ESI Contribution, Can't Exempt Establishment Based On Pvt Insurance And Not Having Local Dispensary: AP HC

Background

Jaya Venkatarama Industries (JVI) bought a spinning mill in Inkollu, Andhra Pradesh. The mill was earlier known as Purchur Cotton Growers Co-operative Spinning Mills Ltd., and was set up in 1989. In 2000, it closed down due to financial difficulties, and JVI purchased it through a public auction in 2002.

In 2004, the ESI Corporation served a notice demanding contributions for the period between April 2003 and October 2003. However, JVI claimed that the notice as vague and was issued without a personal hearing. When the ESI corporation proceeded to recovery measures anyway, JVI approached the ESI court. However, the court reject JVI's plea. Aggrieved, they filed an appeal under Section 82 of the ESI Act before the High Court.

Arguments

JVI argued that the factory was located in a very remote area, where the ESI scheme was not yet effectively implemented. They argued that there were no ESI dispensaries in Inkollu, and the nearest one was about 40km away with no direct public transport. They submitted that the workers were already covered under another private insurance scheme through the Workmen's Compensation Act, 1923, and thus, were not receiving any benefits from ESI. They also argued that they were never informed of the factory's inclusion under the ESI Act.

The ESI corporation argued that the factory was covered as per Sections 1(3) and Section 2(12) of the ESI Act, as it employed more than 10 workers and used power in its operations. The Corporation argued that existence or distance of ESI dispensaries from the factory was irrelevant to its liabilities under the ESI act. Further, it was argued out that medical services were being provided by a panel doctor, and that insured workers also had access to super speciality care. The corporation argued that since no substantial question was law was raised in the appeal, the matter was outside the scope of challenge under Section 82.

Court's Reasoning

Firstly, the court confirmed that the factory was indeed covered within the ESI Act. The court rejected the contention that JVI was unaware of its coverage status. Referring to evidence presented by an ESI officer, the court pointed out that medical services were already being provided by a panel doctor, and that insured workers also had access to super speciality hospitals for serious conditions.

The court noted that merely having a private insurance arrangement cannot exempt JVI from its obligations under the ESI Act. The court also confirmed that the presence or absence of ESI dispensaries near the factory, is irrelevant in deciding the statutory obligation to contribute. Thus, the court confirmed that once a factory is considered covered under the Act, it must provide the requisite ESI contributions.

Next, the court addressed the argument that an exemption under Section 87 ought to be given to JVI. The court held that an exemption under that provision can only be granted by the appropriate govt based on specific circumstances. For the same, the court clarified that one had to follow a separate application and inquiry process conducted by the govt.

Lastly, the court agreed that suo motu exemptions can also be granted under Section 87, as it does not mandate any formal application procedure. However, the court clarified that only the appropriate govt has the power to do the same, after conducting a fact evaluation.

Thus, the court dismissed the appeal. Upholding the ESI court's order, the court confirmed that statutory contributions under the ESI Act cannot be waived only because the ESI dispensaries are located far away.

Decided on: 09-05-2025

Neutral Citation: APHC010687162011

Counsel for the Appellant: Mr. V. Surendra Reddy

Counsel for the Respondent: Mr. P. Rajasekhar