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Case Analysis Of Employee State Insurance Corporation v/s A.K. Abdul Samad, 2016 In Context Of Employee State Insurance Act, 1948

As the number of industries is increasing in the country, the risk of workers and employers working for the same is also increasing rapidly. To protect the interest of the workers from future health consequences, the Employee State Insurance Act was enacted in 1948. This act includes a health insurance program that gives financial assistance to factory workers in the event of illness, maternity, or workplace injury.

The act applies to non-seasonal workplaces with 10 or more employees that use electricity, as well as non-electrical factories with more than 20 employees. This project analyses the case of Employee state insurance corporation vs A.K Abdul Samad and relevant provisions of the Employee State Insurance Act, 1948.

In the expanding concept of human security, social security is just as vital as physical security. Because the right to social security is a human right, everyone has the right to a quality of living that is suitable for his or her own health and well-being and that of his or her family.

The Employee State Insurance Act of 1948 (ESIC) is a piece of social security legislation enacted primarily to provide certain benefits to employees in the event of sickness, maternity, or employment accident, as well as to provide for some other items ancillary thereto. This act has a broader scope than the factory act.

However, if the employment is incidental or in connection with the factory or establishment, the benefits of this act apply to employees whether they work inside or outside the factory or establishment and whether they are directly employed by the principal employee or through an intermediary agency.

The case law, Employee State Insurance Corporate vs A.K Abdul Samad is in the context of the Employee State Insurance Act which raised a question regarding section 85 of the Act that whether the penalty of fine can be decreased according to the judge's discretion, which is analyzed in this project.

Insight Into Employee State Insurance Act, 1948

The Employee State Insurance Act is enacted in 1948 to give various benefits to employees in circumstances of sickness, workplace injury, or during maternity. This act covers the whole of India and applies to all factories including government factories employing 10 or more people and carrying on a manufacturing system with or without the use of power, as well as any other companies that the government may prescribe.

Even if the number of people employed there falls below the stipulated limit or the industrial process therein ceases to be carried out with the aid of power, a factory or other institution to which this Act applies will continue to be controlled by its provisions[1].

Origin of Employee State Insurance Act, 1948:
It was decided in a conference of Labour Ministers in January 1940 to seek the opinions of provincial governments, employers, and employees on the mandatory contribution to the sickness insurance fund.
  • The second conference, which took place in 1941, agreed that any such legislation should be preceded by a thorough analysis of the situation in specific industries.
  • In 1942, a third meeting was convened to review a proposed sickness policy presented by the Government of India's Labour Department. The Conference agreed to adopt the system on a case-by-case basis and advised that workers in the jute, cotton and heavy engineering industries be covered by a sickness insurance scheme. Prof. B.P. Adarkar was assigned as a special officer by the Indian government in 1943 to report on industrial workers' health insurance.
  • In 1944, he submitted a paper that included a complete social insurance contributory scheme. Maurice Stack and Raghunath Rao, members of the International Labour Organization (ILO), who evaluated the scheme at the invitation of the Government of India, offered certain adjustments[2].
  • In 1944 The Labour Conference and the Standing Labour Committee in March 1945 considered the Adarkar Report and the suggestions given by the two ILO members. The following suggestions have been made:
    • The central government should move on with the development of a health insurance program that is applicable to all permanent factories and, if possible, covers workplace injuries and maternity benefits.
    • Before drafting a bill, the scheme should be disseminated to provincial governments and businesses, and workers' organizations.
  • In 1946, The Employees' State Insurance Bill, which mandates sickness, maternity, and work-related injury benefits for workers in permanent industries was introduced.
  • In 1948, the Indian Parliament passed the Employee State Insurance Act. Initially, the ESIC scheme was established on February 2, 1952.

Applicability Of ESI

Non-seasonal, power-using factories or manufacturing units employing ten or more people, as well as non-power-using companies employing twenty or more people, are covered by the ESIC Act. A factory or facility located in a geographical area that has been notified of the scheme's implementation falls within the act's enabling provisions.

