DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW

LABOUR LAW

PROJECT

TITLE – MEDICAL INSURANCE FOR EMPLOYEES UNDER LABOUR LAW

SUBMITTED TO: SUBMITTED BY:

Dr. Prasenjt Kundu Avinash Tiwari

Assistant Professor (Law) Enrollment No. -190101043
Dr. Ram Manohar Lohiya National Law University B.A. LL.B. (Hons.)
Lucknow 3rd Year (Semester – VI)
 ACKNOWLEDGEMENT

I would like to take this opportunity to extend a word of gratitude to my esteemed

‘Labour Law’ faculty Dr. Prasenjt Kundu, who had been a constant source of inspiration
for me in the pursuance of this project. Sir has been gracious enough to guide me on the
right path which has enabled me to strengthen my efforts.

I may also take this opportunity to wish the reader of my project a knowledgeable
experience. The project has been made with utmost care and with utmost finesse to see
that the information mentioned is to the best of accuracy and correctness. Sir’s constant
guidance and suggestions regarding the format and subject matter regarding the project
has been very helpful.

I would also like to express my sincere gratitude to our Honourable Vice Chancellor -
Prof. Subir K. Bhatnagar sir for his guidance and supervision. I would like to thank the
University staff for providing extensive database resources in the library and through
internet. Lastly I thank my dear parents, family and friends for their constant
encouragement and without them this work would not have been possible.

Avinash Tiwari

Semester - VI
 TABLE OF CONTENTS

INTRODUCTION………………...……………………….………………………………..4

MEDICAL INSURANCE FOR EMPLOYEES - LEGISLATIVE ASPECT ........................ 5

SCHEMES FOR ORGANISED AND GOVERNMENT SECTOR EMPLOYEES……..6

EMPLOYEES’ STATE INSURANCE SCHEME ............................................................. 6

EMPLOYEE CONTRIBUTION........................................................................................ 7

BENEFITS OF THE ESI SCHEME ................................................................................... 8

MEDICAL INSURANCE FOR EMPLOYEES - JUDICIAL ASPECT……………….….10

WHO IS AN EMPLOYEE?..............................................................................................10

POWERS OF ESI CORPORATION……………………………………...…….………12

BAR AGAINST RECEIVING OR RECOVERY OF COMPENSATION ……....…….12

TAXATION………………………...…………..…………………………...…………..13

REIMBURSEMENT TO RETIRED EMPLOYEE……………………...…….......……13

CONCLUSION……………………………………..…….………………………….....….14

BIBLIOGRAPHY……………………………………….…………...………….......……..15

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 INTRODUCTION

The concept of health insurance for industrial workers in India was first discussed in 1927
by the Indian Legislature, when the applicability of the conventions adopted by the
International Labour Conference was considered by the Government of India. The Royal
commission on Labour in its report (1931) stressed the need for health insurance for workers
in India and then Employees’ State Insurance Act 1948 came as an important piece of social
security legislation. The term ‘employee’ in the Act should be held to cover a wider field and
should receive very liberal connotation so that the employee may not be exploited and
victimised. The Employees’ State Insurance Scheme of India is a multidimensional social
security system tailored to provide socio-economic protection to the worker population and
their dependents covered under the scheme. Big changes have occurred over the last decade,
during which the sector was opened to private participation, but with foreign direct
investment (FDI) capped at 26%. Government or state-based systems include Central
Government Health Scheme (CGHS) and Employees State Insurance Scheme (ESIS).

This project has briefly covered the development, evolution and current perspective of
medical insurance of employees in the country. The formal system for health insurance in
India which began with the inception of the Employee's State Insurance Scheme, introduced
vide the ESI Act, 1948, has been mentioned. The legislation has emphasis that it is imperative
that there be adequate numbers not only to sustain health insurance but also ensure affordable
premium. The various judicial trends with respect to the medical insurance provided by the
employers has also been dealt with. The the project in detail discusses about the legislative
and judicial aspects of medical insurance for employees.

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 MEDICAL INSURANCE FOR EMPLOYEES – LEGISLATIVE
ASPECT

The Workmen’s Compensation Act 1923 is one of the earliest pieces of labour legislation. It
covers all cases of ‘accident arising out of and in the course of employment’ and the rate of
compensation to be paid in a lump sum, is determined by a schedule proportionate to the
extent of injury and the loss of earning capacity. The younger the worker and the higher the
wage, the greater is the compensation subject to a limit. The injured person, or in case of
death the dependent, can claim the compensation. This law applies to the unorganised sectors
and to those in the organised sectors who are not covered by the Employees State Insurance
Scheme, which is conceptually considered to be superior to the Workmen’s Compensation
Act.

