Employees’ State Insurance Act, 1948: Comprehensive Legal Overview

Introduction

The Employees’ State Insurance Act, 1948, stands as a landmark legislation, providing a social insurance scheme in India. Conceived from a long-standing consideration of providing health insurance for industrial workers, the Act embodies a compulsory state insurance scheme. This scheme aims to provide specific benefits to employees in the event of sickness, maternity, and employment injury across factories, shops, hotels, and other establishments. Enacted on April 19, 1948, the Act is fundamentally a beneficial measure designed to promote the welfare and ensure social and economic justice for the labour class.

To ensure uniform administration throughout the country, the scheme is centrally managed by a corporate body known as the Employees’ State Insurance Corporation (ESIC). Since its inception, the ESIC scheme has expanded significantly, currently covering approximately 1.55 crore workers across 790 centers, benefiting over 6.02 crore individuals, including family members of insured persons.

Objectives and Salient Features of the Act

A. Core Objectives

The Preamble of the Act explicitly states its purpose: “To provide for certain benefits to employees in case of sickness, maternity and employment injury and to make provisions for certain other matters in relation thereto”. At its core, the Act aims to:

Provide medical relief and cash benefits.
Offer maternity benefits to insured women.
Extend pension to dependents of deceased workers.
Grant compensation for fatal or other injuries or diseases arising out of employment.

B. Salient Features of the Scheme

The operational framework of the ESI scheme encompasses the following key features:

Compulsory Insurance: The Act mandates that all eligible employees in factories and establishments to which it applies shall be insured as per its provisions.
Contribution-Based Fund: An ‘Insurance Fund’ is established, primarily sourced from contributions made by both employers and workmen.
Benefit Entitlement: Insured persons are entitled to receive various benefits from this fund.
Centralized Administration: The scheme is administered by the Employees’ State Insurance Corporation (ESIC).
Dispute Resolution: Any disputes arising under the Act are adjudicated by the Employees’ Insurance Court.

Applicability, Eligibility, and Contributions

Applicability: The Act extends to the whole of India. The Act applies in the first instance to all factories using power and employing 20 or more persons. The provisions of the Act have been extended to new classes of establishments, including shops, using factories, shops, theatres, cinemas, hotels, etc. The Act, however, does not apply to a mine or railway running shed, or specified seasonal factories.
Eligibility: All employees, including casual, temporary, or contract employees drawing wages less than Rs. 21,000 per month (previously, it was Rs. 15,000) are covered under the ESI scheme. For persons with disabilities, the wage limit is up to Rs. 25,000 per month. The members of armed forces, navy or air force are not covered by the Act.
Contribution: The ‘Insurance fund’ from which the benefits are given to the employees will be mainly derived from contributions from employers and workmen. The contributions payable in respect of each workman will be based on his average wages. The contribution rate is based on the employee’s average wages:
Employer’s Contribution: 3.25% of the employee’s payable salaries.
Employee’s Contribution: 0.75% of the employee’s payable salaries.

The contribution will be payable in the first instance by the employer. The employer will be entitled to recover the workman’s entire share from the wages of the workman concerned. Workers earning less than Rs. 137 as daily wage get exempted from paying their contribution, the entire contribution on account of such workmen being met by the employer.

As per this scheme, State Governments will have to pay 1/8th (12.5 per cent) of the total medical expenses. Thus, there is one-eighth share of expenses by State Governments towards the cost of medical care.

Administration of the ESI Scheme

A. Employees’ State Insurance Corporation (ESIC)

The administration of the scheme of insurance contained in the Act is vested in the Employees’ State Insurance Corporation (ESIC), created by the Act. The members of the Corporation are appointed by the Central Government. The Central Government appoints a chairman, a vice-chairman, and other members representing the interests of employers, employees, State governments/Union Territories, and the medical profession. Three members of the Parliament and the Director General of the Corporation are its ex-officio members.

The chief executive officer of the Corporation is its Director-General. He is responsible for the formulation of policy, overall supervision, coordination, and liaison with the Central and State Governments. The ESIC has set up a network of regional and local offices all over the country for the implementation of the Scheme. Each regional office is under the Regional Director. The Regional Office maintains all the records of insured persons within its area and administers local offices. The medical benefit is administered by the concerned State governments, except in Delhi and the Noida area of Uttar Pradesh, where the Corporation runs the medical units directly.

The Corporation may (in addition to the Scheme of benefits specified in the Act), promote measures for the improvement of the health and welfare of insured persons and for the rehabilitation and re-employment of insured persons who have been disabled or injured, and may incur in respect of such measures, expenditure from the funds of the corporation within such limits as may be prescribed by the central government under Sec. 19.

