Supreme Court: Supervisory Officials Can Be Held Liable for Non-Payment of ESI Contributions, Regardless of Title

The Supreme Court has clarified that under the Employees' State Insurance Act, 1948 (ESI Act), an individual may be considered a 'principal employer' based on their role and responsibilities, rather than their formal job title. If a person acts on behalf of the owner or occupier of a factory, or exercises supervisory and controlling powers over an establishment, they can be held liable under the Act.

This ruling came from a bench comprising Justices Sudhanshu Dhulia and Ahsanuddin Amanullah, which upheld the conviction of a company's General Manager for failing to deposit the employees' ESI contributions with the Employees' State Insurance Corporation (ESIC). The convicted individual was sentenced to six months' imprisonment along with a fine of ₹5,000.

Appeal and Arguments

The General Manager challenged his conviction, claiming that he was neither holding the title of General Manager at the time of the alleged offense nor was he the 'principal employer' responsible for compliance. He contended that the company itself was liable for the payment defaults and that he could not be individually prosecuted.

However, the Court rejected these arguments. In a judgment authored by Justice Amanullah, the Court stressed that it is not the designation but the function and level of control exercised by an individual that determines their liability under the ESI Act.

Court’s Reasoning

The Court found that the appellant had failed to sufficiently disprove his position within the company. Based on available evidence, it concluded that he fell within the definition of 'principal employer' under Section 2(17) of the ESI Act, particularly as a "managing agent" who supervised and controlled the operations of the establishment.

“Designation alone is not decisive. If an individual acts as an agent of the owner or supervises and manages the establishment, they come within the scope of Section 2(17),” the Court observed.

The bench further highlighted that in this case, despite deductions being made from employees' wages towards ESI contributions, those amounts were not deposited with the ESIC — a serious violation that could not be excused.

Finding no ground to interfere with the lower court’s judgment, the Supreme Court dismissed the appeal.

Case Details

• Case Title: Ajay Raj Shetty vs Director and Another

• Citation: 2025 LiveLaw (SC) 442