Employees of the aforementioned factories or enterprises who are paid less than Rs 6,500 per month are entitled to health insurance coverage under the ESI act[3]. The pay cap for coverage purposes is adjusted on a regular basis to keep up with rising costs of living and subsequent wage increases.

The following cases show the applicability of ESIC:
  • Cricket Club of India vs Employee State Insurance Corporation[5]: - It was held that a club with a kitchen is classified as a factory, and its employees are protected by the ESI Act.
  • Employee State Insurance Corporation vs Tiecicon Pvt Ltd Bombay[6]: - The ESI Act will apply to a company that provides air-cooling services to a building's occupants and employs more than 10 people.
  • Madonna textiles vs Employee State Insurance Corporation, 2000: - When there is geographical unity and functional integrity, three concerns will be grouped together for ESI reasons.
  • Employee State Insurance Corporation, Bangalore vs Bhagatram & Sons[7]: - The use of LPG in the production of sweets shall be considered a power for the purposes of the ESI Act.
Following are some cases where ESI is applicable:
  • Medical Benefit:
    From the day a person starts insurable work, full medical treatment is provided to all ESI participants and their family members. There is no limit on how much an Insured Person or a family member can spend on treatment.
  • Maternity benefit:
    For confinement/pregnancy, a three-month maternity benefit is paid, which can be extended by one month on medical advice at the rate of full wage, subject to contribution for 70 days in the previous year.
  • Disablement Benefit:
    So long as temporary incapacity continues, 90 % of the wage is payable from the day of entry into insurable employment, regardless of whether or not any contribution has been paid.

Case Analysis Of Employee State Insurance Corporation V.S A.K. Abdul Samad (2016) Llr 449 SC

A Brief of the Case:
In Employees State Insurance Corporation vs. A.K. Abdul Samad & Anr[8]., the Supreme Court held that:
"the purpose of creating an offense and a penalty under the Employees' State Insurance Act, 1948 is to deter violations of the act's provisions that benefit employees.

Non-payment of contributions is considered an economic crime; hence the Legislature has imposed a minimum sentence of imprisonment as well as a predetermined punishment of Rs. 5,000 under Section 85(a) I (b) of the Act. Under most provisions, there is no discretion in awarding but the required fee.

Only the proviso, which is in the nature of an exception, vests the court with discretion limited to the imposition of a reduced period of imprisonment. As a result, the fine must be Rs. 5,000, and the courts have no discretion to lessen it once the offense has been established." The discretion granted by the proviso is limited to the period of imprisonment.

The case originates from the criminal proceedings brought by the appellant under Section 85 of the Employee State Insurance Corporation Act, 1948. The employer failed to pay the contribution as required by the act which section 85 declares as a punishment for the respondent. The case was tried in the Special Court for Economic Offences, Bangalore for both the respondents and this court declared both the respondent's guilty and sentenced them to imprisonment until the rising of the court with a fine of Rs. 1000/-.

But according to the appellant, the amount of the fine was decreased to Rs 1000 which could not have been decreased below Rs. 5000 according to the Act. So, the Corporation filed Revision Petitions at the Karnataka High Court in Bangalore. However:
"The High Court dismissed Criminal Revision Petition by relying on judgments of the Kerala High Court and the Patna High Court in the cases of Sebastian Kunju v. State of Kerala[9], 1992 and Tetar Gope v. Ganauri Gope[10], 1968 as well as two Supreme Court judgments in the cases of Surinder Kumar v. State (1987) and Palaniappa Gounder v. State of Tamil Nadu[11]." Therefore, the appellant appealed in the Supreme Court.

Issue Raised:
  • Whether the court has judicial discretion simply to reduce a sentence of imprisonment to less than six months, or whether it also has the discretion to impose no fine or a fine of fewer than five thousand rupees under Section 85(a) I (b) of the Employees' State Insurance Corporation Act?

