MAH. STATE HANDLOOMS CORPORATION LTD. THR. LEGAL OFFICER v. DY. REGIONAL DIRECTOR, EMPLOYEES STATE INSURANCE CORPN., ESIC
Applicability of ESI Act to Sales Depot: No Coverage for Units Without Manufacturing Activity and Fewer Than Ten Employees, Despite Being Part of a Larger Corporation.
Court: Bombay High Court
Citation: 2025:BHC-NAG:14824
Decision Date: 22-12-2025
List of Laws
The Employees' State Insurance Act, 1948; The Factories Act, 1948; Maharashtra Shops and Establishments Act, 2017; The Companies Act, 1956
- Facts: The Maharashtra State Handlooms Corporation Limited appealed against a judgment by the Industrial Court, Akola, which held that the Corporation's Akola Sale Depot was covered under the Employees' State Insurance Act, 1948 (ESI Act). The ESI Corporation had directed the Corporation to deposit contributions for employees at the Akola Sale Depot. The Corporation argued that the Akola Sale Depot was merely a sales outlet with no manufacturing activity and that its employees were already receiving similar or superior benefits.
- Procedural Posture: The Maharashtra State Handlooms Corporation Limited filed a First Appeal in the High Court of Judicature at Bombay, Nagpur Bench, challenging the order of the Industrial Court, Akola, which had upheld the applicability of the ESI Act to its Akola Sale Depot. The High Court admitted the appeal on the substantial question of law: "Whether the Sales Depot of the appellant-Corporation could be held to be covered under the provisions of Employees State Insurance Act, 1948?".
- Issue: Is the Akola Sale Depot of the Maharashtra State Handlooms Corporation Limited, which conducts no manufacturing activity, covered under the provisions of the Employees' State Insurance Act, 1948?
- Holding: No, the Akola Sale Depot is not covered under the provisions of the Employees' State Insurance Act, 1948. The High Court allowed the appeal and quashed the order of the Industrial Court.
- Reasoning: The Court reasoned that the Industrial Court failed to consider that the Akola Sale Depot and the Model Dyehouse, though under the same employer (the Corporation), were separate establishments. The ESI Act's provisions should be applied based on the nature of work carried out in each establishment. The Akola Sale Depot did not engage in any manufacturing process, and the mere supply of products from the Dyehouse did not automatically bring it under the ESI Act. The Court also noted that the Corporation had specific recruitment rules providing welfare benefits to its employees, and the Industrial Court did not adequately consider this aspect. Furthermore, the Court pointed out that to be considered a factory under the ESI Act, a unit should have 10 or more employees, and the Akola Sale Depot had only seven employees and one supervisor. The initial communication from the ESI authority applying the ESI Act to the Akola Sale Depot was deemed incorrect and illegal.
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