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Our company is situated in Mumbai. It is basically a trading company and currently has 38 employees working for it. Out of these 38 employees, 10 employees' Gross Salary is less than 10,000/-.

The ESIC Act states that if a company employs 20 or more people and a factory employs 10 or more people, they should register for ESIC. However, the wage limit is less than 10,000/-.

The ambiguity in this situation is that we have 38 employees, but the number of employees eligible for the Act is not more than 20. So, is our company liable to register for ESIC, or should we wait until we have 20 employees whose salary is less than 10,000/-?

Kindly advise. Thanks.

From India, Mumbai
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Hi, The Act is applicable to the company employing 20 or more workers, regardless of the number of workers falling inder ESIC. You should immediately apply to ESIC for registration.
From India, Mumbai
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Dear Aarti,

The act states that when the employee strength reaches 20, the ESI Act will be applicable to that company, whether the number of employees exceeds or falls below the limit. Therefore, in my opinion, you should register under the ESIC Act.

Thanks,
Sahil

From India, Delhi
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But suppose if in a company none of the employees' salaries are less than 10,000, and it employs around 50 employees. For other miscellaneous jobs, they outsource the work to contractors, and the contractors pay for labor ESIC and other benefits. Even in this scenario, the company still has to register itself with ESIC.
From India, Mumbai
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Dear,

As my earlier friend said, yes, the ESIC Act is applicable to this concern. It is the number of employees that decides the ESIC code, not the number of eligible employees.

As Arti has asked, if the concern does not have a single eligible employee and has 50 employees altogether, then it is still required to take an ESI code.

Thank you.

Regards,
J. S. Malik

From India, Delhi
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Arati,

Let me recapitulate the factual matrix of your question.

1. It is a trading concern, no manufacturing activity.

2. Total 38 persons are working.

3. Of the 38 persons working, wages of 10 persons are Rs 10,000 or below, and the remaining 28 persons are getting more than Rs 10,000.

With the above facts, I am sorry to say that all our friends who answered you are wrong. Your shop is not coverable under the ESI Act.

As lots of people are having this doubt, and some of the ESI officials are not advising the employers correctly, I wish to give below a reply given by me to Mr. Malik, today. It is as follows:

I left ESIC in 2006. No amendment has come till then. I just checked with the ESI Department, and no amendment has been made in the law so far, and the SC judgment in Suri case is the law of the land until amended by Parliament. I believe the department suggested an amendment, but the government was not inclined.

Regards,

O. Abdul Hameed

My reply to Mr. Malik -

Mr. Malik,

The SC has finally ruled that for coverage, it should be 20/10 "employees" as defined under the ESI Act and not total persons working in the factory/establishment. Please refer to the SC judgment reported in the case of E.S.I Corporation Vs M.M. Suri and Associates Private Limited, judgment dated 28 Oct 1998 pronounced by Justice D.P. Wadhwa. The Court concluded in that case (para 5) "In our view, therefore, the Act would apply to an establishment only when the number of employees is 20 or more, and all those employees answer the description of an employee contained in Section 2(9) of the Act."

The court further observed, "To controvert the argument that even though the majority of the persons employed are 'employees' and their number is less than 20, they should not be deprived of the benefit under the Act, it was submitted that what will happen when the 'employees' falling within the definition of Sec. 2(9) of the Act are only 2 or 3 though the total strength in the establishment is more than 20. How can it be said in that case that the Act should nevertheless apply to such an establishment? The answer is obviously in the negative that the Act cannot apply."

The confusion persisted only because before the amendment of the ESI act in 1968, the definition of the factory stated as "Person working," and there was no separate definition of "Person." In 1968 when the word factory was amended, the definition stated "Person employed for Wage" (instead of the earlier words Person working). The Court felt that when the word "Wage" is defined, then that definition has to be followed, and hence "person employed for Wage" is the same as "Employees" as defined under the Act.

The ESI department could not do anything further in court, and a revision failed. I think the department has gone to the Central Govt for an amendment, but no amendment has come.

It is one of those few occasions when the Supreme Court did not give a liberal and beneficial construction, in the case of ESI and other labor laws, and went by the literal interpretation.