The Employees’ State Insurance Act, 1948 provides a scheme under which the employer and
the employee must contribute a certain percentage of the monthly wage to the Insurance
Corporation that runs dispensaries and hospitals in working class localities. It facilitates both
out-patient and in-patient care and freely dispenses medicines and covers hospitalization
needs and costs. The Maternity Benefit Act is applicable to notified establishments. Its
coverage can therefore extend to the unorganised sector also, though in practice it is rare. A
woman employee is entitled to 90 days of paid leave on delivery or on miscarriage. The
Workmen’s Compensation Act and the ESI Act especially have been much used by
employees. An overwhelming amount of litigation has been on classifying a particular injury
or disease is employment-related or not.

In our constitution as well, the Directive Principles of State Policy has provisions related to
the same. Article 39(e) charges that the policy of the State shall be to secure ‘health and
strength of the workers. Article 42 mandates that the States shall make provision, statutory
or executive ‘to secure just and humane conditions of work.’ Article 43 directs that the state
shall endeavour to secure to all workers, by suitable legislation of economic organization or
any other way, a decent standard of life and full enjoyment of leisure and
social and cultural opportunities.

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As far as the global scenario with respect to employees’ health is concerned, Article 25(2) of
the Universal Declaration of Human Rights promises the right to a standard of adequate
living for health and well-being of the individual including medical care, sickness and
disability. Article 2(b) of the International Covenant on Political, Social and Cultural Rights
protects the right of worker to enjoy just and favourable conditions of work ensuring safe
and healthy working conditions.

As regards health care, Section 10 of the Factories Act lays down that a State Government
may appoint qualified medical practitioners as ‘certifying surgeons’ to discharge the
following duties:
a) Examination and certification of young persons and examination of persons engaged in
‘hazardous occupation’.
b) Exercising medical supervision where the substances used or new manufacturing
processes adopted may result in a likelihood of injury to the workers.
c) Exercising medical supervision in case of young persons to be employed in work likely to
cause injury.

SCHEMES FOR ORGANISED AND GOVERNMENT SECTOR EMPLOYEES -

There are two schemes, the Central Government Health Scheme (CGHS) and the Employees’
State Insurance Scheme (ESIS), sponsored by the central and state governments,
respectively, which extend free medical care for both inpatient and outpatient services on co-
payment basis to the organised workforce. ESIS also extends cash benefit towards loss of
wages due to sickness as well as cash compensation towards permanent physical
impairments.

EMPLOYEES’ STATE INSURANCE SCHEME -

The Employees’ State Insurance Corporation (ESIC) runs as ESIS, provides both cash and
medical benefits. The scheme (launched in 1948) is essentially a compulsory social security
benefit to workers in the industrial sector. The original legislation required it to cover only
factories using power and employing 10 or more employees, and was later extended to cover
factories not using power and employing 20 or more persons. Persons working in mines and
plantations are specifically excluded from the ESIS coverage. Any organisation offering

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benefits as good or better than the ESIS is obviously excluded from the coverage.
Expenditure for medical benefits constitutes 70 per cent of the total benefits paid under the
ESIS. These medical benefits are provided primarily through hospitals and dispensaries. As
on 31 March 1997, there were 32.8 million beneficiaries spread over 617 ESI centers across
states. Under the ESIC, there were 125 hospitals, 42 annexes, and 1443 dispensaries with
over 23,334 beds facility. The total state government expenditure on ESIS was about Rs.
3300 million and the expenditure per insured person worked out to be a little under Rs. 400.

The ESI Act, provides for medical care to registered employees in cases not just of accidents
and occupational diseases but also of ordinary illnesses. The scheme extends to the families
of the employees. The Act does not cover ‘seasonal employments’. It defines ‘employment
injury’ as personal injury to employees, caused by accident or occupational diseases, in an
insurable employment. The Act lays down provisions to set up an ESI Corporation, to
promote measures to improve health and welfare of insured persons and a Medical Benefit
Council to advise the Corporation on medical benefits, certification, etc. The Medical Boards
have to ascertain the percentage of disability of injured workers before submitting their report
to the Corporation in order to grant compensation to the workers. An injured worker has to
wait for months before the Medical Board calls him for a check-up.1

EMPLOYEE CONTRIBUTION2 -

The ESI Scheme runs like the most of the social security schemes. It is a self-financing health
insurance scheme and the contributions are raised from covered employees and their
employers as a fixed percentage of wages. The payments are to be made on a monthly basis.
An employee covered under the scheme has to contribute 1.75% of the wages whereas; an
employer contributes 4.75% of the wages payable to an employee. The total contribution in
respect of an employee thus works out to 6.5% of the wages payable. However, employees
earning less than Rs 50/- a day are exempted from payment of contribution.

