Justices Pushpa Sathyanarayana, Anita Sumanth and PT Asha
Justices Pushpa Sathyanarayana, Anita Sumanth and PT Asha
Litigation News

Private Educational Institutions also covered by Employees' State Insurance Act: Madras HC upholds 2010 GO

Notably, the verdict was pronounced by an all-women Full Bench comprising Justices Pushpa Sathyanarayana, Anita Sumanth and PT Asha, constituted by Chief Justice AP Sahi earlier this year.

Meera Emmanuel

Putting an end to a decade long dispute, the Madras High Court has upheld the extension of the Employees' State Insurance Act, 1948 (ESI Act) to all educational institutions, including private, unaided educational institutions (All India Private Educational Institutions Association and ors. v. State of Tamil Nadu and ors).

To this end, a Full Bench of the High Court on Wednesday upheld the validity of a 2010 State Government notification which had brought private educational institutions under the purview of the ESI Act. A batch a writ pleas moved by the All India Private Educational Institutions Association and others were dismissed.

Notably, the verdict was pronounced by an all-women Full Bench comprising of Justices Pushpa Sathyanarayana, Anita Sumanth and PT Asha, constituted by Chief Justice AP Sahi earlier this year.

Why it took 10 years?

Following the introduction of the 2010 GO, numerous pleas were moved in the Madras High Court challenging the extension of the ESI to private educational institutions. In 2015, two Division Benches of the Madras High Court pronounced opinions in the matter.

However, the issue was kept in limbo in view of the Supreme Court having referred to a larger Bench a question of the interpretation of "industry" and whether the law in the Bangalore Water Supply and Sewerage Board case needed reconsideration. The Supreme Court reference was made in the case of State of State of UP v. Jai Bir Singh.

The petitioners before the High Court had contended that the ESI Act cannot be extended to educational institutions and that it could only be extended to industrial establishments.

Section 1(5) of the ESI Act had allowed the State power to extend the Act to "to any other establishment, or class of establishments, industrial, commercial, agricultural or otherwise."

The petitioners contended that the "establishments" referred to here was narrow in scope and that it had to be interpreted in view of the definition of "industrial establishment" under the Industrial Disputes Act, 1948. This was because the term "establishment" had not been defined in the ESI Act.

As such, the Supreme Court's final pronouncement following the reference in Jai Bir Singh would have to be awaited before the High Court could decide on the dispute, the petitioners contended. In 2015 two Division Benches of the High Court referred the question to a larger Bench.

The verdict by the larger Bench of the Supreme Court, in the meanwhile, is yet to be pronounced.

Supreme Court verdict need not be awaited to rule on applicability of ESI Act: Madras High Court

The present Full Bench was constituted in March this year. This Bench, however, ultimately found that it did not have to have to wait for the Supreme Court to render its decision, and that the question before it was unconnected to the matter before the top Court.

It observed that the Supreme Court had only intended to redefine an industry for the purposes of the Industrial Disputes Act, which operated in a different field as compared to the ESI Act.

The Bench also recorded judgments by the High Courts of Kerala, Karnataka, Allahabad, Punjab and Haryana, Gauhati and Calcutta, which had upheld similar notifications to extend the applicability of the ESI Act to educational institutions, while the Supreme Court decision was still pending.

These High Courts had found that "otherwise" in Section 1 (5) of the ESI Act would cover educational institutions as well. Therefore, it was held that the State could extend the application of the ESI Act to the educational institutions.

Scope of ESI Act: What Madras HC held

"Whether unaided private educational institutions can be treated to be an establishment within the meaning of Section 1(5) of the Employees State Insurance Act, 1948 and be capable of being governed by notifications issued under the 1948 Act as being an establishment being covered within the word “otherwise” ?"

This was the pivotal question in deciding on the application of te ESI Act to the educational institutions run by the petitioners.