The Corporation has been provided with two wings: the Standing Committee and the Medical Benefit Council. The Standing Committee, which also acts as the executive body of the Corporation, administers the affairs of the Corporation and may exercise any of the powers and perform any of the functions of the Corporation. The Medical Benefit Council advises the Corporation and the Standing Committee on matters relating to the administration of medical benefits.

B. Employees’ State Insurance Fund

All contributions paid under this Act and all other moneys received on behalf of the Corporation shall be paid into a Fund called the Employees’ State Insurance Fund, which shall be held and administered by the Corporation under Sec. 26. The Fund shall be expended only for the specified purposes under the Act. For example:

Payment of benefits and provisions of medical treatment and attendance to insured persons.
Payment of fees and allowances to members of the Corporation.
Establishment and maintenance of hospitals, dispensaries, etc., for the provision of medical and other ancillary services for the benefit of insured persons.
Payment of contribution to any State Government, local authority, or any private body or individual towards the cost of medical treatment and attendance provided to insured persons.

Benefits Under the Act

The Act provides for six types of benefits to the insured workmen:

Sickness benefit
Maternity benefit
Disablement benefit
Dependent’s benefit
Medical benefit
Funeral benefit.

All the benefits under the Scheme are in cash, except the medical benefit, which is given in kind.

Sickness benefit: Sickness benefit represents periodical payments made to an insured person for the period of certified sickness after completing 9 months of insurable employment. To qualify for these benefits, the contribution should have been paid for at least 78 days in the relevant contribution period. The maximum duration for availing sickness benefit is 91 days in two consecutive benefit periods.
An insured person suffering from any special, long-term ailment, e.g., tuberculosis, leprosy, or mental disease, is eligible for extended sickness benefit. The Director General may enhance the duration of extended sickness benefit beyond the existing limit of 400 days to a maximum period of 2 years.
Maternity benefit: Maternity benefit implies cash payment (full wages) to an insured woman in case of confinement or miscarriage, or sickness arising out of pregnancy, premature birth of the child. For entitlement to maternity benefit, the insured woman should have contributed for not less than 70 days in the immediately preceding two consecutive contribution periods corresponding to the benefit period in which the confinement occurs or is expected to occur. Maternity benefit is normally payable for a maximum period of 26 weeks in case of confinement, 6 weeks in case of miscarriage or medical termination of pregnancy, which can be extended up to one additional month in case of sickness arising out of confinement.
Disablement benefit: In case of temporary disability arising out of an employment injury, disablement benefit is admissible to an insured person for the entire period for which the insured person does not work for wages. The benefit is not subject to any contributory condition and is payable from the 1st day of employment. The benefit is, however, not payable if the incapacity is less than 3 days, excluding the date of the accident. Beneficiaries can avail of about 90% of their salaries as compensation in case of temporary disability.

In case of permanent total disablement, the insured person will be given a life pension at full rate, i.e., about 70 per cent of his wages, while in case of permanent partial disablement, a portion of it will be paid as compensation. “Permanent partial disablement” means such disablement of a permanent nature as reduces the earning capacity of an employee in every employment which he was capable of undertaking at the time of the accident resulting in the disablement. “Permanent total disablement” means such disablement of a permanent nature as incapacitates an employee for all work which he was capable of performing at the time of the accident resulting in such disablement.

Dependant’s benefit: Periodical pension is paid to the dependent of a deceased insured worker who dies as a result of an employment injury or occupational disease. The widow receives a monthly pension for life or until remarriage, at a fixed rate equivalent to 3/5th of the disablement benefit rate, and each dependent child is paid an amount equivalent to 2/5th thereof until he/she attains 25 years of age, provided that, in case of a child, the benefit continues to be paid till infirmity. A female child gets the benefit till her marriage.

In case the insured person does not leave behind any widow or child, the benefit is payable to other dependents, including parents. When there are no parents, minor brothers and sisters will become entitled to receive the benefit.

Medical benefit: The Scheme provides for medical benefit, which consists of free medical attendance and treatment of insured persons and their families. There is no limit on such expenses. This benefit has been divided into three parts:
- Restricted Medical Care: It consists of outpatient medical care at dispensaries or panel clinics.
- Expanded Medical Care: This consists of consultation with specialists and supply of such medicines and drugs as may be prescribed by them.
- Full Medical Care: It consists of hospitalisation facilities, services of specialists, and such drugs and diet as are required for inpatients. An insured person and members of his family are entitled to medical care of all the above three varieties.
Funeral benefit: Funeral expenses are in the nature of a lump sum payment up to ten thousand rupees made to defray the expenses of the funeral of the deceased insured person. The amount is paid either to the eldest surviving member of the family or, in his absence, to the person who incurs the expenditure on the funeral. The time limit for claiming the benefit is three months from the death of the insured person.

