ESI Act Applicability: Supreme Court Rules Pathological Labs Covered Only After 2007 Notification

The Supreme Court of India recently ruled in the case of E.S.I. Corporation v. M/s. Endocrinology and Immunology Lab regarding the applicability of the Employees’ State Insurance Act, 1948 (ESI Act) to pathological laboratories. The dispute centered on whether the respondent laboratory was covered under the ESI Act from 22.11.2002 as claimed by the appellant (ESI Corporation) or from 06.09.2007 as ruled by the High Court of Kerala.

Background of the Case

The respondent, a pathological laboratory, was inspected on 01.04.1999, and it was found that 19 employees were working there. The ESI Corporation issued a notice claiming that the lab should be covered under the ESI Act. The respondent challenged this before the Employees’ Insurance Court, which ruled that the lab was covered under the Act from 22.11.2002. The respondent’s review petition was dismissed.

The respondent then appealed to the Kerala High Court, which overturned the ESI Court’s ruling and held that the lab was covered under the ESI Act only from 06.09.2007, based on a government notification issued on that date.

Key Legal Issues Considered

The Supreme Court had to determine:

Whether a pathological laboratory could be classified as a “shop” and thus covered under the ESI Act before 2007.
Whether the 2002 circular issued by the ESI Corporation was sufficient to bring pathological labs under the Act.
The significance of the 2007 Kerala Government notification extending ESI Act provisions to medical institutions, including pathological labs.

Arguments by the ESI Corporation

The ESI Corporation argued that:

A 1976 Kerala Government notification extended the ESI Act to all establishments employing 10 or more people, including “shops.”
A pathological lab should be classified as a “shop” as it provides services in exchange for payment.
A 2002 circular specifically included diagnostic centers and pathological labs under the Act.
As a result, the lab should be covered under the ESI Act from 22.11.2002.

Arguments by the Respondent

The respondent laboratory contended that:

A pathological laboratory is not a “shop” as it does not engage in buying or selling goods.
The 1976 notification did not explicitly mention pathological labs.
The Kerala Government issued a specific notification on 06.09.2007, bringing pathological labs under the ESI Act, proving that they were not covered earlier.
Therefore, the ESI Act should apply only from 2007.

Supreme Court’s Analysis and Judgment

1. Pathological Labs Cannot Be Classified as Shops

The Court rejected the argument that a pathological lab is a “shop” under the ESI Act. It noted:

“By no stretch of imagination can it be termed as a shop, where merely buying and selling activities take place, and not the kind of work executed by experts engaged by the respondent.”

2. The 2002 Circular Did Not Have Legislative Authority

The Court ruled that the 2002 circular issued by the ESI Corporation did not have the force of law, stating:

“If pathological laboratories were already covered under the Act, there was no occasion to issue the 2007 notification.”

3. The 2007 Kerala Government Notification Was Conclusive

The Court found that the 2007 notification was a formal extension of the ESI Act to pathological labs. It held:

“The respondent establishment is merely a pathological laboratory. It would be covered under the Act in terms of the Notification dated 06.09.2007 issued by the Government of Kerala.”

Supreme Court’s Decision

Based on the above findings, the Supreme Court dismissed the appeal and upheld the Kerala High Court’s ruling. It concluded:

“For the aforesaid reasons, we do not find any merit in this appeal. The same is hereby dismissed.”

Conclusion

This ruling clarifies that pathological labs were not covered under the ESI Act before 06.09.2007. The judgment ensures that establishments are brought under statutory schemes only through proper legal procedures, not by administrative interpretations. It sets a precedent for determining the applicability of labor laws to specialized establishments like diagnostic centers and medical institutions.

Petitioner Name: E.S.I. Corporation.
Respondent Name: M/s. Endocrinology and Immunology Lab.
Judgment By: Justice Hima Kohli, Justice Rajesh Bindal.
Place Of Incident: Kerala.
Judgment Date: 02-08-2023.

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