EMPLOYEE STATE INSURANCE ACT, 1948
The Employee State Insurance Act, 1948, is a piece of social welfare legislation enacted primarily with the object of providing certain benefits to employees in case of sickness, maternity and employment injury and also to make provision for certain others matters incidental thereto. The Act tries to attain the goal of socio-economic justice enshrined in the Directive principles of state policy.
- It applies to all factories (including factories belonging to the government) other than seasonal factories.
- "Immediate Employer" in relation to employees employed by or through him, means a person who has undertaken the execution, on the premises of a factory, or an establishment to which this Act applies or under the supervision of the principal employer or his agent, of the whole or any part of any work which is ordinarily part of the work of the factory or establishment of the principal employer or is preliminary to the work carried on in, or incidental to the purpose of, any such factory or establishment, and includes a person by whom the services of an employee who has entered into a contract of service with him are temporarily lent or let on hire to the principal employer and includes a contractor.
- “ insurable employment ” means an employment in a factory or establishment to which this Act applies.
- "Seasonal Factory" means a factory which is exclusively engaged in one or more of the following manufacturing processes, namely, cotton ginning, cotton or jute pressing, decortication of groundnuts, the manufacture of coffee, indigo, lac, rubber, sugar (including gur) or tea or any manufacturing process which is incidental to or connected with any of the aforesaid processes and includes a factory which is engaged for a period not exceeding seven months in a year-
- In any process of blending, packing or repacking of tea or coffee; or
- In such other manufacturing process as the Central Government may, by notification in the Official Gazette, specify.
For more definitions please refer Definition Annexure.
When we talk about demerger under section 230 to 232 of the Companies Act, 2013 read with Rules thereunder there are three parties involved in a transaction i.e.,
- Demerged Company, (Selling Company)
- Resulting Company and (Buying Company)
- Employees of demerged company which will get transferred in course of demerger
Let us discuss about regulation parties have to comply with while going for demerger.
After the approval of the Arrangement, , Liability of demerged Company towards its employees get transferred to Resulting Company and Resulting Company is liable to pay towards ESI of employees of Demerged Company at the rate as mentioned below.
Amount of contribution
The Contribution should be as follows:-
- For Employer - 4.75% of wages
- For Employee - 1.75% of wages
For Newly implemented areas:
- For Employer – 3% payable by Employers for first 24 month
- For Employee - 1% of wages
Employees in receipt of a daily average wage upto Rs.137/- are exempted from payment of contribution. Employers will however contribute their own share in respect of these employees.
Transfer of Establishment
Section 93A of the Employee State Insurance Act, 1948 (ESI Act) -
“Liability in case of transfer of establishment - Where an employer, in relation to an establishment, transfers that establishment in whole or in part, by sale, gift, lease or licence or in any other manner whatsoever, the employer and the person to whom the establishment is so transferred shall jointly and severally be liable to pay the contribution and other sums due from the employer under any provision of this Act, in respect of the period upto the date of such transfer:
Provided that the liability of the Resulting Company shall be limited to the value of the assets obtained by him by such transfer.”[Gross value of assets]
For determining the liability of the Resulting Company under this Act, the value of assets shall be taken at market value.
Therefore, as per Section 93A of the ESI Act –
“Transfer of Establishment” also include transfer of establishment “in whole or in part” and “in any other manner whatsoever” – modes of transfer can include transaction/ arrangements in addition to sale, gift, lease or licence, etc.
So, transfer of assets & liabilities of Demerged Company, in the course of demerger (under section 230 to 232 of the Companies Act, 2013); to the Resulting Company, shall constitute Transfer of Establishment.