.02

5.

(i). Katra (All the areas falling within the

Municipal limit of the Municipal Council,

Katra, District Reasi) (J &K)

(ii) All the areas falling within entire

village Kandrorian, Tehsil &Distt. Reasi.

Reasi

Reasi

16.03.09

01.01.2011

16.03.09

01.01.2011

16.03.09

01.01.2011

6.

Samba

1.(All the areas falling within the

Municipal limit of the Municipal Council,

Samba, District Samba) (J &K)

2. All the areas falling within the Limit of

the SIDCO of the Sidco Industrial

Complex, Samba District, Samba (J&K)

Samba

16.03.09

16.03.09

16.03.09


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7.

(i) All the areas falling within the

Municipal Limits of the Municipal Council

Udhampur, Distt. Udhampur

(ii) All the areas falling within the limits of

the SICOP Industrial Complex Battal

Ballian, Rathain, District Udhampur.

Udhampur 01.01.2011 01.01.2011 01.01.2011

Source: www.esicjk.org.

The Regional Office of ESIC, Jammu and Kashmir is located in Jammu and is headed by a

Regional Director. Regional Office is responsible for the administration, coverage of

factories and establishments under the Act, collection of contribution, inspection of factories

and establishments, implementation of the scheme to new geographical areas, administration

of the cash benefits and maintaining liaison work with the State Government to execute the

policy decision framed by the ESI Corporation for the betterment of services to the

stakeholders of the ESI Corporation.

Keeping in view the aforesaid discussion, the present data is based on the information

collected through an empirical research with a view to understand and appraise the opinion of

the insured employees (IP’s) in factories and other establishments in the State of J&K.

However, due to paucity of time and lack of financial resources, the main focus of the study

is factories and establishments which are located within the permissible/notified limits of

Srinagar Municipal Corporation of district Srinagar of State of J&K. The universe of the

study is district Srinagar. One hundred Sample respondents were chosen as the sample for

this study. The five variables of the respondents are chosen on the basis of sex, educational

qualification, monthly salary and designation and type of employment. The questionnaire was

administered to one hundred sample respondents out of which 60% were the male employees

and 40% were the female employees working in various factories/establishments located

within the limits of district Srinagar.


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TABLE: 1.2

IMPLEMENTATION OF ESI SCHEME VIS-A-VIS SAMPLE RESPONDENTS

IN DISTRICT SRINAGAR

Awareness

Level

Fully

Aware % Not Aware %

Aware to

some extent %

No

answer %

Male 60 23 38.33 07 11.66 24 40.00 06 6.0

Female 40 15 37.50 03 7.50 20 50.00 02 2.0

Total 100 38 38.00 10 10.00 44 44.00 08 8.0

Principal

Benefits Know %

Do not

know % Beneficiary %

No

answer %

Male 60 19 31.66 15 25.00 21 35.00 05 8.3

Female 40 10 25.00 12 30.00 10 25.00 08 5.0

Total 100 29 29.00 27 27.00 31 31.00 13 13.0

ESI Premium Regularl

y %

Not

regularly %

Occasional

defaulter %

No

answer %

Male 60 32 53.33 08 13.33 14 23.33 06 10.00

Female 40 21 52.50 06 15.00 10 25.00 03 7.50

Total 100 53 53.00 14 14.00 24 24.00 09 9.00

Benefits

Availed

Within

time

frame

% No time

frame %

Occasional

delay %

No

answer %

Male 60 05 8.33 41 68.33 08 13.33 06 10.00

Female 40 04 10.00 27 67.50 04 10.00 05 12.50

Total 100 09 9.00 68 68.00 12 12.00 11 11.00

Facilities

Provided Satisfied %

Not

satisfied % Not aware %

No

answer %

Male 60 02 3.33 45 75.00 10 16.66 03 5.00

Female 40 01 2.50 28 70.00 06 15.00 05 12.50

Total 100 03 3.00 73 73.00 16 16.00 08 8.00

Maternity

Benefit Received %

Not

Received % Not Aware %

No

answer %

Female 40 05 12.50 14 35.00 19 47.50 02 5.00

Total 40 05 12.50 14 35.00 19 47.50 02 5.00

Harassment

met out Harassed %

Not

harassed %

Fear of being

harassed %

No

answer %

Male 60 25 41.66 12 20.00 18 30.00 05 8.33

Female 40 17 42.50 08 20.00 13 32.50 02 5.00

Total 100 42 42.00 20 20.00 31 31.00 07 7.00


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Out of the 100 respondents administered questionnaire, only 38% of the sample respondents

are fully aware about the Employees State Insurance Scheme (ESI) whereas 10% of the

respondents are unaware of the ESI scheme and 44% of the respondents were aware about the

ESI scheme to some extent whereas 8% did not give any answer about the ESI scheme.

