S.45A ESI Act | Charitable Trust Running Pathology Lab Not 'Factory': Gujarat High Court Sets Aside Orders To Pay Contribution Dues

Holding that activities of a charitable trust providing diagnostic services within a Government Civil Hospital does not prima facie fall within the definition of “factory” under Employees' State Insurance Act, the Gujarat High Court quashed ESIC's Section 45A orders for payment of contribution dues by trust.As per Section 2(12) Factory means any premises including the precincts thereof where 10 or more persons are employed or were employed on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on or is ordinarily so carried on. Justice Hemant M. Prachchhak observed that the authorities had mechanically invoked Sections 45A (Determination of contributions in certain cases where an employer fails to submit returns or obstructs inspection) and 45AA (appellate authority) of the ESI Act without properly examining whether the petitioner's establishment satisfied the statutory definition of a factory. The Court noted that the impugned orders were non-speaking and failed to address the foundational issue of coverage."From the bare perusal of the definition of 'factory', it appears that prima facie the activities carried out by the petitioner Trust does not fall under the provisions of Section 2(12) of the Act and though this fact was proved by the petitioner before the respondent authority by leading cogent material, however, without considering the same the respondent authority has passed a mechanical order. On perusal of the order passed under Section 45A of the Act, it appears that it was not a speaking order passed by the respondent authority. Even while going through the order passed under Section 45AA of the Act, it appears that there was no justifiable reasons recorded by the appellate authority while passing the order and thus, in mechanical manner, the order was passed by the concerned authority". The petition was filed by Surat Manav Seva Sangh, a charitable trust registered under the Bombay Public Trust Act, which had entered into a Memorandum of Understanding (MoU) with the New Civil Hospital, Surat. Under the MoU, the Trust was permitted to run pathology, MRI and dialysis services within the hospital premises, primarily for patients referred by the hospital, at concessional or free rates.The Trust contended that it was not an independent commercial establishment but functioned under the supervision and referral system of the Civil Hospital. It argued that no “manufacturing process,” as understood under the Act, was carried out by it and therefore the essential ingredients of Section 2(12) defining a “factory” were not satisfied.Mr. Dipak R. Dave, appearing for the petitioner-Trust, submitted that the Trust was being subjected to repeated proceedings without fault and that after several years, fresh show-cause notices had been issued demanding damages and interest, which, according to him, pre-determined the entire issue. The Trust ran diagnostic services within Civil Hospital, Surat, out of donations and for the benefit of poor and therefore could not be treated as a “factory” under Section 2(12) of the Act. Further, Mr. Dave submitted that a quasi-judicial authority is bound to record reasons in support of its conclusions, which the orders under challenge had not. Ms. Dimple A. Thaker, appearing for the Employees' State Insurance Corporation, submitted that a remand at this stage would be impermissible in light of the five-year limitation under Section 45A(2) and would effectively allow the petitioner to evade statutory liability. It was also contended that Section 75(3) expressly bars the jurisdiction of other courts, including the writ court. After considering the rival submissions, the Court noted that both the original and appellate authorities had failed to record justifiable reasons while determining coverage and contribution liability. Referring to the Supreme Court's decision in Whirlpool Corporation v. Registrar of Trade Marks, the Court observed that the existence of an alternative remedy does not operate as an absolute bar where there is violation of principles of natural justice or lack of jurisdiction. Holding that the impugned orders were passed in a mechanical manner and were not speaking orders, the Court partly allowed the petition. The orders dated 22.12.2017 and 07.03.2018, as well as the show-cause notices dated 21.01.2020 seeking interest and damages, were quashed and set aside. The matter was remanded to the concerned authority to decide the issue afresh in accordance with law, after granting adequate opportunity of hearing to the parties, as expeditiously as possible.Case title: Surat Manav Seva Sangh v Employees State Insurance CorporationCase no.: R/SPECIAL CIVIL APPLICATION NO.Appearance: Mr. Dipak R. Dave, appearing for the petitioner-Trust and Ms. Dimple A. Thaker appearing for the respondent.Click Here To Read/Download OrderCitation: 2026 LiveLaw (Guj) 43

S.45A ESI Act | Charitable Trust Running Pathology Lab Not 'Factory': Gujarat High Court Sets Aside Orders To Pay Contribution Dues

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S.45A ESI Act | Charitable Trust Running Pathology Lab Not 'Factory': Gujarat High Court Sets Aside Orders To Pay Contribution Dues

Ananya Tangri

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