Mere Registration Under Shops & Establishments Act Won't Entitle An Entity To ESI Registration : Kerala High Court

The Kerala High Court has held that an entity will not be entitled to coverage under the Employees State Insurance Act, 1948 (ESI Act) solely on the basis of its registration under the Kerala Shops and Commercial Establishments Act.

The High Court further held that the members of an association of employees, who are self-employed, would not be covered under the ESI Act, unless it is established that those members are employed by the association.

The Court was deciding a dispute regarding the revocation of the ESI Code of the Kerala Electrical Wiremen and Supervisors Association. The Association had voluntarily registered under the ESI Act, following which it was allotted an ESI Code. However, the ESI Code was revoked following the inspections carried out by the ESI officials, who found that the members were self-employed electricians. Since the Association was not found to be employing any person, its ESI registration got revoked.

Challenging the revocation, the Association approached the Employees Insurance Court. The EI Court revoked the cancellation of the ESI Code of the Association. The Court further declared that the members, who are shown as self-employed, cannot be covered under the Act. The EI Court also stated that the Association can register its own employees under the ESI Act.

The Association appealed to the High Court against the EI Court's judgment to the extent it held that members who are shown to be self-employed cannot be registered under the ESI Act. The ESI also filed an appeal against the judgment, challenging it completely.

The bench of Justice Syam Kumar VM  framed three questions of law for consideration :

(1) Whether the EI Court erred in interpreting the term 'employee' under Section 2 (9) of the ESI Act as not to include self-employed persons who have formed themselves into an association and had registered as a Society under the Travancore Cochin Charitable Societies Act?

(2) Whether registration under the Shops and Commercial Establishment Act by itself would entitle an entity to registration under the ESI Act, irrespective of the nature of the activity being carried on?

(3) Can a voluntary registration made under the Act be subjected to scrutiny/verification and if found not meeting the mandates of the ESI Act be revoked by the competent officers of the ESI Corporation?.

As regards the first issue, the Court noted that there is no evidence on record to show that the members are the employees of the Association. The Court agreed with the interpretation given by the EI Court that the term 'employee' under Section 2(9) of the ESI Act as not including the members of the applicant association who were found to be self- employed persons.

"If, the society's members are working under the self-employment scheme and receiving remuneration, it had been unequivocally held that they cannot be treated as 'employees' within the meaning of the Act," the Court observed referring to various precedents.

Regarding the second issue, the Court referred to the judgment of the Supreme Court in Board of Control of Cricket in India v. Regional Director, Employees State Insurance Corp. & Anr (2022) which laid down following test of finding out whether an activity falls within the meaning of the expression “establishment” as per the ECI ACt -  whether the activity is systematically and habitually undertaken for production or distribution of the goods or services to the community with the help of employees in the manner of a trade or business in such an undertaking.

"Thus, the basic features of a shop were culled out to be a business establishment where a systematic or organised commercial activity takes place regarding the sale or purchase of goods or services. It also includes an establishment that facilitates the above said transactions," the High Court observed based on the judgment in BCCI case.

The Court added that  "the production of a registration certificate under the Shops Act will not entitle an entity to claim retention of the voluntary registration that it has obtained under the ESI Act."

The Court also held that the Deputy Director (Incharge) of the ESI Corporation has the power to revoke the ESI registration on finding that eligibility conditions have not been met.

ESI benefits cannot be given to the undeserving

"ESI benefits and privileges are to be availed only by deserving persons. Just as we cannot lose sight of the fact that unscrupulous employers may want to avoid coming within the net of the ESI Act and would take on their rolls employees who would be coverable under the ESI Act just short of the mandatory number, there could be situations where the benefits under the Act may be attempted to be appropriated by persons who are not statutorily eligible for the same. Being a precious welfare measure, ESI benefits cannot be permitted to be squandered or siphoned away," the Court added.

The appeal filed by the Association was dismissed. The ESI's appeal was allowed in part by overruling the EI Court's revocation of the cancellation of the Association's EI Code.

Counsel for the Association: Adv Jacob Chacko

Counsel for the ESI             : Advs Adarsh Kumar and Shashank Devan.

Case : PN Uma Shanker, Secretary, Kerala Elecrtrical Wiremen and Supervisors Association vs The Deputy Director (In Charge) ESI Corporation and others | Insurance Appeal No.12/2023 and 2/2024  

Citation: 2025 LiveLaw (Ker) 177

Click here to read the judgment