ESI COURT DOES NOT HAVE POWER TO GRANT EXEMPTION UNDER SEC.75 (1)(g) OF ESI ACT, 1948

The Employees Insurance Act, 1948 (‘Act’ for short) is a piece of social welfare legislation to extend certain benefits to certain classes of employees.  Section 74 gives powers to the State Government to

constitute Employees Insurance Court.

Section 87 of the Act gives powers to give exemption to a factory or establishment or class of factories or establishments.   The said section provides that the appropriate Government may by notification in the Official Gazette and subject to such conditions as may be specified in the Notification, exempt any factory or establishment or class of factories or establishment in any specified area from the operation of this Act for a period not exceeding one year and may from time to time by like notification renew any such exemption for periods not exceeding one year at a time.

The issue to be discussed in this article is whether ESI court is empowered to give exemption under Section 87 of the Act with reference to decided case law in  Zuari Cement Limited V. Regional Director, ESIC, Hyderabad and others – 2015 (8) TMI 546 - SUPREME COURT

Facts of the case

The appellant is engaged in the manufacture and sale of cement at Yerraguntla in Cuddappa District.The said area was brought under the purview of ESI scheme with effect from 01.03.1986.   The Government of Andhra Pradesh granted exemption to the appellant from the operation of the Act from 01.03.1986 to 31.03.1993.  The State Government rejected the application of the appellant for exemption from the period 01.04.1993 to 31.03.2001.   Against this the Regional Director, ESI issued a demand for a sum of ₹ 65,38,537/- towards contribution for the period from 01.04.1993 to 31.03.2001.  The appellant filed writ petitions against the same before the High Court.   The High Court directed the appellant to approach the ESI court under Section 74 of the Act.   The appellant filed review petition before the High Court.   The same was dismissed observing that the appellant has an alternative remedy under Section 74 of the Act.

The appellant again filed writ petitions before the High Court expressing their apprehension that the ESI court may not have the power to grant the relief of exemption from the scheme of the Act and therefore prayed that the appropriate government be directed to consider the issue of exemption by personal hearing to the appellant and by conducting an inquiry.  The High Court held that ESI Court has jurisdiction to decide the issue and all questions including the applicability of the Act can be raised before the ESI Court.

The appellant approached the ESI court under Section 75(1)(g) of the Act challenging the demand notice.   The ESI Court appointed an Advocate Commissioner to submit a report as to the medical benefits made available to the workmen in the Industry.   The Report gave an affirmative one.   On the basis of the report the Court granted future exemption to the appellant from the coverage of the Act and also set aside the impugned demand notices for the period between 1993 to 2001 along with interest.  The Corporation challenged the order of the Court before the High Court contending that the ESI court does not have power under Section 75 of the Act and it is only the appropriate Government which has got the power under Section 87 of the Act to exempt anyone from the application of the Act.   The High Court allowed the appeal of the Corporation and held that ESI Court does not have the power to grant exemption under Section 75(1)(g) of the Act.

Submission of the appellant

The appellant filed appeal before the High Court assailing the correctness of the judgment of the High Court.   The appellant contended the following:

The appellant approached the ESI court pursuant to the directions of the High Court issued in different writ petitions that the ESI court has the jurisdiction to decide the issue of exemption and in the second round of litigation, the High Court was not right in saying that the ESI Court has no jurisdiction;
Section 75(1)(g) of the Act specifically empowers the ESI court to decide the matter which is in dispute between the principal employer and the corporation in respect of any contribution  or benefit or other dues payable or recover under the Act and thus ESI Court has been conferred wide jurisdiction under Section 75(1)(g) of the Act to adjudicate any dispute under the Act;
The appellant has a full-fledged hospital with medial officers and paramedical staff and has spent around 4.09 crores towards establishment of hospital and the appellant is providing better medical and other benefits to the workers  than available under the Act;
Submissions of the Corporation

The ESI Corporation submitted the following before the Supreme Court:

As per Section87 of the Act, only the appropriate government can grant exemption under the Act and under Section 75 of the Act, the ESI Court has no jurisdiction to grant exemption and since ESI Court has acted beyond its jurisdiction;
The High Court rightly reversed the said order of ESI Court;
The jurisdiction can be conferred only in accordance with the statute and neither the order of the High Court nor the consent of the parties can confer the jurisdiction in the ESI Court.
Findings of Supreme Court

The Supreme Court analyzed the provisions of Section 87and Section 75 (1)(g) of the Act.  Section 75 provides the matters to be decided by the ESI Court.   Section 75 (1)(g) provides that if any question or dispute arises as to any other matter which is in dispute between a principal employer and the Corporation, or between the principal employer and an immediate employer or between a person and the Corporation or between an employee and a principal or immediate employer, in respect of any contribution or benefit or other dues payable or recoverable under this Act, or any other matter required to be or which may be decided by the ESI court under this Act.

As per the scheme of the Act, the power to grant exemption is a plenary power given to an appropriate government.   It follows that the ESI Court constituted under Section 74 of the Act has no jurisdiction to take up the question of grant of exemption.   The Court constituted under Section 74 of the Act cannot decide such matters including the validity of an exemption notification.   The order granting or denying exemption is certainly open to judicial review under Article 226 of the Constitution of India.  But the question of exemption under Section 87 cannot be raised under Section 75 of the Act and the ESI Court cannot decide the legality or otherwise of an order relating to an exemption passed by the appropriate government.

While disposing the writ petition, the High Court directed the appellant to approach the ESI Court constituted under Section 74 of the Act for the relief which the appellant had claimed in the writ petitions.   Both the appellant and the Corporation did not challenge the order of the High Court but subjected themselves to the jurisdiction of the ESI Court.   Neither the order of the High Court nor the act of the Corporation subjecting itself to the jurisdiction of ESI Court would confer jurisdiction upon ESI Court to determine the question of exemption from the operation of the Act.   By the consent, parties cannot agree to vest justification in the Court to try the dispute when the Court does not have the jurisdiction.

The Supreme Court observed that grant or refusal of exemption by the appropriate Government cannot said to be a dispute between the employer and the Corporation.  For grant or refusal of exemption, a specific provision is prescribed under the Act and it cannot be brought within the ambit of ‘any other matter’ required to be decided by the ESI Act.

The Supreme Court upheld the judgment of the High Court and dismissed the appeal.