Kerala High Court Upholds Cancellation of ESI Registration, States “Self-Employed Persons Cannot Be Registered as Employees”
Isabella Mariam
The Kerala High Court has upheld the cancellation of an Employees’ State Insurance (ESI) registration, stating that “self-employed persons cannot be registered under the ESI Act as employees.” The matter was heard by Justice Syam Kumar V.M., who observed that there was “no reliable material to show that the members of the petitioner association were employees under the ESI Act.” The court set aside the Employees Insurance Court (EI Court) order revoking the cancellation of the ESI code and held that the ESI Corporation was within its authority to take action in accordance with the law.
The case arose from two appeals related to a decision by the EI Court, Alappuzha. The first appeal was filed by the Secretary of the Kerala Electrical Wiremen and Supervisors Association, challenging the EI Court's finding that its members could not be registered under the ESI Act as employees. The second appeal was filed by the ESI Corporation, challenging the EI Court’s revocation of the cancellation of the petitioner’s ESI code.
The petitioner association is registered as a charitable society under the Travancore-Cochin Literary and Charitable Societies Act, 1955. It carries out electrical work at various locations, including government institutions and private establishments. The association had applied for registration under the ESI Act through the ESIC online portal and was issued an ESI code. However, another association with a similar name initiated legal proceedings in the District Court, Ernakulam, regarding the validity of the registration.
Subsequently, a Social Security Officer (SSO) from the ESI Corporation conducted multiple inspections at the petitioner’s premises on February 1, 2021, and February 3, 2021. During these inspections, the petitioner was asked to provide records demonstrating that its members were employees under the ESI Act. The ESI Corporation later issued an order on March 9, 2021, canceling the petitioner’s ESI registration.
The petitioner contended before the EI Court that its members, who were qualified electricians, were working under the association’s supervision and therefore met the statutory definition of employees under the ESI Act. It argued that it had complied with all directives, including remitting contributions and submitting audited balance sheets.
The ESI Corporation opposed the appeal, stating that the members of the petitioner association were self-employed individuals who received payment directly from customers without the involvement of the association. It was contended that there was no employer-employee relationship as required under the ESI Act, making the registration invalid.
The High Court examined whether the members of the petitioner association met the definition of "employee" under Section 2(9) of the ESI Act. It recorded that “the so-called employees registered by the petitioner association are actually its members who are already self-employed and engaged in their own avocation independently.”
The court further observed that “merely forming an association does not entitle self-employed individuals to claim employee status under the ESI Act.” It reviewed the evidence presented, including work orders and financial records, and found that “there is no reliable material to show that the petitioner association is the employer and the persons registered are employees, meeting the mandates of the Act.”
The judgment referred to the Supreme Court’s decision in P.M. Patel & Sons v. Union of India (AIR 1987 SC 447), which held that self-employed individuals could not be covered under the ESI Act. It also cited Board of Control for Cricket in India v. Regional Director, ESI Corporation (2022 SCC Online SC 1116), which stated that obtaining registration under the Shops and Commercial Establishments Act does not automatically qualify an entity for ESI coverage. The court observed that a systematic economic activity is required for such registration.
The judgment also cited Kunnathunadu C.C. Co-Operative Society v. Regional Director ESIC (1989 (1) KLT 506) and E.S.I. Corporation v. Vattiyoorkavu H.W. Co-Operative Society (1996 SCC Online Ker 295), which examined whether cooperative societies employing their own members could qualify for ESI coverage. The court noted that “a society employing its members for wages is covered by the ESI Act, but self-employed persons working independently cannot be treated as employees.”
The High Court observed that the EI Court had correctly found that the members of the petitioner association could not be treated as employees under the ESI Act. However, it noted an inconsistency in the EI Court’s order. The court stated: “Once all the members who were registered as employees are found unfit for such registration, the ESI code obtained through voluntary registration is fit and liable to be cancelled.”
The petitioner had also argued that the Deputy Director (In Charge) of the ESI Corporation lacked the authority to cancel its registration. The High Court rejected this argument, stating that “in view of Section 94A of the ESI Act, the ESI Corporation, subject to any regulations made by it, can delegate powers to its subordinate officers.”
The High Court upheld the ESI Corporation’s decision to cancel the petitioner’s ESI code, stating: “The cancellation of the ESI Code of the applicant Association by the 1st opposite party is found proper and valid. The impugned order of the EI Court to the extent it revokes the cancellation of the ESI code of the applicant Association is set aside.”
The court, however, stated that the association was not precluded from seeking fresh registration. It directed that “if the applicant association prefers any such application, the ESI Corporation shall consider and dispose of the same in accordance with law.”
Advocates Representing the Parties
For the Petitioner: Jacob Chacko, Advocate
For the Respondents (ESI Corporation): Adarsh Kumar, Shashank Devan, Advocates
Case Title: The Deputy Director (In Charge), ESI Corporation & Ors. v. P.N. Uma Shankar & Ors.
Neutral Citation: 2025:KER:20877
Case Number: Ins. Appeal Nos. 12 of 2023 & 2 of 2024
Bench: Justice Syam Kumar V.M.
[Read/Download order]
