Sc Settles Status Of Managing Director Under Esi Act

The Supreme Court yesterday overruled the Calcutta and Bombay high courts and declared that the managing director could also be considered as an employee of the company for the purposes of the Employees Insurance Act. As a result, factories employing 20 persons including the managing director will be governed by ESI provisions.

The insurance tribunal, the single judge bench and the division bench of the Bombay High Court had held that the managing director was not an employee.

The Calcutta High Court had also taken the same view. But some other high courts like that of Madras and Kerala had counted MD as an employee. The Supreme Court has now approved of the latter view, settling the differences among the high courts.

A division bench of the Supreme Court comprising of Justice S B Majmudar and Justice M Jagannadha Rao was considering an appeal of the ESI Corporation against Apex Engineering Ltd in Maharashtra. The factory employed 19 employees. One of the directors was appointed managing director. If he was counted as an employee, there would be 20 which would invite the provisions of the ESI Act.

The corporation asked the company to comply with the provisions of the ESI Act. The company maintained that it had only 19 employees and therefore, it was not covered by the Act. All the courts below supported the view of the company. But the Supreme Court reversed it.

The apex court emphasised that the managing director was drawing wages which was one reason why he was an employee. Even assuming that he was a principal employer, it has to be held that he had a dual capacity both as MD and as an employee of the company.

Factories employing 20 persons including the managing director will be governed by ESI provisions