It was a stupendous task for me — extended over six days: one day at the company’s head office on November 11, 1999, followed by five additional days — January 3, January 4, January 18, February 22 and February 23, 2000 — at our regional office, with the assistance of an Inspector.
Even after this exhaustive exercise, I had to recommend further verification of the general ledgers for the period from April 1994 to March 1997 by a separate team of Inspectors.
This naturally raises a disturbing question: How was a regular inspection covering a fourteen-year period from April 1984 to March 1998 completed in just two days — April 29 and 30, 1999?
The company had:
Yet none of these facts found place in the relevant column of the inspection report submitted by the Inspector.
The wage registers for the period January 1996 to March 1998, though verified by the Inspector and showing deductions towards ESI contribution, neither indicated the dates of remittance nor contained the signatures or thumb impressions of employees.
This serious irregularity also went entirely unreported.
On the day of my visit to the company’s head office, the employer produced only the general ledger for the period April 1998 to September 1998.
Scrutiny of this ledger revealed entries under at least eleven heads of account that potentially represented wages.
When called upon to produce records for the earlier period from April 1984 to March 1998, the employer sought time.
The records were later produced — though only partially — at our regional office on the five dates already referred to.
The employer claimed that:
Even verification of the available records disclosed substantial evasion.
Verification of payslips for February 1995 revealed that 105 employees were employed for wages at the company’s head office, of whom 80 were drawing wages up to Rs 3,000 per month and therefore squarely fell within ESI coverage. In March 1995, the number of coverable employees rose to 87.
A detailed list of these employees was enclosed with my report.
The earlier inspection report stated that the establishment had employed 23 employees for the first time only in April 1996.
However, scrutiny of the cash books under the head “Other than Salaries” revealed that as many as 35 coverable employees had received wages as early as April 1994.
I therefore recommended that the establishment be provisionally brought under ESI coverage with effect from April 1, 1994.
The total wages paid between April 1994 and January 1995, as reflected in the general ledgers, amounted to Rs 22,91,898.75.
The employer contended that this figure included salaries paid to employees outside the coverage threshold. However, the cash books contained only consolidated monthly wage entries, and individual pay sheets for the period prior to February 1995 were not produced.
In these circumstances, I recommended assessment of contribution on an ad hoc basis and that the employer be given an opportunity of a personal hearing to segregate wages allegedly paid to non-coverable employees.
For the period February 1995 to March 1998, salary summaries relating to coverable employees were available.
Based on these records, the ESI contribution payable on an actual basis worked out to Rs 5,37,063.
After adjusting Rs 16,777 already remitted by the employer for the period April 1996 to March 1998, I recommended recovery of the balance amount of Rs 5,20,286.
But that was not all.
The employer had shown wages under the remaining heads of account for 1994–95 to 1996–97 at only Rs 1,63,642.70, whereas verification of the general ledgers with reference to the cash books established that the actual amount was Rs 10,05,020.51.
I therefore recommended a contribution assessment on the actual amount.
Over the years, contractors employing the prescribed threshold number of employees came to be allotted independent ESI code numbers even when they supplied labour exclusively to a single principal employer. In consequence, recovery proceedings in cases of default were often pursued only against contractors, notwithstanding Section 40 of the ESI Act, which places primary liability upon the principal employer, recoverable from the immediate employer under Section 41.
On paper, this arrangement may appear administratively convenient; in practice, however, it frequently results in the denial of statutory social-security benefits to contract workers.
Many large organisations now limit compliance verification to checking whether contractors possess ESI and PF registration numbers. Beyond this superficial scrutiny, little effort is made to ensure that:
When contractors become chronic defaulters, contract workers are effectively pushed outside the protective framework of the ESI Act despite being legally entitled to coverage.
This is not merely an administrative lapse.
It is a betrayal of the very social-security architecture the law was intended to protect — a protection that continues even under the Social Security Code.
The present framework demands urgent rethinking.
Responsibility for compliance cannot be allowed to rest solely upon contractors who may disappear, default, or manipulate records.
Principal employers must be made jointly and effectively accountable for ensuring that every eligible contract worker is registered and that every statutory contribution is properly remitted.
Until this structural flaw is corrected, thousands of workers will remain invisible in official records — deprived of benefits that are legally theirs.
And inspections, however sincere or thorough, will continue to expose violations only after the damage has already been done.
(Views expressed in this opinion piece are those of the author)
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