Directors receiving remuneration also employee under ESI Act, 1948 – Supreme Court

Directors receiving remuneration also employee u/s 2(9) of the Employees’ State Insurance Act, 1948 – Supreme Court

ABCAUS Case Law Citation:
ABCAUS 2774 (2019) (02) SC

Important Case Laws Cited/relied upon by the parties
Employees’ State Insurance Corporation Vs. Apex Engineering Pvt. Ltd. ; Sakal Papers Private Limited Vs. Employees’ State Insurance Corporation ; Employees’ State Insurance Corporation Vs. Apex Engineering Pvt. Ltd ; Employees’ State Insurance Corporation Vs. Apex Engineering Pvt. Ltd.: (1998) 1 SCC 86 ; Saraswath Films Vs. Regional Director, Employees’ State Insurance Corporation, Trichur: 2010(11) SCC 553

The question for determination in the instant appeal was as to whether the Directors who were receiving remuneration, come within the purview of “employee” under sub-section (9) of Section 2 of the Employees’ State Insurance Act, 1948 (‘the ESI Act’)?

The respondent-Company had been covered under the ESI Act and had been depositing the amount of contribution with reference to the wages paid to some of its employees. However, in an inspection carried out by the Employees’ State Insurance Corporation (ESIC), it was observed that the respondent-Company had not made the contribution in respect of the remuneration paid to the Directors.

The ESIC called upon the respondent to make payment of contribution in relation to the remuneration paid to the Directors. The demand was challenged by the respondent Company by way of an application under Section 75 of the ESI Act.

The ESI Court observed that in the said case, the Managing Director was found performing some particular work but there was no illustration that the provisions of the ESI Act were applicable on the amount received by the Directors; and rather took the view that the illustrations produced by the respondent-Company were to the effect that Directors do not fall under the category of the employees. The ESI Court, therefore, declared the aforesaid order void and unfair.

The appeal of the ESIC was dismiised by the High Court holding that the Directors of the respondent company did not come within the purview of the “employees”, as defined under sub-section (9) of Section 2 of the ESI Act.

The Hon’ble Supreme Court observed that in a previous judgment, it had held that the Managing Director, even when to be treated as principal employer, could also be an employee and could carry such dual capacity.

The Hon’ble Supreme Court opined that what had been observed and held by the Court in relation to the Managing Director of a Company, applied with greater force in relation to a Director of the Company, if he is paid the remuneration for discharge of the duties entrusted to him.

The Hon’ble Supreme Court allowed the appeal and the impugned orders passed by the High Court was set-aside and the application filed by the respondent-Company under Section 75 of the ESI Act was also dismissed.

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