Supreme Court Upholds Inclusion Of Pathological Laboratory As Establishment Under ESIC Act

The Supreme Court dismissed an appeal holding that the provisions of The Employees State Insurance Corporation Act will be applicable to the respondent establishment w.e.f. September 06, 2007, and not from November 24, 2002.

A two-judge Bench of Justice Hima Kohli and Justice Rajesh Bindal held that the respondent's pathological laboratory was covered under the Act based on the September 06, 2007 notification issued by the Government of Kerala.

The Bench had to consider a short question as to the date from which the respondent establishment, which was undisputedly carrying on the business of a pathological laboratory, will be covered under the Act.

As per the facts available on record, the respondent's establishment was a pathological laboratory. An inspection of the premises was conducted by the Inspector on April 01, 1999, revealing that there were 19 employees working in the establishment. Subsequently, a show cause notice was issued to the respondent.

The respondent establishment challenged the coverage of the establishment by filing an application under Sections 75 and 77 of the Act before the Employees’ Insurance Court. The Court, in its order dated April 19, 2007, declared that the establishment of the respondent was considered a 'shop' as per Section 1(5) of the Act, and the provisions of the Act would extend to the respondent from November 22, 2002.

Following this, the respondent filed a review application before the E.S.I. Court, which was dismissed in an order dated December 21, 2007. Unsatisfied with the decision, the respondent appealed before the High Court, and the appeal was allowed in the impugned order. The instant appeal challenged the same.

Advocates Kumar Rajesh Singh and Niranjana Singh appeared for the Appellants and Advocates Ritika Sinha and Siddhartha Jha appeared for the Respondents.

The appellant's counsel argued that the High Court's order was not in accordance with the law. The respondent establishment was covered under the Act as per the government's notification dated May 27, 1976, which included "shops" employing 10 or more persons in the preceding 12 months. The respondent, being a shop, was covered from April 01, 1999. However, due to a circular issued by the Corporation on November 22, 2002, pathological laboratories and diagnostic centers were covered from that date.

On the other hand, the respondent's counsel contended that the establishment did not fall under the 1976 notification, which applied to shops engaged in buying and selling activities. Instead, medical institutions like nursing homes, diagnostic centers, and pathological laboratories employing 20 or more persons were brought under the Act by a different government notification. The High Court's decision aligned with this notification. Thus, the appeal was dismissed, upholding the High Court's ruling on the coverage of the respondent establishment under the Act.

The Supreme Court perused the provisions of the aforementioned Act and concluded that,

“the establishment of the respondent will not be covered under the provisions of Section 1(4) of the Act as it will not fall within the definition of a “factory”, since no manufacturing process is carried on therein. It is not even the case of the appellant. The respondent establishment is merely a pathological laboratory.”

The Court noted that a notice was issued on April 27, 2001, and the respondent claimed coverage under the 1976 Notification. However, they relied on a letter issued on November 22, 2002, which excluded pathological laboratories from the definition of a "shop." During the hearing, they also referred to the Notification dated September 06, 2007, which included medical institutions, including pathological laboratories, employing 20 or more persons, under the Act. Such notifications are issued under Section 1(5) of the Act with consultation and approval. The Court noted that the Corporation itself admitted that "shop" was not defined under the Act, and even their earlier memo did not cover pathological laboratories. The 2007 notification further confirmed the coverage of medical institutions, including pathological laboratories.

"If the pathological laboratories were already covered under the Act, as is sought to be urged by the Corporation, there was no occasion to issue such a notification. This fact clearly establishes that even as per the understanding of the Corporation, pathological laboratories were not covered under the Act prior to that date."

Consequently, the appeal was dismissed with no costs.

Cause Title: E.S.I. Corporation v. M/s. Endocrinology and Immunology Lab

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