Is the ESIC Act Applicable to Our Franchisee and Can We Become a Private Limited Company?

I am presently working with one of the franchisees. We are an associate of one of the leading Construction Machinery companies in India. We have around 50 employees working in the office, all of whom are on the payroll of the franchisee.

Applicability of the ESIC Act

Here, I want to know whether the ESIC Act is applicable to us or not. From what I have understood from the law, I believe that yes, it is applicable to us as we have 10+ employees, and our organization is power-using (Section 2(12) of The ESIC Act).

Conversion to a Private Limited Company

Also, please let me know whether our firm can become a Private Limited company or not. I am not very aware of this.

Regards,
Vrushali

The details you provided are not adequate. What is the nature of the activity of this franchisee, and where is it located? Is the franchisor covered by ESIC, and is the franchisee independent of the franchisor in terms of administrative and financial control, etc.? These details may be required to examine the issue.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd.
Mumbai
Tel: [Phone Number Removed For Privacy Reasons]

Thank you so much for replying to my query. I have recently joined this firm, and the information I know is as follows:

1. **Nature Of Work:** Selling of Machinery (We purchase machinery from HO and sell it to the customer).

2. **Franchisor:** Yes, that's a manufacturing firm, and it is covered under ESIC.

3. The franchisee is very much independent; administrative and financial control are completely with the franchise owner.

4. We have offices in Mumbai (Borivali) and Gujarat.

Is this sufficient information, or is anything else required? I will wait for your reply.

Thanks once again.

Regards,
Vrushali

Applicability of ESI Act to Franchisees

The Government of Maharashtra issued a notification dated 18th September 1978 under the ESI Act, which covers "Shops" under ESI. A shop, for the purpose of the ESI Act, does not only include the place where trading of goods takes place, but its scope is widened by various case laws to include any commercial operation. Since your franchisee is involved in commercial operations, it definitely falls within the definition of "Shop."

However, the notification covers only those "shops" under the ESI Act that employ twenty or more employees. Since your franchisee appears to employ fewer than twenty employees and is also independent of the franchisor in terms of control or ownership, in my view, the ESI Act is not applicable to your franchisee.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai
Tel: [Phone Number Removed For Privacy Reasons]

Thank you for making the points so clear to understand. One thing I want to clarify is that the number of employees working in our franchise is 50 (not less than 20). Do we still need ownership of the franchisor to be covered under the ESI Act?

Regards,
Vrushali

If the number of employees in the establishment is 50, you are covered under the ESI Act in Maharashtra as an independent establishment.

Regards,
B. Saikumar
HR & Labour Law Consultant
Chipinbiz Consultancy Pvt. Ltd
Mumbai
[Phone Number Removed For Privacy Reasons]