Similarly, only 29% of the sample respondents know about all the principal benefits, whereas

the 27% of the respondents do not know of all the benefits under the ESI scheme and only

31% of the employees have availed benefits under the ESI scheme whereas 13% of

employees gave no answer to this question.

The employers are under a statutory obligation to contribute 4.75% of the wages of an

employee to the ESI fund every month. Table 1.2 showed that 53% of the sample respondents

believe the fact that their employer makes regular payments towards the ESI premium every

month whereas only 14% do not believe this fact and 24% of the sample respondents

believed the fact that their employer is an occasional defaulter whereas 9% of respondents did

not gave answer to this question. These figures show that large number of irregularities

prevail in the payment of ESI premium towards the ESI Fund.

The true need and importance of the ESI benefits can only be realized when they are made

available to a large chunk of employees and without inordinate delay. The study showed that

only 9% of the sample respondents believed that benefits were being made available within

time frame whereas 74% of the respondents said that there was no time frame for availing the

ESI benefits and that 12% of the respondents believe that there was an occasional delay in

receiving the benefits whereas 4% respondents did not give answer to this question. This

shows the lack of enforcement and implementation of the ESI scheme.

The hospitals and dispensaries established under the ESI scheme should be well equipped

with all the facilities and services because a large number of workforce in our country

comprise of the employees registered under the ESI Act of 1948. Table 1.2 showed that only

3% of the sample respondents are satisfied with the facilities provided at the ESI

dispensary/hospital whereas a whopping 73% of the respondents are not satisfied with the

facilities of the ESI dispensary/hospital and that 16% of the respondents are not aware about

the facilities being provided at the ESI dispensary/hospital whereas 8% respondents did not

give any answer to this question. This leads us to the conclusion that basic medical facilities

for the employees of factories/establishments are at a distance not to speak of other high level

medical facilities.


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Maternity benefit is treated as a contingency and an insecurity requiring protection. Since a

large number of females are employed in factories and establishments, maternity protection

has assumed a universal importance. It is given in cases of confinement, miscarriage, sickness

arising out of pregnancy and pre-mature birth of the child. The study showed that out of the

40 female employees, only 12.5% of the sample respondents have received maternity benefit

under the ESI scheme whereas 35% of the respondents did not receive this benefit and that

47.5 % respondents are not aware about the maternity benefit whereas 5% of the respondents

did not give answer to this question. This depicts that there is lack of awareness/knowledge

about maternity benefit provided under the ESI scheme and thus the inadequate

implementation of various provisions of this social welfare legislation.

An employee registered under the ESI scheme should feel free to make his claim whenever

any sort of contingency meets him during the course of employment and there should be no

impediment in availing the benefits under the scheme. Table 1.2 showed that 42% of the

sample respondents agree that they have been harassed for claiming the benefits without any

reason under the ESI scheme whereas 20% of the respondents agree that they have not been

harassed and that 31% of the respondents have apprehension or fear of being harassed and

7% respondents did not give answer to this question. These figures lead us to the conclusion

that even though the ESI Corporation is making tall claims about the value and dignity of the

insured person, but reality depicts the suffering of the insured person in availing the benefits

of the ESI scheme.

CONCLUSION AND SUGGESTIONS

Judged by the standard attained by the advanced countries in this field, the ESI scheme in

India may not be a satisfactory one. Our critical examination of the Employees’ State

Insurance Scheme will testify that our National Government having taken a bold step

immediately after independence to introduce very important social security legislation by

way of the ESI Act has turned its attention to a right direction. It is gratifying to note that this

social insurance scheme for the industrial employees was the first of its kind in South East

Asia. But even though the Act was passed in 1948, the implementation of the scheme was

very slow at the initial stage. The Amendment Act of 1989 will be treated as a landmark for

making this Act applicable to all the Factories governed by the Factories Act except the


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seasonal factories. Now many workers who were so long denied the benefits under the

scheme shall be brought within the purview of the Act. The benefit provisions have also been

made more attractive. The administration of the ESI Corporation is now required to be

streamlined to cope with this extra load. The Act could have provided much needed relief to

Indian workers but owing to its extremely limited coverage, it has failed to meet the needs of

the working class. The ESI Scheme at the first instance is not applicable to unorganized

sector of employment. The Report of the E.S.I. Review Committee 1982 shows that Act

excludes a large bodies of workers in unorganized sectors of employment and the seasonal

factories. Moreover it excludes majority of the Government factories/establishment either due

to the fact that the monthly wages of the employees therein exceeds rupees fifteen thousand

threshold or due to the fact that employees of Central and State Governments are provided

social protection under the rules of their respective Governments. Further the Act is not

applicable to mines; railway running sheds; air; navy and military installations because they

are outside the scope of the term ‘factory’ and are governed by their respective statutes.