Therefore, the law of the land is that the reckoning number for deciding coverage has to be 20/10 "Employees" as defined under the ESI act, and not total employment.

Hope I made the position clear. You can get in touch with me at oahamid@yahoo.com.

O. Abdul Hameed

From India, Coimbatore
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Dear Arti,

As per my knowledge, only those employees are eligible for ESIC whose salary is up to Rs. 10,000. So, no matter the employee strength of your organization, my suggestion is that you should apply for the ESIC code as soon as possible.

Thank you.

From India, Ranchi
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Hi!

We need to check whether the work is with power or without power. With power, it applies to 10 employees, including contract employees working in your office (drawing salary/wages below 10K pm). Without power, it applies to 20 employees, including contract employees working in your office (drawing salary/wages below 10K pm). If you are billing with a computer, it means you are working with power.

Reference:
ESIC v Bhagatram & Other, 2002 (100) FJR 751 (Kar HC) LPG
LPG used for making sweets is one source of power, and manufacturing establishments using it are covered within the definition.

Regards,
zsd

From India, Delhi
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Thanks Mr. Hameed, We had similar situation number of employees 20 but none with salary less than 10K. I am sending another query on your email. Would appreciate your inputs on that too.
From India, Delhi
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Dear Arti Gulati,

Our company is situated in Mumbai. It is basically a trading company and currently has 38 employees working for it. Out of these 38 employees, 10 employees' gross salary is less than 10,000/-.

The ESIC Act states that if a company employing 20 or more people and a factory employing 10 or more people should register for ESIC. However, the wage limit is less than 10,000/-.

The ambiguity in this situation is that we have 38 employees, but the number of employees eligible for the Act is not more than 20. So, is our company liable to register for ESIC, or should we wait until we have 20 employees whose salary is less than 10,000/-? Kindly advise.

Dear Arti Gulati,

The coverage under the ESI Act is based on the total number of employees engaged in an establishment, not on the eligible employees to be insured. Since your company employs 38 employees, you are liable to be covered under the Act. It is irrelevant whether the coverable employees are less than 10 or 20, depending on whether it is a factory or shop.

It is important to note that after the coverage of an establishment, if there is subsequently a decrease in the total number of employees (i.e., less than 20 employees in a shop or 10 employees in a factory), the Act will still apply in this case.

Thank you,
Mohd. Arif Khan


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Dear All,

Please do not twist the law, as it may lead to a violation, which is an illegal phenomenon.

Aarti, please do not dwell on Mr. Hameed's email, and ensure that your firm is registered under the ESI Act. ESIC is applicable to your trading firm regardless of the number of eligible employees being less than 20. It has been clarified in previous emails that your company employs more than 20 people.

I am a member of the ESIC functional committee. If the ESI office inquires about the matter, provide my reference, and they will register your company under the ESI Act. If they make any comments on your application, please inform me.

Best Regards,
Sajid Ansari

From India, Delhi
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Hi Regarding your above firstly please find out whether your company location is notified by ESIC or not. If so plesae follow the above procedure shared by our friends Tks & Regards Vadlamani SR
From India, Hyderabad
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Dear All, Mine is a construction equipment manufacturing company. I want to introduce Kaizen activity on the shop floor. Please suggest me ways how can I do it. Shailja
From India, Faridabad
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hello friends I fully endorse the verdict of Mr. Hameed. I am attaching the judgement in the case of ESIC Versus M.M. Suri & Associates (P) Ltd. reported as 1998 LLR 1105 (SC). regards Puneet Gupta
From India, Ludhiana
Attached Files (Download Requires Membership)
File Type: pdf MM Suri case.pdf (92.5 KB, 120 views)

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Dear Aarti,

Please do not get your establishment registered under the ESI Act, as your organization does not come under its purview. Before you proceed with registration under the ESI Act, please review the ruling in the case of M.M. Suri, which I have already shared in my previous email.

Additionally, a friend of mine who claims affiliation with ESIC and contradicts Mr. Hameed's viewpoint is not justified. It is important to acknowledge Mr. Hameed's expertise on the subject.

