Summary
A cinema theatre stopped paying ESI contributions after September 1989 because it employed fewer than 20 people. The Telangana High Court set aside the ESI Corporation's demand notices, holding that Section 1(6), inserted with effect from 20.10.1989, could not apply to establishments set up before that date. The Supreme Court reversed. Section 1(6) keeps a covered establishment within the Act even if its workforce later falls below the threshold. Applying it to periods after 20.10.1989 is not retrospective, whenever the establishment was set up. Only demands for earlier periods would involve retrospective operation. The demand notices for the later period were restored.
Issues
- Whether Section 1(6) of the Employees' State Insurance Act, 1948, inserted with effect from 20.10.1989, applies to an establishment set up before that date for periods after it, and whether demand notices for such periods amount to retrospective application of the provision.
Provisions considered
- Section 1(6), Employees' State Insurance Act, 1948On and after 20.10.1989 a factory or establishment to which the Act applies continues to be governed by it notwithstanding that the number of persons employed falls below the specified limit; demands for periods after that date involve prospective operation only. (¶¶ 5, 7)
- Preamble, Employees' State Insurance Act, 1948Being social welfare legislation, the Act receives a liberal construction favouring the beneficiaries, following Bangalore Turf Club and the decisions it relies on. (¶¶ 6, 6.1)
Held
- The ESI Act is a social security measure to be construed liberally in favour of employees, so that, where two views are possible, the one furthering the legislative intent is preferred. (¶¶ 6, 6.1)
- After the insertion of Section 1(6) on 20.10.1989, every factory or establishment covered by the Act is liable irrespective of the number of persons employed, including those established before that date; demand notices for periods after 20.10.1989 do not apply the provision retrospectively, which would be so only for earlier periods, and the High Court seriously erred in holding otherwise. (¶ 7)
Result
Civil Appeal No. 312 of 2023 allowed; the Telangana High Court judgment dated 17.02.2021 in C.M.A. No. 125 of 2011 set aside and the demand notices for the period after 20.10.1989 restored; no costs.