Therefore one may come to the conclusion that the workers in the sweated and unorganized

sectors of employment are in greater need of social security benefits than those in organized

sectors. In spite of the repeated notices by the Regional offices of the ESI Corporation to

hospitals, universities, government corporations, and public sector undertakings employing

more than ten persons through contractors to get registered under the Act, nothing substantial

has been done at the ground level. The Corporation, therefore, should find a way to provide

them at least medical, disablement and the dependent’s benefit if the entire ESI scheme

cannot be extended to them. Some such scheme should also be made for smaller

establishments. The Act should be amended to enable the extension of the scheme to seasonal

factories.

The scope of the term ‘employee’ could have curtailed the coverage of the Act but the

judicial process has considerably widened the scope of the term. The term has been further

widened to include dependent contractors for availing the benefits under the Act. This is most

welcome in a welfare state like India wherein part IV of the Constitution spells out the socio-

economic objectives of national policy and declares that “state shall strive for public

assistance in case of unemployment, old age, sickness and disablement” (Art.41). Further the

wage ceiling of Rs.15000/- fixed under the Act is not adequate enough and this bar should be


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raised to Rs.25000/- to cover more and more employees including the government

employees.

The administration of the scheme has failed to achieve the desired results. Under the existing

provisions the ESI Corporation has a fixed strength of around forty. It is suggested that the

size of Corporation should be curtailed so as to make it efficient and working as large number

of positions have created confusion in administering the scheme. Further, it is important to

note that ESI Act has not conferred enough adequate powers on the Social Security Officers.

In India, the State of Jammu and Kashmir is least developed regions in the field of industrial

development as the majority of Government factories/ establishment have become defunct

due to scarcity of financial resources available to the State. But since the last decade there has

been a gradual increase in the number of factories and other establishments in both the

divisions of J&K. However, the working of the Act in the State of J&K on careful

examination reveals that there are many loopholes and impediments in its proper

implementation and enforcement. In other words it can be said that the Act is a flop show in

the State of J&K. The slogan of the ESI Corporation “IP’s our VIP’s” and “chinta se

mukhti” is found wanting.

The following suggestions may also be considered for the improvement of the scheme:

1. The Scheme neither covers all risks nor is it applicable to all the working population.

The coverage of the Act needs to be extended to the smaller industrial units.

2. The Corporation should establish more dispensaries and hospitals of its own for the

benefit of the insured employees and their families. More attention should be given

for all round improvement of the medical facilities.

3. The liberal issue of sickness certificates by insurance medical practitioners had

increased absenteeism in the industries. The concerned authorities should exercise

strict control in this regard.

4. The trade union officials and the workers should be educated about the principles

underlying the insurance schemes and specific provisions of the Act.

5. There shall be adequate representation for all the employers and employees on the

Regional Board.

6. A scheme of ‘no-claim bonus’ for an insured person who does not claim any benefit

during a year should be implemented.


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7. There should be active association of the Corporation with the National Safety

Council in its programme of integrated preventive and curative services.

8. To make necessary amendments in the Act to cover workers employed in coal mines

as per the recommendations of the ILO.

9. To find a way to extend at least the medical benefit, disablement benefit and

dependents benefit to workers in unorganized sectors of employment.

10. To draw a plan corresponding to the national plan for extension.

11. To extend the coverage of the ESI Scheme to additional categories of employment.

12. The State Governments should take effective steps for the extension of the ESI

Scheme to new areas/new classes of establishments as per phased programme drawn

up in consultation with ESIC.

13. There shall be considerable improvement in the type of medical care provided to the

families of insured persons.

14. There should also be an improvement in the quality and standard of medical services

under the ESI Scheme.

15. To raise the ceiling on medical expenses if not to remove altogether.

16. To procure important drugs and their effective storage and distribution.

17. To shift the emphasis in future on prevention of diseases and accidents by way of

periodical medical check-up.

18. The wage limit for the coverage under the ESI Act may be raised with an added

provision that a workman once covered under the scheme will remain so covered even

after his monthly wages exceed the specific ceiling. A provision should also be made

to enable the Central government to raise this wage limit from time to time.

19. A provision may be made for the voluntary coverage of the factories/establishments

which do not come within the purview of the ESI Act at present.

20. Bar on claiming more than one benefit under the ESI Scheme should be removed and

for that purpose suitable provision should be amended.

21. A multiple card system could be introduced so that the beneficiaries can use a

convenient facility whenever required; this will particularly help those employees

whose family members or dependents do not live with them. It would mean that

employees and their families could hold a card each so that even if they lived apart

each could use the most convenient health facility.


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22. Informal tribunals should be established to bring peaceful settlement of the disputes

and claims between the beneficiaries and the employer. Recourse may be sometimes

taken to the arbitration and conciliation rather than having recourse to the judicial

procedure of the ESI Courts.

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