March 06, 2019

Company Directors who receive remuneration are also employees: ESI Act


The Directors of a company, who receive remuneration, come within the purview of “employee” under sub-section (9) of section 2 of the Employees’ State Insurance Act, 1948, the Supreme Court has ruled.

In the case of Venus Alloy Pvt. Ltd. versus Employees State Insurance Corporation, the former had challenged the latter’s order, directing it to make payment of contribution in relation to the remuneration paid to the Directors.

Directors of the establishment do not come within the purview of “employees” as defined under sub-section (9) of section 2 of the ESI Act, ruled the ESI Court and later the High Court of Madhya Pradesh.

However, in the Employees State Insurance Corporation versus Apex Engineering Pvt. Ltd. case, it had already been held by the Supreme Court that the Managing Director, even when treated as the principal employer, could also be an employee and could carry such dual capacity, the bench of Justice Abhay Manohar Sapre and Justice Dinesh Maheshwari noted.

“We are clearly of the view that what has been observed and held by this Court in Apex Engineering (supra), in relation to the Managing Director of a Company, applies with greater force in relation to a Director of the Company, if he is paid the remuneration for discharge of the duties entrusted to him," the bench observed.

The corporation, in the present case, had asserted that the Directors of the company were paid remuneration at the rate of Rs 3,000 per month and they fell within the definition of “employee” under the ESI Act and hene, contribution was payable in regard to the amount paid to them, the bench said.

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