High court overruled in staff insurance case

Recently the Supreme Court in Hotel New Nalanda v Regional Director, ESIC interpreted the applicability of the Employees’ State Insurance Act, 1948 (the ESI Act). The ESI Act provides for health care services and cash benefit payments for employees in the case of sickness, maternity and employment-related injury.

During an inspection in 1991, officers of the Employees’ State Insurance Corporation (ESIC) found 15 people working in the Hotel New Nalanda. They also found a refrigerator and an electric grinder in use there for what they deemed, without elaboration, to be a “manufacturing process”. The ESIC officers took the view that the establishment was a factory within the meaning of section 2(12) of the ESI Act and so was required to comply with the provisions of the act.

The hotel challenged this finding before the employees’ insurance court in Kozhikode, stating that it was in fact a tourist home where rooms were let out to people on a daily or monthly basis. The hotel said that it never employed more than eight people, and that the other seven persons named in the inspection report were not employees, but agents who brought prospective clients to the tourist home from the local railway and bus stations for a small commission. The hotel also said that no manufacturing process was carried on there, much less with the aid of power. The insurance court found that the hotel was not a factory within the meaning of section 2(12) of the ESI Act and was not covered by the act. This finding was overruled by Kerala High Court. The hotel then successfully challenged the high court’s ruling before the Supreme Court.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in, lbhasin@vsnl.com or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.