Protection and Restrictions Under the Act

A. Protection from Dismissal

As per Section 73 of the Act, the employer cannot dismiss, discharge or otherwise punish an employee during the period he/she is in receipt of sickness benefit or maternity benefit or disablement benefit, or is under medical treatment for sickness or confinement, or is absent from work arising as a result of illness or pregnancy or injury during the period specified above is invalid and inoperative.

However, an employer can discharge or punish an employee on due notice if:

He/she has received temporary disablement benefit for 6 months or remained absent for six months or more continuously;
He/she is under medical treatment for sickness, otherwise than T.B. or a disease arising out of pregnancy, and has remained absent continuously for six months or more; and
He/she is under medical treatment for T.B. or malignant disease and has remained absent continuously for 18 months or more.

B. Restrictions on Double Benefit

When a person is entitled to any of the benefits provided under this Act, he shall not be entitled to receive any similar benefit under any other enactment. Workmen covered under the ESI Act cannot claim double benefit under the Workmen’s Compensation Act, as there is a bar under Sec. 61 of the ESI Act. Also, an insured person will not be entitled to receive for the same period more than one benefit in the following cases:

Both sickness benefit and disablement benefit for temporary disablement; or
Both sickness benefit and maternity benefit; or
Both maternity benefit and disablement benefit for temporary disablement.

Where a person is entitled to more than one of the benefits, he has an option to select any one of them.

Employees’ Insurance Court

A. Constitution and Composition

Under Sec. 74, the Act provides that the State Government shall, by notification in the Official Gazette, constitute an Employees’ Insurance Court for such local area as may be specified in the notification. Also, the Court shall consist of such several judges as the State Government may think fit. Any legal practitioner of minimum 5 years standing or a judicial officer is qualified to be an Employees’ Insurance Court (E.I. Court) Judge. Also, the State Government may appoint the same court for two or more local areas or two or more courts for the same local area and thus regulate the business between such courts as appropriate.

B. Exclusive Jurisdiction of Employees’ Insurance Court

The E.I. Court possesses sole and exclusive jurisdiction to adjudicate various disputes and claims arising under the ESI Act. No Civil Court has the power to decide matters falling within the E.I. Court’s purview.

Adjudication of Disputes: This includes determining:

Whether any person is an ’employee’ under the Act or liable for an employee’s contribution.
The rate of wages or average daily wages of an employee.
The rate of contribution payable by a principal employer.
The identity of the principal employer for an employee.
The right of any person to any benefit, its amount, and duration.
Any other dispute between a principal employer and the Corporation, or between a principal employer and an immediate employer, or between a person and the Corporation, or between an employee and a principal/immediate employer, concerning contributions, benefits, or other dues payable or recoverable under the Act.

Adjudication of Claims: The E.I. Court also decides claims for recovery of contributions from principal/immediate employers and claims for recovery of any admissible benefit.

C. Appeals to High Court

As per Section 82 of the Act, an appeal can be made to the High Court from an order of the E.I. Court if it involves a substantial question of law. The period of limitation for filing such an appeal is 60 days.

Penalties and Damages

The Act provides for both civil and criminal consequences for non-compliance. The ESIC can initiate recovery proceedings for unpaid contributions based on the establishment’s balance sheet or inspection reports. A penalty may be imposed, and in some cases, criminal prosecution may be initiated against the establishment.

Any contribution due and unpaid can be recovered by the District Collector as arrears of land revenue under Section 45-B of the Act.

Protection of Benefits: Cash benefits payable under the Act are explicitly not liable to attachment or sale in execution of any court decree or order. Furthermore, the right to receive any benefit is not transferable or assignable.

Exemptions

The Act allows for exemptions to be granted to factories or establishments that provide social security benefits to their employees that are demonstrably better than or similar to those available under the ESI Scheme.

Conclusion

The Employees’ State Insurance Act, 1948, acts as a social security legislation that has significantly contributed to the welfare of industrial workers in India. By establishing a compulsory State insurance scheme, it provides crucial financial and medical support to employees and their families during contingencies such as sickness, maternity, and employment injuries.

The administrative structure of the Act, led by the ESIC, coupled with a well-defined system of contributions, a wide array of benefits, and a dedicated judicial mechanism through the Employees’ Insurance Courts, underscores the Act’s pioneering role in India’s social security landscape. The Act’s protective provisions, including safeguards against dismissal during periods of illness or disablement and restrictions on double benefits, aim to ensure that workers receive integrated and effective support, thereby promoting industrial health, safety, and overall labour welfare.

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