The High Court went on to reject the arguments for a narrower interpretation of "establishments" covered by the ESI Act, opining that the phrase "otherwise" would include all kinds of other establishments (i.e. not just "industrial" establishments).

"A plain reading of Sections 1(4) or 1(5) only go to show that all kinds of establishments can be covered through a notification by giving prior notice of six months. It is also relevant to note that all the cases decided by various High Courts challenging the Section 1(5) notifications covering educational institutions are after Jai Bir Singh (supra)", the Court said.

Extension of ESI Act not barred by existing State Acts concerning Private Educational Institutions

Rejecting arguments that the State had already brought in enactments to regulate Private educational institutions i.e. the Private Schools Act, and the Tamil Nadu Private Colleges Regulation Act, the Court observed, inter alia,

"The ESI Act being a socio-economic welfare oriented legislation, it has brought with it the avowed objective of securing the social and economic justice and for upholding the human dignity and it is not a law regulating the education. Curiously, the vires of Section 1(5) of the ESI Act is not under challenge in any of the petitions. It is always the endeavour of the Courts that the social perspective must play upon the interpretative process. Therefore, 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, but also includes organisations like educational institutions."

The Court also noted that the State had not extended any insurance benefits under the two abovementioned enactments introduced to regulate Private educational institutions in Tamil Nadu.

Viewed from this perspective as well, the Court found that it cannot be held that the application of the ESI Act to employees of private educational institutions would be barred.

"Admittedly, there are no rules framed in respect of insurance for private schools employees till date and the private schools also have been keeping silent on the said issue from the date of enactment. Even assuming that the State Government had introduced a statute qua insurance under the 1973 Act, it would not lead to repugnancy between the said rule and the ESI Act in view of the proviso to Section 17 of the 1976 Act. A Government Order or enactment, whichever provides better scheme would survive, while the lesser one would automatically become inapplicable as per the proviso which entitles the employee of better benefits. Therefore, apparently there is no repugnancy between the 1973 Act and 1976 Act and the G.O.Ms.No.237 issued under Section1(5) of the ESI Act and hence, no amendment is required to be made either under the ESI Act or under the State Acts to implement/enforce the G.O.Ms.No.237, dated 26.11.2010", the Court added

Even if these enactments were to provide insurance benefits, the Bench pointed out that the the ESI scheme allows for the adoption of the better insruance scheme so that there is no duplication of benefits (Sections 61 and 87).

Whether the extension of ESI Act to private educational institutions is discrminatory?

Initially, the State Government had only extended the application of the ESI Act to private educational institutions, expressly excluding government and government-aided institutions.

While protest was registered that this was discriminatory, the State eventually issued another notification in 2013 whereby the ESI Act was made applicable to all educational institutions i.e. to public, private and aided educational institutions.

Therefore, the Court found that the question of discrimination does not presently arise.

With these observations, the Full Bench proceeded to uphold the extension of the ESI Act to educational institutions and dismissed all writ petitions and appeals filed against the same.

"Before parting with this matter, we would like to mention that ESI also should increase/improve their services and facilities in their hospitals to make them more preferred ones by the subscribers to the scheme" the Bench added.

Senior Counsel KM Vijayan for Advocate E Vijay Anand, Senior Counsel Fr. Xavier Arulraj for Sister Arul Mary and M/S Fr Xavier Associates, Advocate Shakespeare and Senior Counsel Singaravelan for Advocate R Jayaprakash appeared for various petitioners.

Advocate General Vijay Narayan, assisted by Special Government Pleader A Srijayanthi and Government Advocate Vignesh appeared for the Tamil Nadu Government.

Senior Counsel S Ravindran for Advocates G Bharadwaj and G Narmadha appeared for the ESIC.

Advocate Balan Haridoss appeared for an intervenor, the “lone voice of the Employee” amid various employer-petitioners, the Court noted.

Read the Judgment:

All India Private Educational Institutions Association and ors. v. State of Tamil Nadu and ors.pdf
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