The High Court of Chhattisgarh, in a significant ruling, has dismissed a batch of petitions filed by private educational institutions, holding that such institutions fall within the definition of “establishment” under Section 1(5) of the Employees’ State Insurance Act, 1948 (ESI Act). A Division Bench comprising Justice Rajani Dubey and Justice Amitendra Kishore Prasad upheld a 2005 state government notification that extended the provisions of the social welfare legislation to educational institutions, thereby affirming the actions of the Employees State Insurance Corporation (ESIC) to demand contributions from the schools.
The court concluded that setting aside the notification would be contrary to the welfare of thousands of employees already receiving benefits under the Act.
Background of the Case
The legal challenge stemmed from a notification issued by the State of Chhattisgarh on October 27, 2005. The notification, exercising powers under Section 1(5) of the ESI Act, declared the government’s intention to extend the Act’s provisions to “Educational institutions (including private, aided or partially aided) run by individuals, trustees, societies or other organizations, wherein 20 or more persons are employed,” effective from April 1, 2006.
Following this, the ESIC initiated proceedings against several schools. In the lead case, Holly Cross Higher Secondary School vs. State of Chhattisgarh, the ESIC issued a notice on November 24, 2008, demanding a contribution of ₹7,38,238 for the period from April 1, 1998, to October 31, 2008. The school’s objections were rejected, and a recovery order for the principal amount plus interest of ₹1,01,298 was passed on December 18, 2008.
Aggrieved by these actions, Holly Cross Higher Secondary School and other institutions, including Mahakali Badi Vidya Mandir and St. Xavier Public School, filed writ petitions challenging the legality of the 2005 notification and the subsequent recovery proceedings.
Arguments of the Petitioners
The petitioner schools contended that the notification was “arbitrary, illegal, discriminatory, and contrary to law.” Their primary arguments were:
- Educational Institutions are not ‘Establishments’: The schools argued that they are not “establishments” within the meaning of Section 1(5) of the ESI Act, which applies to “industrial, commercial, agricultural, or otherwise” establishments. They asserted that imparting education is a charitable service to society, not a commercial or manufacturing activity. They cited Supreme Court judgments, including the P.A. Inamdar case, which held that education has never been treated as a trade or business in India.
- Procedural Lapses: The petitioners alleged that the State Government failed to comply with the mandatory requirement of giving six months’ prior notice of its intention in the official Gazette before extending the Act. They also claimed the notification was issued without the requisite approval from the Central Government.
Submissions of the Respondents
The State of Chhattisgarh and the ESIC vehemently opposed the petitions.
- The State Government argued that the petitions were barred by “delay and laches,” having been filed years after the notification was issued and widely publicized. It submitted that the Central Government’s approval was duly obtained on February 28, 2005, and that the validity of the notification had already been upheld by the same court in W.P.(C) No. 4714/2008 (Maharishi Shikshan Sansthan vs. State of Chhattisgarh).
- The ESIC echoed these arguments, emphasizing that the six-month notice period was satisfied as the notification was issued on October 27, 2005, and made effective from April 1, 2006. Relying on a series of judgments from the Kerala, Calcutta, and Madras High Courts, the ESIC maintained that the term “establishment” has a wide amplitude and rightly includes educational institutions. It stressed that the ESI Act is a social welfare legislation that must be interpreted liberally to extend benefits to employees, and that a minority institution’s rights under Article 30(1) do not exempt it from such secular laws.
Court’s Analysis and Decision
The Division Bench, in its judgment authored by Justice Amitendra Kishore Prasad, systematically rejected the petitioners’ contentions. The court’s reasoning was based on established judicial precedents and the socio-economic objective of the ESI Act.
The central question, the court noted, was whether educational institutions qualify as “establishments.” Answering in the affirmative, the court relied on several key High Court decisions:
- Kerala High Court in Kerala CBSE School Management’s Association vs. State of Kerala: This judgment, later upheld by the Supreme Court, held that the word “otherwise” in Section 1(5) is of wide amplitude and empowers the government to extend the Act’s provisions to educational institutions.
- Full Bench of the Madras High Court in All India Private Educational Institutions Association vs. The State of Tamil Nadu: The court quoted this judgment extensively, which held that “the ESI Act 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.”
- Allahabad and Calcutta High Courts: The bench also noted similar views taken by these High Courts.
The court adopted the principle that 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,” such an entity can be termed an “Establishment” under the ESI Act.
Finally, the court weighed the larger public interest, observing that approximately 1,900 educational institutions in the state are already covered, with thousands of employees receiving benefits. The court stated, “merely for the sake and benefit of the institutions, the larger interest and welfare of a significant number of employees cannot be ignored or compromised.”
Concluding that the petitions were “devoid of merit,” the High Court dismissed them, thereby upholding the 2005 notification and allowing the ESIC to proceed with the recovery of contributions.
