Kerala High Court Clarifies ESI Act Coverage: Registration Under Shops and Establishments Act Insufficient

The Kerala High Court has ruled that mere registration under the Kerala Shops and Commercial Establishments Act does not automatically qualify an entity for coverage under the Employees State Insurance Act, 1948 (ESI Act). Additionally, the Court emphasized that self-employed individuals who form an association are not considered employees under the ESI Act unless there is clear evidence of an employer-employee relationship between the association and its members.

Case Background

The case involved the Kerala Electrical Wiremen and Supervisors Association, a group of self-employed electricians registered as a society under the Travancore Cochin Charitable Societies Act. The Association had voluntarily registered under the ESI Act and was assigned an ESI Code. However, following inspections by ESI officials, it was determined that the members were self-employed and not employed by the Association. Consequently, the ESI registration was revoked.

Proceedings Before the Employees Insurance Court

Challenging the revocation, the Association approached the Employees Insurance (EI) Court. The EI Court upheld the cancellation of the ESI Code, stating that self-employed members could not be covered under the ESI Act. However, it allowed the Association to register its own employees under the Act.

Appeals to the High Court

Both parties appealed the EI Court's decision. The Association contested the exclusion of its self-employed members from ESI coverage, while the ESI Corporation challenged the reinstatement of the Association's ESI Code.

High Court's Analysis

Justice Syam Kumar VM addressed three key questions:

Whether self-employed individuals in an association qualify as 'employees' under Section 2(9) of the ESI Act.
Whether registration under the Shops and Commercial Establishments Act alone entitles an entity to ESI registration.
Whether a voluntary ESI registration can be scrutinized and revoked if it doesn't meet the Act's requirements.

On the first issue, the Court found no evidence of an employer-employee relationship between the Association and its self-employed members, thereby excluding them from ESI coverage. Regarding the second issue, the Court clarified that registration under the Shops and Commercial Establishments Act does not, by itself, entitle an entity to ESI registration; the nature of the entity's activities must align with the ESI Act's provisions. On the third issue, the Court affirmed that the ESI Corporation has the authority to scrutinize and revoke voluntary registrations that do not comply with the Act's mandates.

Conclusion

The High Court upheld the EI Court's decision, reinforcing that self-employed individuals in an association are not 'employees' under the ESI Act without evidence of an employer-employee relationship. It also emphasized that mere registration under the Shops and Commercial Establishments Act does not automatically qualify an entity for ESI coverage. Furthermore, the ESI Corporation retains the authority to revoke registrations that do not meet the Act's requirements.