ESI Act should be given "liberal interpretation":SC, says it is a social welfare legislation

New Delhi: The Supreme Court on Friday said the Employees' State Insurance (ESI) Act, 1948, should be given a "liberal interpretation" and interpreted in such a manner so that social security can be given to the employees.

While dealing with an appeal filed by the ESI Corporation against the February 2021 verdict passed by the high court of the state of Telangana, a bench of Justices M R Shah and C T Ravikumar said any interpretation which would lean in favour of the beneficiary should be given as the Act is a social welfare legislation.

In its verdict, the high court had set aside the December 2010 order passed by the Employees' Insurance Court which had dismissed a plea challenging the August 1994 demand notice issued by the ESI Corporation to a cinema theatre.

"After considering a catena of earlier decisions under the ESI Act, it is observed and held that ESI Act should be given liberal interpretation and should be interpreted in such a manner so that social security can be given to the employees," the apex court said in its judgement.

While setting aside the high court verdict, the bench said the ESI Act being a social welfare legislation any interpretation which would lean in favour of the beneficiary should be given.

It noted that the theatre was running since 1981 and ESI contributions were paid up to September 1989.

The apex court also noted that thereafter as the theatre's employees were less than 20 in number it did not pay the contributions after which the corporation issued the demand notices.

The demand notices were challenged before the Employees' Insurance Court saying that prior to the insertion of sub-section (6) of section 1 of the ESI Act with effect from October 20, 1989 the theatre employed less than 20 persons and therefore was not liable to be covered under the provisions of the ESI Act.

The apex court noted that the Employees' Insurance Court dismissed the case in December 2010 after which the matter went to the high court.

It said the high court had allowed the appeal taking the view that "amendment to section 1 of the ESI Act by which sub-section (6) of section 1 came to be inserted with effect from October 20, 1989, the same shall not be applicable retrospectively....".

Aggrieved by the high court verdict, the ESI Corporation filed an appeal in the apex court and its counsel argued that the high court had erred in setting aside the demand notices even for the period post October 20, 1989 by holding that amendment to section 1 by inserting sub-section (6) shall not be applicable retrospectively.

The top court noted in its verdict that no one appeared before it on behalf of the theatre though notice was served.

It said prior to insertion of sub-section (6) of section 1 of the Act, only those establishments or factories engaging more than 20 employees were governed by the ESI Act.

"However, thereafter, sub-section (6) of section 1 of the ESI Act has been inserted on October 20, 1989, and after October 20, 1989, there is a radical change and under the amended provision a factory or establishment to which ESI Act applies would be governed by the ESI Act notwithstanding that the number of persons employed therein at any time falls below the limit specified by or under the ESI Act," the bench said.

The bench said therefore, on and after October 20, 1989, irrespective of the number of persons employed, a factory or an establishment shall be governed by the ESI Act.

"Therefore, for the demand notices for the period after October 20, 1989, there shall be liability of every factory or establishment irrespective of the number of persons employed therein."

The bench said the high court has erred in setting aside the demand notices even for the period subsequent to October 20, 1989.

"The impugned judgment and order passed by the high court is hereby set aside and the demand notices for the period post October 20, 1989 are hereby restored," the bench said while allowing the appeal.