Furthermore, someone mentioned checking whether your establishment is using power, such as a computer in your office. This could constitute the use of power. For them and my other acquaintances, I must clarify that the ESI Act applies to factories and establishments under different circumstances.

ESI Act vis-a-vis: Factories

The ESI Act is applicable to factories engaged in a "manufacturing process" with or without the aid of power. If using power, the threshold is 10 or more eligible employees; otherwise, it is 20 or more eligible employees. The key criterion is the "manufacturing process."

ESI Act vis-a-vis: Establishments

For establishments, the requirement of a manufacturing process is not applicable. An establishment falls under the ESI Act if:

1. It is located in a notified area; and

2. It has 20 eligible coverable employees earning a salary below 10000 p.m.

I hope I have prevented you from making a misstep based on advice lacking supporting evidence from others, causing unnecessary confusion.

If you have any further queries or require a complete copy of the judgment, please feel free to email me at ad_puneet@rediffmail.com.

Best regards,

Puneet

From India, Ludhiana
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Friends,

This is a general comment on the dangers of websites like this. Blogs are fine on general matters, but when it comes to legal liability, then very generalized opinions can be quite dangerous. A few days back, I expressed this view when an old friend of mine, Prof. Varkey of IIM Ahmedabad, shared his opinion on a post I made.

I have no problem with people disagreeing with me at all. That is what democracy and freedom of speech, which we in India cherish most, even when we starve.

Another matter is the danger of these kinds of free blogs becoming a place to advertise one's profession or service. I feel strongly that the editor or whoever set up this good site should ensure that the site is not used for free advertisement.

Let me make it very clear that I am not a consultant, and my views or services are not available for a fee. I served ESIC for a long time and worked as its State Director in four of the most important states. I headed almost all important functional divisions of the organization and retired rising to the No. 2 position. Now that I have a good pension and a very good private job which keeps me busy for six days, very happy, and allows me to view the department from this side of the private industry, I can contribute a bit to spreading what I know, and nothing more.

Know the law and the logic behind the law. The knowledge of the law is not a monopoly of the law enforcers. In fact, the department administering the law is not the final authority of the law; only the Supreme Court is the final arbiter. You should also remember that many who have worked for years in a particular department may not know the technical aspects of the law of that organization. Why should one think that someone who has worked all their life in the store, personal administration, or accounts department of the Income Tax department should know the intricacies of income tax law, various circulars, and judgments of the tribunal and courts? This is true of ESIC as well as many of the so-called general consultants. Please also remember that sorting out a problem with a department "somehow" (often with corrupt inducement) is quite different from sorting out the matter lawfully and professionally.

Be professional, know the law, be correct, be courageous, and never succumb to illegal methods. Advise your management correctly. If you want to jump into a well knowingly, there's no problem with that, but do not fall into a well unknowingly. That is my advice.

O. Abdul Hameed

From India, Coimbatore
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Hi friends,

I have worked in the industry for more than 30 years in the HR department and have come across different situations. In order to make the act applicable, the ESI authority considers all persons working in the company regardless of their designation, status, salary, or wages earned per month for computing the number of workmen, whether it be 10 or 20. It is irrelevant whether they work in manufacturing units, sales, head offices, sales offices located in different states, etc. Some manufacturing units that employ fewer than 10 employees are also covered by the Act, and the ESI Act is made applicable.

The courts will decide the case based on the evidence presented by the ESI inspector and the company. For more details, feel free to contact me.

Avinash Kanoray
09890752690
aknoray@sify.com

From India, Pune
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Dear,

In my opinion, you are not required to register under the ESI Act as you do not exceed the limit of 20 employees (without motive power) with a salary less than 10K.

You may refer this to your ESIC Consultant or try to register your organization online. The application itself will get rejected by ESIC authorities.

Regards, Mahendra Bhandare 9820511613

From India, Mumbai
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Dear Arti,

According to the Act, if you have 20 or more employees, you need an ESIC code. It doesn't mean that if you have only 10 employees earning 10k or less, you are exempt. You should register your company under the ESIC Act to avoid penalties. Starting from 01/04/10, the wage ceiling amount will be 15k.

With regards,

From India, Gurgaon
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