Contention Of The Appellant
The Appellant's senior counsel has relied on this Court's decision in Zunjarrao Bhikaji Nagarkar v. Union of India, 1999. In this case, failing to impose the necessary penalty as required by law was one of the costs levied against the delinquent employee in a departmental procedure.

Also, "the judgment of a Single Judge of the Patna High Court in the case of Tetra Gope, 1968 was noted in the context of the charge, along with its conclusion that the expression shall even be susceptible to fine in Section 325 of the Indian legal code does not mean that a fine must be imposed in every case of conviction for that offense."

The above opinion of the Patna High Court was noted, and this Court overturned it as incorrect, finding that the language of the Section made both imprisonment and fine mandatory, with only the amount of fine left to the Court's discretion.

The case of Rajasthan Pharmaceutical Laboratory v. State of Karnataka[12], 1981 in which a similar wording - "must even be susceptible to fine" - used under Section 34 of the Drugs & Cosmetics Act, 1940 was examined, provided support for this viewpoint. Because of the phrasing of Section 27(a) (ii), it was decided that a sentence of jail and a fine were both required.

The proviso to the aforementioned Section 27 has a tone and tenor identical to the proviso to the Act's Section 85(i) (b). There is no discretion given to the Court in either proviso to waive the fine. A minimum fine is also remitted under the Act by a specific and specific provision.

Contention Of The Respondent
In light of several judgments dealing with cases under the Indian legal code where the word "shall" have been interpreted as the same as the word "may," the respondent's counsel has supported the impugned judgments, which have held in favor of the availability of judicial discretion to impose a fine of even less than Rupees five thousand.

The argument is that if "shall" is read as "may," the section, which could result in a fine of up to 5,000 rupees, will be clearly directive in character, giving the court judicial discretion to levy or not assess fines that are frequently in the thousands of rupees.

Two judgments of this Court arising out of convictions under Section 302 of the IPC have been cited in support of this position. In Palaniappa Gounder vs state of Tamil Nadu[13], 1977, the Court was asked to determine the appropriateness of a specific fine amount in the context of Section 357(1)(c) of the Code of Criminal Procedure, which provides for compensation to the victim of a criminal offense.

This Court had another opportunity to evaluate the appropriateness of imposing a fine in a case of conviction under Section 302 of the IPC in the matter of Surinder Kumar in 1987. In that case, the Court upheld the conviction and sentence of life imprisonment but dismissed the fine of Rs.500.

The Supreme Court declared that the purpose of introducing an offense and a penalty under the ESI, 1948 is to create deterrence against violations of the act's provisions that benefit employees. Non-payment of contributions is an economic offense; hence the Legislature has set a minimum sentence of imprisonment as well as a predetermined fine of 5 thousand rupees under Section 85(a) I (b) of the Act. Under most provisions, there is no discretion in awarding but the required fee.

Only the proviso, which is in the nature of an exception, vests the court with discretion limited to the imposition of a reduced period of imprisonment. There are no words in the proviso that allow for a fine of fewer than 5 thousand rupees to be imposed.

Thus, the legislature's intentions are plain and leave no room for interpretation, as it is well-established law that if the statute's wordings are clear, no interpretation is required unless there is a need to save the provisions from unconstitutionality or absurdity. As a result, the Bench found in favor of the Appellant and assessed an Rs. 5000 penalty.

Highlight Of This Judgment
  • The Supreme Court pointed out the mistake in the interpretation by the High Court of the simple provisions which were made complicated and wrong from the supreme authority side.
  • The Supreme Court highlighted that a minimum sentence of imprisonment and fine is set for a reason for non-payment to employees and it cannot be further decreased by any legislature.

