As per directions from Ministry of Corporate Affairs, Government of India, with effect from 15.02.2020, registration of new Public & Private Limited Companies and One-Person Company is mandatory through AGILE under the MCA and shall be automatically alloted ESI Code, irrespective of the Company is coverable under ESI Act or not. 

However, if the Company is not coverable as per the statutory provisions of the ESI Act, it need not make any compliance for next 6 months or till they reach the threshold of ESI Coverage, whichever is earlier,(presently threshold of employee strength is 10).  Initially, the registration will be in ’active’ mode and companies can immediately start ESI compliance. However, the Companies can make the registration number ‘dormant’ by logging in the system, in case they are not immediately coverable under ESI Act, to avoid defaulter action. The Company can choose a maximum period of six months at one go, for dormant mode selection. The Company has to again login to the ESIC website, to further extend the ‘dormant’ mode after expiry of the above period. In case the Company does not extend the dormant mode, the registration will automatically activate again and Company has to start compliance/file returns under ESI Act, failing which, defaulter action will also get activated. 

Join Now! India's Largest directory of lawyers and legal professionals

As and when the employee strength reaches 10, on any day, you are advised to login to the ESIC employer portal www.esic.in using ESIC employer credentials received during the time of incorporation, and register all your employees drawing salary up to Rs 21000/- per month under the Scheme and start compliance in respect of them. 

The chapter VII of the Employees and State Insurance Act contains penalties for non compliance of its provisions and certain offences. The penalties under the Act were enhanced considerably by the subsequent Amendment in 1975. Sections 85-A, 85-B, 85-C were added through this amendment. The penalties under ESI Act are following:-

1) Section 84 of the ESI Act contains penalties for making false or wrong statements. In case an insured person gives any false information with an intention to take benefits which is not admissible to him under the Act, such persons shall be punished with imprisonment for a term that may extend to six months or a fine that may extend to two thousand rupees or both imprisonment and fine. If an insured person gets convicted under this section, then he or she will not be eligible for any cash benefit under ESI Act for a period that may be prescribed by the Central Government.

2) Section 85 deals with penalties under ESI Act with respect to failure to pay the contribution and non-compliance of provisions in the Act. If a person doesn’t pay the contribution which he is liable to pay, then he shall be punished with imprisonment for a term which may extend for a period of three years or if he deducts or makes any attempt to deduct from the wages of an employee either wholly or a part of employer’s contribution, he shall be held guilty and may be punished with imprisonment for a term that may extend to one year and/or with a fine that may extend to four thousand rupees. This section further provides that if any person reduces the wages, privileges or any benefits that an employee is entitled to or in contravention to section 73 or any regulation reduces, dismisses or punishes an employee, such a person shall be punished with imprisonment for a term that may extend to a period of one year and/or with a fine that may extend to Rs. Four thousand. If a person fails or intentionally refuses to submit a return or makes a false return required by the regulation; or obstructs any officer of the corporation in discharge of his duties or is guilty of a non-compliance with any of the provisions of this Act or the regulations where no special penalty is provided, he shall be punished with imprisonment for a term that may extend to one year and/or with fine up to four thousand rupees.

3) Section 85A provides enhanced penalties under ESI Act. This section says that in certain cases, after a previous conviction, if a person commits the same offence punishable under this Act will be punished with imprisonment for a term that may extend to two years and with a fine of Rs. Five thousand for every such subsequent offence. In case such subsequent offence is for non-payment of contribution by the employer, which he is liable to pay, he shall be, for every subsequent offence, punished with imprisonment for a term that may extend to five years but not less than two years and with fine of Rs. Twenty-five thousand.

4) Section 85B contains the provision of recovering damages by the corporation from the employer through penalty under this section in case an employer fails to pay contribution that is payable under this Act within the prescribed time or pays contribution after the expiry of the time period provided that the employer shall be given a good opportunity of being heard before the recovery of such damages. The recovery of the said damages amount should not exceed the amount of contribution payable or paid.

5) Section 85C provides that in case of conviction of an employer for an offence of non-payment of contribution under ESI Act, the court, along with the punishment prescribed, has the right to direct him to pay the amount of contribution within a time period for which he was convicted. The court can, as per its discretion, extend the time given to pay periodically. In case the employer still does not pay the contribution and submit returns within the prescribed time given by the court or in the extended time, then the employer shall deemed to have committed a further offence. He shall be punishable under Section 85 of this Act and shall also be liable to pay fine up to Rs. One thousand for every day of default.

6) Section 86 of the Act provides that under this Act no prosecution shall be instituted without a previous sanction of the Insurance Commissioner or of any other such officer of the Corporation as may be authorised primarily on this behalf by the Director-General of the Corporation. This section further provides that a court inferior to that of a Metropolitan Magistrate or Judicial Magistrate of the first class shall not try an offence under the ESI Act. It also specifies that no court will take cognizance of any offence under the ESI Act except in case a complaint is made in writing in respect of an offence.

7) Section 86A provides provision for noncompliance of its provisions by companies. Every person who at the time of the commission of the offence was in charge and responsible for the management and the conduct of the business of the company will be guilty of the offence and will be liable for punishments and penalties under the Act. An exception to this rule is that if the person liable to any punishment proves that the offence was committed without his knowledge or if he proves that he used all his diligence to prevent the commission of the offence, then that person shall not be liable to any punishment.

8) Section 75 contains the provisions for adjudication of disputes and claims. It specifies that if an employer or employee under the Act has any dispute that can be settled by the Employees Insurance Court after adjudicating the dispute if made before it, with the condition that 50% of the security deposit should be made under section 75 (2B) unless it is reduced/waived for the reasons recorded by the learned court.

Punishments under other statutes

Punishments under sections 405 and 406 of IPC:-

An employer who deducts employee’s share of contribution from their wages, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid, therefore, commits the offence of Criminal Breach of Trust that may be punishable with imprisonment either for a term that may extend to three years or with fine or both fine and imprisonment.

Punishments under section 138 of Negotiable Instrument Act-

If an employer provides a cheque to the corporation for payment of contribution, interest or damages or any other amount that is due, which subsequently gets bounced by the bank due to insufficient funds, he, therefore, commits an offence under this section and will be punished with imprisonment for a term that may extend to one year or fine that may extend to twice the amount of cheque or both imprisonment and fine.

Employees Insurance Court

Section 74 of the ESI Act provides for the constitution of an employee’s insurance court. The state government shall constitute it for dispute adjudication and claims adjudication. The ESI court shall have the authority to adjudicate the disputes, rate of wages, principal employer, and whether or not any person is an employee. The ESI court shall also have the authority to claim for recovery of any benefit under the ESI Act and shall have the right to take action against failure to pay contribution or against negligence. Further, no civil court shall have the authority to decide matters within the jurisdiction of the ESI court.