The High Court of Chhattisgarh, in a significant judgment, has dismissed a batch of petitions filed by private educational institutions challenging their inclusion under the Employees’ State Insurance Act, 1948 (ESI Act). A Division Bench comprising Justice Rajani Dubey and Justice Amitendra Kishore Prasad held that educational institutions qualify as “establishments” under Section 1(5) of the Act and upheld the validity of a 2005 state government notification that extended the Act’s provisions to them.
The court concluded that rescinding the notification would be unjust to thousands of employees currently benefiting from the social security scheme. The judgment affirms that the ESI Act, being a welfare legislation, applies broadly to entities providing systematic services with the help of employees, including schools and colleges.
Background of the Case
The legal dispute originated from a notification dated October 27, 2005, issued by the State of Chhattisgarh. Under Section 1(5) of the ESI Act, the state government, after consultation with the Employees State Insurance Corporation (ESIC) and with the approval of the Central Government, gave notice of its intention to extend the Act’s provisions to “Educational institutions (including private, aided or partially aided) run by individuals, trustees, societies or other organizations,” effective from April 1, 2006.
Following this notification, the ESIC initiated proceedings and issued demand notices to numerous schools. The lead petition, Adarsh Vidyalay Higher Secondary School vs. State of Chhattisgarh, challenged a notice demanding payment of ₹13,83,168 as ESI contributions for the period between March 2008 and November 2010. The petitioner schools, along with others, moved the High Court seeking to quash the notification and all subsequent recovery proceedings.
Arguments of the Petitioners
The educational institutions primarily argued that they do not fall within the definition of an “establishment” as contemplated by the ESI Act. Their main contentions were:
- An educational institution’s purpose is to impart education for societal development, which is not a commercial, industrial, or trade activity.
- They cited Supreme Court judgments, including Unni Krishnan and P.A. Inamdar, where it was held that education has never been regarded as commercial in India and is a charitable duty.
- The ESI Act was originally enacted for factories and industrial establishments, and its extension to schools was an arbitrary and illegal misapplication of the law.
- The impugned notification was procedurally flawed, alleging it did not comply with the mandatory six months’ notice period, as it was published on November 18, 2005, for an effective date of April 1, 2006.
Arguments of the Respondents
The State of Chhattisgarh and the Employees State Insurance Corporation countered these arguments, submitting that:
- The notification was issued in strict compliance with the procedural requirements of Section 1(5) of the Act, including obtaining prior approval from the Central Government.
- The issue had already been settled by the same High Court in Maharishi Shikshan Sansthan vs. State of Chhattisgarh & Another, where the validity of the said notification was upheld.
- The ESI Act is a social welfare legislation that must be interpreted liberally to achieve its objectives.
- The term “establishment” in Section 1(5) is broad and not limited to industrial or commercial entities. The use of the words “industrial, commercial, agricultural or otherwise” indicates a wide, inclusive scope.
- Citing a Full Bench decision of the Madras High Court in All India Private Educational Institutions Association, they argued that labor welfare laws are applicable even to minority educational institutions protected under Article 30(1) of the Constitution.
- Quashing the notification would unjustly deprive thousands of employees in nearly 1,900 educational institutions across the state of their statutory social security benefits.
Court’s Analysis and Decision
The Division Bench, in its analysis, framed the central question as whether educational institutions qualify as “establishments” under the ESI Act. The court heavily relied on judicial precedents from various High Courts that have conclusively decided the issue.
The judgment noted that a previous decision in Maharishi Shikshan Sansthan had already affirmed the legality of the notification, stating, “Section 1(5) of the Act permits the State Government to extend the provisions of the Act after giving six months’ notice. The notification is dated 27.10.2005 and stipulates intention to extend the provision of the Act of the educational institutions covered in the schedule on or after 01.04.2006. It was so extended on 01.04.2006. This is after expiry of six months.”
The court endorsed the reasoning of the Kerala High Court in Kerala CBSE School Management’s Association & Ors. vs. State of Kerala & Ors., which held that the phrase “or otherwise” in Section 1(5) is of wide amplitude and empowers the government to extend the Act to educational institutions. This decision was subsequently upheld by the Supreme Court.
Further, the court referred to the Full Bench of the Madras High Court, which held that the term “establishment” includes any place where a systematic activity is undertaken to provide services to the community with the help of employees. The Madras High Court had observed: “The ESI Act being a socio-economic welfare oriented legislation… can treat the private educational institutions as ‘establishments’ coming within the meaning of the Act and the term ‘otherwise’ has clearly been placed to specify that genus of establishments is not restricted to those organisations, which are industrial, commercial or agricultural only, but also includes organisations like educational institutions.”
Addressing the applicability of labor laws to minority institutions, the court cited the Supreme Court’s decision in Christian Medical College Hospital Employees’ Union, which held that such welfare laws must be respected and implemented by all managements to prevent maladministration.
Concluding its judgment, the Bench stated, “Where activities are systematically and habitually undertaken for the production and distribution of goods or services rendered to the community with the assistance of employees, carried out in the manner of trade, business, or service, such an entity can be termed as an ‘Establishment’ under the ESI Act.”
The court emphasized the welfare implications of its decision, noting that thousands of employees were already availing benefits under the Act. It held that “for the sake and benefit of the institutions, the larger interest and welfare of a significant number of employees cannot be ignored or compromised.”
Finding no merit in the petitions, the High Court dismissed the entire batch of writ petitions, thereby cementing the legal position in Chhattisgarh that private educational institutions are covered by the Employees’ State Insurance Act, 1948.
