Are directors of company employees under the ESI act?

The Bench of Justices Abhay Manohar Sapre and Dinesh Maheshwari delivered this judgment while considering the question of whether or not Directors who receive remuneration from a Company fall within the definition of “employee” under the ESI Act.

The company was covered under the ESI act and deposited regular contribution but they did not deposit contribution of remuneration paid to directors.

Case reached before MP High court. High court favored the company but ESI department was aggrieved the same and approached the Supreme Court.

Finally Supreme Court held that “employee” includes a person employed for work and paid wages, the term “wages” itself includes any remuneration paid in terms of an employment agreement.

So directors of a Company are employees under the provisions of the Employees State Insurance Act

This Judgment would affect the decisions of many companies not considering director as an employee. The case was between Venus alloys Pvt Ltd vs ESI and Judgment came on 05.02 2019.


Definition of Employee:  Section 2(9) in The Employees’ State Insurance Act, 1948

(9) Employee means any person employed for wages in or in connection with the work of a factory or establishment to which this Act applies and

(i) who is directly employed by the principal employer, on any work of, or incidental or preliminary to or connected with the work of, the factory or establishment, whether such work is done by the employee in the factory or establishment or elsewhere; or
(ii) who is employed by or through an immediate employer, on the premises of the factory or establishment or under the supervision of the principal employer or his agent on work which is ordinari­ly part of the work of the factory or establishment or which is preliminary to the work carried on in or incidental to the pur­pose of the factory or establishment; or
(iii) whose services are temporarily lent or let on hire to the principal employer by the person with whom the person whose services are so lent or let on hire has entered into a contract of service;

and includes any person employed for wages on any work connect­ed with the administration of the factory or establishment or any part, department or branch thereof or with the purchase of raw materials for, or the distribution or sale of the products of, the factory or establishment]  [or any person engaged as appren­tice, not being an apprentice engaged under the Apprentices Act, 1961 (52 of 1961), [and includes such person engaged as apprentice whose training period is extended to any length of time] but does not include]

(a) any member of [the Indian] naval, military or air forces; or
(b) any person so employed whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] a month:

Provided that an employee whose wages (excluding remuneration for overtime work) exceed [such wages as may be prescribed by the Central Government] at any time after (and not before) the beginning of the contribution period, shall continue to be an employee until the end of that period;]



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