Company’s Director receiving remuneration is an ‘Employee’ for ESI Act

By Lovisha Aggarwal | February 05, 2019

CASE:FACTS:  LAW POINTS:  
Employees’ State Insurance Corporation    vs. Venus Alloy Pvt. Ltd.   (Supreme Court, 2019)  Respondent-Company had been covered under the ESI Act and had been depositing the amount of contribution with reference to the wages paid to some of its employees. However, in an inspection carried out by the Appellant (the Corporation), it was observed that the respondent-Company had not made the contribution in respect of the remuneration paid to the Directors.  The Directors of Company, who are receiving remuneration for discharge of duties assigned to them, fall within the definition of an “employee” under Section 2 (9) of the Employees’ State Insurance Act, 1948 (the ESI Act). Thus, the Company has to deposit contribution in respect of the remuneration paid to the Directors with the Employees’ State Insurance Corporation.     “Managing Director, even when to be treated as principal employer, could also be an employee and could carry such dual capacity” [Employees’ State Insurance Corporation Vs. Apex Engineering Pvt. Ltd, (Supreme Court, 1998)] This decision regarding Managing Directors applies with greater force in relation to a Director of the Company, if he is paid the remuneration for discharge of the duties entrusted to him.  

RELEVANT LEGAL PROVISIONS:

Employees’ State Insurance Act, 1948 (the ESI Act)

Section 2(9)

‘Employee’ means any person employed from wages in or in connection with the work of a factory or establishment to which this Act applies and- (i) who is directly employed by the principal employer, on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or (ii) who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinarily part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the purposes of the factory or establishment; or (iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service; and includes any person employed for wages on any work connected with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment, or any person engaged as apprentice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), [and includes such person engaged as apprentice whose training period is extended to any length of time]2 but does not include- (a) any member of the Indian naval, military or air forces; or (b) any person so employed whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government a month: Provided that an employee whose wages (excluding remuneration for overtime work) exceed such wages as may be prescribed by the Central Government at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;”

Section 2(22)

‘wages’ means all remuneration paid or payable in cash to an employee, if the terms of the contract of employment, express or implied, were fulfilled and includes any payment to an employee in respect of any period of authorised leave, lock-out, strike which is not illegal or lay-off and other additional remuneration, if any, paid at intervals not exceeding two months, but does not include- (a) any contribution paid by the employer to any pension fund or provident fund, or under this Act; (b) any travelling allowances or the value of any travelling concession; (c) any sum paid to the person employed to defray special expenses entailed on him by the nature of his employment; or (d) any gratuity payable on discharge;

Read the complete Judgement here