Registration Under Shops & Establishments Act Alone Doesn’t Qualify Entity As “Shop”: Kerala High Court

The Kerala High Court has clarified that obtaining a certificate under the Shops and Commercial Establishments Act does not, by itself, render an association or entity a “shop” under the law.

The Court was dealing with Appeals concerning the revocation of the ESI Code of the Kerala Electrical Wiremen and Supervisors Association.

The Single Bench of Justice Syam Kumar VM also ruled that self-employed individuals forming an association would not be covered under the ESI Act unless it is established that the association employs them.

It underscored that systematic or organized commercial activity, carried out with the help of employees, is essential to meet the legal definition of a “shop.”

"Merely obtaining registration under the Shops and Commercial Establishment Act does not qualify the applicant association as a shop," the Court observed.

Facts of the Case

The case involved two appeals: one filed by the Secretary of the Association, challenging the EIC's ruling that their members were deemed self-employed and hence ineligible for ESI coverage; the second from the ESI Corporation contesting the Court's decision to revoke the cancellation of the Association's ESI Code number.

The crux of the dispute hinged on whether the members of the Association could be classified as employees under the ESI Act.

The Association had voluntarily registered under the ESI Act and was allotted an ESI Code, but the Employees’ State Insurance Corporation (ESIC) later revoked it upon finding that the members were self-employed electricians and not employees.

Following the revocation of its ESI Code, the Association challenged the action before the Employees Insurance (EI) Court, which ruled that while the Association’s ESI Code should not have been canceled, its members, being self-employed, could not be registered as employees under the Act. Both the Association and ESIC appealed against the EI Court’s order.

Key Legal Issues Considered

The High Court framed three primary legal questions:

1. Whether the EI Court erred in interpreting the term ‘employee’ under Section 2 (9) of the ESI Act as not to include self-employed persons who have formed themselves into an association and had registered as a society under the Travancore Cochin Charitable Societies Act?

2. Whether registration under the Shops and Commercial Establishment Act by itself would entitle an entity to registration under the ESI Act, irrespective of the nature of the activity being carried on?

3. Can a voluntary registration made under the Act be subjected to scrutiny/verification, and if found not meeting the mandates of the ESI Act be revoked by the competent officers of the ESI Corporation?

Court’s Observations

The Court noted that substantial evidence was reviewed by the EIC, including financial records and testimonial evidence from various parties involved.

However, the Court emphasized that many members of the Association operated as self-employed electricians, receiving payments directly from clients rather than through the Association, which complicated the establishment of an employer-employee relationship as envisaged by the ESI Act. It was underscored that mere registration under the Shops and Commercial Establishments Act does not confer status as employees under the ESI Act.

ESI Benefits Cannot Be Misused

The Court underscored that ESI benefits are intended only for eligible individuals and should not be misused. It cautioned that while some employers may seek to evade ESI obligations, others may attempt to wrongfully claim benefits under the Act. "Being a precious welfare measure, ESI benefits cannot be permitted to be squandered or siphoned away," the Court remarked.

Conclusion

The High Court upheld the findings of the Employees Insurance Court, concluding that the members of the Kerala Electrical Wiremen and Supervisors Association could not be classified as employees under the ESI Act due to their self-employed status.

The Court dismissed the Association’s appeal, while observing that its self-employed members were ineligible for ESI benefits. The Court also partially allowed ESIC’s appeal, setting aside the EI Court’s order that had revoked the cancellation of the Association’s ESI Code.

Cause Title: The Deputy Director (In Charge) & Anr. v. P.N. Uma Shankar & Anr. [Neutral Citation No. 2025:KER:20877]

Appearance:-

Petitioner: Advocates Adarsh Kumar, Shashank Devan

Respondent: Advocate Jacob Chacko

Click here to read/download the Judgment