Applicability of ESI Act to Village Tarapur: Supreme Court Ruling

The case between The Employees State Insurance Corporation & Ors. and M/S Key Dee Cold Storage Pvt. Ltd. revolved around the applicability of the Employees’ State Insurance Act, 1948 (ESI Act) to the establishment of the respondent located in Village Tarapur, Assam.

The Supreme Court had to determine whether the notification dated 21.07.1999, which extended the provisions of the ESI Act to certain areas, included the respondent’s cold storage factory located in Ramnagar, Village Tarapur.

Background of the Case

The dispute arose when the Regional Director of the Employees State Insurance Corporation (ESIC) informed the respondent that its factory at Ramnagar, Village Tarapur fell within the notified areas and was therefore liable to comply with the ESI Act. The respondent, however, contended that its factory was outside the municipal limits of Silchar and hence not covered under the notification.

The Employees Insurance Court (EI Court) ruled in favor of ESIC, holding that the notification included Village Tarapur and hence the respondent’s establishment was covered under the ESI Act. However, the Guwahati High Court overturned this decision, holding that the notification applied only to areas within the Silchar Municipal Board and did not extend to the respondent’s factory.

Arguments Presented

Petitioner’s Arguments (Employees State Insurance Corporation)

The notification explicitly mentions Village Tarapur twice, indicating that the entire village was intended to be covered under the ESI Act.
The factory’s location in Tarapur Part III should be included under the coverage of the ESI Act since the notification lists both the Silchar Municipal Corporation and additional areas beyond its limits.
Restricting the notification’s scope to only the municipal limits would be contrary to the legislative intent of extending social security benefits to a larger workforce.
The High Court misinterpreted the notification and failed to consider that the ESI Act is beneficial legislation aimed at protecting employees.

Respondent’s Arguments (M/S Key Dee Cold Storage Pvt. Ltd.)

The factory is located in Ramnagar, Tarapur Gram Panchayat, outside the limits of the Silchar Municipal Corporation and Silchar Revenue Circle.
The municipal authorities issued a certificate stating that the establishment is outside the municipal limits, which supports the contention that it is not covered under the notification.
The High Court correctly interpreted the notification, and expanding its scope would impose an unwarranted liability on the respondent.
The notification must be strictly interpreted, especially since non-compliance with the ESI Act could attract penal consequences.

Supreme Court’s Observations

The Supreme Court ruled in favor of the Employees State Insurance Corporation and overturned the High Court’s decision. The key observations made by the Court were:

The notification mentions areas beyond the Silchar Municipal Corporation, explicitly listing several villages, including Tarapur.
The word “including” in the notification signifies an intention to extend the ESI Act beyond the municipal limits.
The phrase “Tarapur” appears twice in the notification, reinforcing the view that the entire village is covered.
Excluding Ramnagar, Tarapur from the notification’s scope could have widespread consequences, leading to establishments in similar areas claiming exemption from ESI coverage.
Since the ESI Act is a beneficial social legislation, its provisions should be interpreted expansively to extend coverage to more employees.
The failure of the respondent to implead the factory’s employees or the Union of India in the litigation rendered the case legally unsustainable.

Key Excerpts from the Judgment

The Supreme Court stated:

“The notification issued under Section 1(3) of the ESI Act is a statutory notification and should be treated as a part of the statute… The High Court’s restrictive interpretation of the notification dated 21.07.1999 cannot be countenanced.”

The Court further held:

“The terms of the notification cannot be any clearer, and the language used admits no exceptions… The words used are not surplusage but emphatically proclaim the drafter’s intention to include wider areas within the purview of the notification.”

Final Verdict

The Supreme Court allowed the appeal, setting aside the High Court’s decision. The Court confirmed that the respondent’s establishment in Tarapur was covered under the ESI Act as per the 21.07.1999 notification.

Outcome: The appeal was allowed, and the respondent was directed to comply with the provisions of the ESI Act.

Petitioner Name: The Employees State Insurance Corporation & Ors..
Respondent Name: M/S Key Dee Cold Storage Pvt. Ltd..
Judgment By: Justice Hrishikesh Roy, Justice K.M. Joseph.
Place Of Incident: Village Tarapur, Assam.
Judgment Date: 19-05-2022.

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