Analysis Of Provision Of ESI, 1948

Section 85: Punishment for failure to pay the contribution
This section specifies the punishment to employers who fail to pay or deduct any amount of wage to employers or any part of the employer's contribution or if contravenes the provision of sections 72 and 73 for reducing the wages or benefits given to an employee or any act done by the employer which cost the employee his/her salary is punished as follows: -

In case if employer, fails to pay the employee contribution which has been deducted from the employee wage, the employer may face imprisonment for a term which may be extended to 3 years and shall not be less than 1 year and also be liable to a fine of 10k Rs or

In any other case, the imprisonment shall not be less than 6 months, and also be liable to pay a fine of 5k Rs for the offense committed by him in any of the clauses from this section.

From this case, it can be analyzed that the employee criminal petition was correct and the supreme court interpreted the section correctly[14].

Related Case Laws
Zunjarrao Bhikaji Nagarkar v. Union of India[15], 1999
In this case, the complaint against the defendant was that he ordered the application of excise duty and the confiscation of items on things that had been illegally taken, but that his Order-in-Original was silent on the imposition of a punishment. The Supreme Court held that improper application/interpretation of the law is not a form of misconduct because the faulty decision is susceptible to judicial review in an appeal. It was also determined that treating every legal error as an accusation of misconduct would jeopardize the independence of quasi-judicial officers.

Tetar Gope v. Ganauri Gope[16], 1968
In this case, The Supreme Court rejected the position of a single judge of the Patna High Court who claimed that the phrase "must also be liable to fine" in Section 327 of the Indian Penal Code did not imply that a fine must be imposed in every event of conviction under that section. "Such a word has only been used in the Penal Code in connection with those offenses for which the legislature has mandated a prison sentence." In circumstances when punishment is appropriate, the legislation has given the Court power to impose a fine in addition to the mandatory sentence of imprisonment[17].

Palaniappa Gounder v. State of Tamil Nadu[18], 1977
In this case, the supreme court observed: "the fine punishment must not be unnecessarily severe, Further the court held that Though there is the power to combine a sentence of death or life imprisonment with a sentence of fine, that power should be exercised with caution because the sentence of death is a severe penalty to impose, and adding a fine to that grave penalty is hardly calculated to serve any social purpose."

The Supreme Court, in overturning the High Court's decision, stated that punishment cannot be assessed on the basis of the compensation that the deceased's family should get, but must be based on the accused's financial situation as well as the type and degree of the offense.

The ESI Act is a necessary utility for working-class employees in India, as it benefits them while also benefiting sectors outside of the working class.

The ESI Act is unique in that it benefits both employees and employers in different ways. While employees are covered by the act and receive financial assistance in the event of an injury, companies are shielded from being sued twice if they do not provide compensation to their employees. ESIC has played a critical role in providing social insurance to millions of organized-sector workers. It is the country's only social security institution that provides insurance coverage for health, maternity, disability, death, and employment-related emergencies.

I can conclude from the case analyses that, the provisions given under the Employee State Insurance Act proved to be beneficial to the employees for any non-payment of their work and the legislation will provide justice to them given under the Act like imposing proper imprisonment and fine.

  1. Kartik K. Prakash, Awareness about benefits of ESI Act among Contract Workers in JUSCO, SLIDESHARE (Nov. 10, 2021, 13:38 PM),
  2. Dezan & Shira Associates, Employee's State Insurance- A Social Security Scheme in India, INDIA BRIEFING (May 27, 2019),
  3. SIMPLINOTES,, (last visited Nov. 10, 2021)
  4. (1998) IIILLJ 270 Bom
  5. 1995 (71) FLR 529
  6. (2001) IILLJ 973 Kant
  7. (2016) LLR 449 SC
  8. 1992 CriLJ 3642
  9. 1968 CriLJ 1108
  10. 1977 AIR 1323
  11. 1981 SCR (2) 604
  12. 1977 SCR (3) 132
  13. SIMPLINOTES,, (last visited Nov. 10, 2021)
  14. 2001 (6) SCC 491
  15. 1968 CriLJ 1108
  16. Mahboob Ali, Constitutional, Civil, Criminal & Revenue Laws, XLIV, JTRI, 10, (2016)
  17. 1977 SCR (3) 132

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