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 Merger under section230 to 232 of the Companies Act, 2013 read with Rules thereunder , there are three parties involved in a transaction i.e.,
- Transferor Company,
- Transferee Company and
- Employees of Transferor Company.
An employee proposed to be transferred have an option not to work under the management of Transferee Company and under the circumstances Transferor Company needs to absorb the said employee or pay all the dues as per the terms of the appointment and also under various labour laws including retrenchment compensation if so applicable.
Otherwise, after completion of the transaction, Liability of Transferor Company towards its employees get transferred to Transferee Company and Transferee Company is liable to pay towards ESI of employees of Transferor Company from date of transfer.
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 Transferee 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 Transferee 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 Transferor Company, in the course of merger under section230 to 232 of the Companies Act, 2013 ; to the Transferee Company, shall constitute Transfer of Establishment
- What are the alternatives available to the Transferee in respect to registration where a part of the factory i.e. a unit is transferred from the transferor undertaking i.e. amendment or new registration?
- Registration under this Act is establishment wise i.e. if an establishment to which this Act applies has factories or branches situated in different places then irrespective of whether each factory fulfils the conditions for applicability or not but all the factories shall be deemed to be parts of the same establishment and the establishment as an whole will be applied by this Act.
If Transferor Company (Old Employer) and the Transferee Company (New Employer) both are already register under the act-
After such transfer of ownership Transferor and Transferee Company both have to amend registration.
- Which date shall be taken as the transfer date under section 93A of this Act?
- The employee of the transferor company become the employee of the transferee company as on Appointed Date, from the effective date (i.e. after the scheme is approved by the NCLT and the Final Order is filed with the Registrar of Companies).
- If contribution amount is different for Transferee company as compared to Transferor Company which amount to follow post transaction?
- Incase Transferor Company contributing less than Transferee Company
The Employee will get the benefit of contribution made by Transferee Company after such transfer.
Incase Transferor Company contributing more than Transferee Company
In case of above condition it is advisable for transferor and Transferee Company to provide for one time compensation to the transferred employees in order to avoid future legal hassles.
However everything will depend upon the agreement between transferor and Transferee Company.
- Whether any concessions or exemptions under the act will move from Transferor Company to Transferee Company?
- No, the benefit cannot be availed as exemption given to any establishment or class of establishment shall be restricted only to that establishment or class of establishment and not have the right to be extended to other establishments.
- Where the transferee Company is not covered under the said act then whether the employees of the transferor undertaking continue to enjoy the benefits as become applicable or vice versa?
- Yes, though Transferee Company is exempted, the employees of the transferor company continue to enjoy the benefits as become applicable