This appeal, at the instance of Employees State Insurance Corporation, filed under Section 82 (2) of the Employees State Insurance Act, 1948, was admitted by this Court on 16/01/2017 on following two substantial question of law -

“(i) Whether the Employees' State Insurance Court/the Labour Court was justified in entertaining challenge to the demand notice without the Principal employer complying with the provisions contained under Section 75 (2B) of the Employees' State Insurance Act, 1948 (for short 'the ESI Act, 1948') ?

(ii) Whether the ESI Court/Labour Court was justified in holding that provisions of ESI Act, 1948 was not applicable to the applicant i.e. Singh Engineering Works and in consequence setting aside the demand notice ?”

2. The respondent/establishment carries out industrial activities and involved in engineering work in its factory/establishment. It is said that inspection was carried out in the establishment of the respondent by the officers of ESI on 19/09/1989 and in all, 21 workers were found working in the factory premises. The inspection note records that there were six staffs and labour, two watchmen and 13 contractual employees, in all 21 in number. Accepting said inspection report, the appellant complied with the provisions of the ESI Act in the establishment and issued registration notice dated 09/10/1989 (Ex.P/2) followed by notice requiring employees' contribution to be deposited vide notice Ex.P/3. The respondent/establishment, aggrieved by such proceedings, raised a dispute before the Employees' State Insurance Court/Labour Court by moving application under Section 75 of the said Act on the pleadings inter alia that in the establishment of the respondent, number of employees was less than ten. Therefore, in view of the provisions contained in Section 12 (2) of the Act, the provision of ESI Act could not be made applicable to the said establishment and the provident fund scheme could not be enforced so as to require the employer to make contribution towards creation of provident fund in respect of the workers working in the factory.

The appellant filed its reply stating that the appellant formed an opinion with regard to the applicability of the provisions of the ESI Act in the respondent/establishment on the basis of its inspection report (Ex.P/1) as 21 employees were found working in the factory premises.

3. After allowing the parties to lead oral and documentary evidence, the Insurance Court came to the conclusion that the provisions of the Act were not applicable. To record its conclusion, the Insurance Court recorded findings that 13 contract workers could not be treated to be employees within the meaning of the said word under Section 2 (9) of the ESI Act as they were employees of the contractor. The Insurance Court also held that before taking decision to comply the provisions of the ESI Act, the respondent was not afforded opportunity of hearing as mandatorily required under the law.

4. First question of law is whether the Employees' State Insurance Court/the Labour Court was justified in entertaining challenge to the demand notice without the Principal employer complying with the provisions contained under Section 75 (2B) of the Employees' State Insurance Act, 1948 (for short 'the ESI Act, 1948') ?

In this regard, learned counsel for the appellant argued that the Insurance Court committed grave illegality in entertaining the dispute on merits even without there being compliance of the mandatory requirements of pre-deposit to the extent of 50% of the due amount claimed from the Corporation. He would submit that unless the said amount is deposited or duly waived, the application itself would not be maintainable and liable to be rejected.

True it is that under Section 75 (2-B) of the ESI Act, there is a statutory prohibition to raise a dispute unless 50% of the amount due from the employer as claimed by the Corporation is deposited, proviso to the aforesaid provision confers discretion on the