The ESI Corporation vs M/s. Radhika Theatre
Background
Radhika Theatre had run a cinema hall since 1981 and paid ESI contributions until September 1989, after which it stopped, saying it employed fewer than 20 people. The ESI Corporation issued demand notices (including one dated 31 August 1994). The theatre challenged them before the Employees' Insurance Court, which dismissed the challenge in 2010, but the Telangana High Court in 2021 set that aside, reasoning that Section 1(6) of the ESI Act (inserted with effect from 20 October 1989, which keeps an establishment covered even if its staff count later drops below the limit) could not be applied "retrospectively" to an establishment set up before that date.
Decision Breakdown
The Supreme Court allowed the Corporation's appeal. It reiterated that the ESI Act is a social-welfare law that must be interpreted liberally in favour of workers, relying on Bangalore Turf Club Ltd. vs Regional Director, ESIC and earlier decisions. It held that from 20 October 1989 onwards, any factory or establishment to which the Act applies remains governed by it regardless of whether the number of employees at any time falls below the prescribed limit. Applying Section 1(6) to demand notices for periods after 20 October 1989 is not "retrospective" at all, only demands for periods before that date could be called retrospective. The High Court therefore erred in quashing the demands for the post-amendment period, and those demand notices were restored.
Lesson Learnt
Once an establishment is covered by the ESI Act, it cannot escape by later reducing its headcount below the threshold, after the 1989 amendment, coverage continues regardless of staff numbers, and this applies equally to businesses set up before the amendment.