Dear Hamid Sir,
As you said, we approached the ESI authorities in Chennai for coverage of our establishment, which is involved in the mobile tower supply and erection business (16 persons were drawing salaries less than ₹15,001 per month, whereas the total strength was 76). However, they said that our establishment cannot be covered as the strength of the coverable employees was below 20. Also, the said amendment was applicable only to factories and not to establishments. Is this true?
Further, they state that even otherwise, since mobile tower erection is not confined to a particular location and it also states that "tower erection" is analogous to civil construction work, only the count of office staff would be reckoned for the purpose of coverage and not the field technicians/field engineers. They have rejected the application.
I have gone through the Act, its rules, and regulations. However, I am unable to find any such clause in support of their contention. Your clarification would be of immense help to me. Thank you.
Ramesh
Mr. Ramesh,
It is true that a recent amendment effective from 1.6.2010 under the gazette notification 1084 dated 1.6.2010 dealt only with factories. In fact, years back, the definition of a factory covered only where "10 or more persons employed," but a subsequent amendment, due to some oversight, said "10 or more persons employed for wages." Wage had a definition in the act, and the ceiling of the wage for the purpose of the ESI act was fixed from time to time by the Government. The Supreme Court in Suri's case accepted the submission of some employers that the definition "10 or more employed for wage" restricts the employees for this purpose to those drawing below the ceiling limit, then at ₹10,000. This was against the stand of the department, and hence to rectify this judgment, the amendment was brought this year. Therefore, from 1.6.2010, the original position is reverted, namely all employees, irrespective of wage ceiling, will be counted to decide the coverage.
The stand of ESIC Tamil Nadu that this amendment applies to factories only is correct, but the Suri Case of the Supreme Court, in any case, did not apply to establishments since the notification of the State Government did not say "20 or more persons employed for wage," but for the purpose of the establishment (shop, etc.), the definition was always "Person employed" and not "Person employed for Wage." The following is the definition of the establishment cut and pasted from one of the websites of ESIC.
Under Section 1(5) of the Act, the Scheme has been extended to shops, hotels, restaurants, cinemas including preview theatre, road motor transport undertakings, and newspaper establishments employing 20 or more persons.
Please note that the word establishment is not defined in the ESI Act. Hence, the notification of the State Government alone is to be followed. All state government notifications under Sec 1 (5) talked only as "20 or more persons."
Hence, no amendment is required for the establishment, and the original position of the Corporation that the total number of persons, irrespective of their wage, needs to be taken to decide coverage, but for actual registration and payment of contribution, only those drawing within the ceiling are to be considered.
Now coming to the question of whether your business is an establishment/shop, I feel that it is a shop, and all employees within the state, regardless of their frequent move or place of work (sometimes in non-implemented areas), should be considered in view of the latest SC judgments. In Southern Agency Rajamundry Case (29.11.200), the SC held that a shop is a place where any commercial activity takes place. In many judgments involving Transport undertakings (like South Eastern Transport case, Transport Corporation case), etc., courts have ruled that employees working in different locations and under the control of a head office or regional office, etc., should be counted together to arrive at the figure of 20. In fact, as per these definitions, even a factory is a shop, but once the manufacturing activity takes place, it will be a shop, and if there is no manufacturing activity but only other economic or commercial activity with 20 persons employed, it will be a shop.
About tower erection, I do not think that to be civil work (involving bricks, cement, sand, etc.) but primarily a fabrication work involving steel trusses, welding, cutting, joining, etc., though a small part (platform) may have a civil component. I think ESIC has covered many such establishments.
Where there are 20 persons employed, in more than one location within the same state which has issued a notification under Sec 1 (5), and all of them are controlled by one single unit having a controlling office (may be a regional office, head office, etc.) and where work is taken on commercial consideration as a business activity, it has to be covered under the ESI Act. Failure by you will be a denial of social security benefits to your workers and failing by ESIC will be a failure to provide statutory protection to a segment.
Please address ESIC appropriately.
O. Abdul Hameed
Formerly Additional Commissioner, ESIC