1 Vijay Kanhere, The Clemenceau Debate and Occupational Health, Indian Journal of Medical Ethics, Vol 3,
No 2 (2006)
2 http://www.archive.india.gov.in/spotlight/spotlight_archive.php?id=18 visited on April 2nd, 2018

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BENEFITS OF THE ESI SCHEME -

All insured persons and dependents are entitled to free, full and comprehensive medical care
under the scheme. This medical care is provided through a network of ESI dispensaries, panel
clinics, diagnostic centers and ESI hospitals. Super specialty facilities are also offered
through empanelled advanced medical institutions. Currently, six types of benefits are
provided. These are:

i. Medical:
This benefit consists of the cost of full and expanded medical care. It includes the charges
for hospitalisation, drugs and dressings, special diet, laboratory tests and consultation
fees of specialists. Immunisation and sterilisation procedures are also provided for
through this scheme. This benefit also comprises the supply of free artificial aids such as
limbs, cervical collars, crutches, wheel chairs and cardiac pace makers.

ii. Sickness:
The periodical cash payments made to an insured person during a period of certified
sickness when the employee was absent from work is called 'sickness benefit'. The
maximum duration for sickness benefit is 91 days. Extended sickness benefit is available
to those who are suffering from specific diseases such as tuberculosis and leprosy.
Enhanced sickness benefit equal to their daily wage is payable to those who undergo
sterilisation operations for family planning purposes. The rate of benefit is compensation
at the Standard Sickness Benefit rate of not less than 50 per cent of daily wages.

iii. Maternity:
This benefit is payable to insured women for a confinement period of 12 weeks as well
as for miscarriages, medical termination of pregnancies and sicknesses arising out of
pregnancy. The rate of benefit is double the Standard Sickness Benefit rate and not less
than full wages.

iv. Disablement:
This is a payment available to those insured employees who become disabled as a result
of workplace injuries. Those who have temporary disabilities receive benefits till they

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 are healed while those with permanent disabilities are paid lifelong benefits. The rate of
benefit is up-to 140 per cent of the Standard Sickness Benefit rate and not less than 70
per cent of daily wages of the insured.

v. Dependents:
The dependents of employees who lose their lives as a result of workplace injuries are
paid 'Dependent’s' Benefit'. The rate of benefit is a daily allowance, which is increased
from time to time. The rate of benefit is up to 140 per cent of the Standard Sickness
Benefit rate and not less than 70 per cent of daily wages of the insured.

vi. Funeral Expenses:

This benefit is a lump sum of up to a maximum of Rs. 2500 for the settlement of expenses
incurred at the funeral of a deceased insured person. It is given either to the eldest
surviving member of the family or to the person who actually paid for the funeral.

The ESI Act which has replaced the Workmen's Compensation Act, 1923 in the fields where
it is made applicable is far more, wider than the Workmen's Compensation Act and enlarges
the scope of compensation. Section 38 provides that all employees in factories or
establishments to which the ESI Act applies shall be insured in the manner provided in it.
Under Section 39 the employer is also made liable to pay contribution. Section 42 provides
for circumstances under which the employee need not pay his contribution. Section 46
provides for the benefits which the insured persons, their dependents and the persons
mentioned therein shall be entitled to get on happening of the events mentioned therein.
Sections 51A to 51D create certain fictions in favour of the employee so as to have wider
coverage for him. In case of an employment injury Section 46 provides periodical payments
to him or to his dependents in case of his death. Employment injury is defined by Section
2(8) to mean a personal injury to an employee caused by accident or an occupational disease
arising out of and in the course of his employment, being an insurable employment, whether
the accident occurs or the occupational disease is contracted within or outside the territorial
limits of India. Section 2(9) defines employee to mean any person employed for wages in or
in connection with the work of a factory or establishment to which the ESI Act applies.

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 MEDICAL INSURANCE FOR EMPLOYEES – JUDICIAL ASPECT

In Vincent v. Union of India3, it was held that in a welfare State, it is the obligation of the
State to ensure the creation and the sustaining of conditions congenial to good health.

In Consumer Education and Research Centre vs. Union of India,4 the Supreme Court was
concerned with rights of employees in the asbestos manufacturing industry. It was a public
interest litigation filed concerning conditions of work and health affects on workers. The
Supreme Court went on to observe that the right to human dignity, development of
responsibility, social protection, right to rest and leisure are fundamental human rights to a
worker assured by the Charter of Human Rights, in the Preamble and Arts. 38 and 39 of the
Constitution. The Employees State Insurance Act and Workmen’s Compensation Act
provide for payment of mandatory compensation for the injury or death caused to the worker
while in employment. Since the Act does not provide for payment of compensation after the
cessation of employment, it becomes necessary to protect such persons from the respective
dates on cessation of their employment. It was also observed that Liquidated damages by
way of compensation are accepted principles of compensation.

In Satya Sharma v. ESI Corporation5, where a laid-off employee after signing the lay-off
register was coming out of the factory premises and when crossing the road was hit by a
scooter, the injuries sustained by him were considered by court as covered during the course
of employment on the basis of theory of notional extension.

WHO IS AN EMPLOYEE? -

According to the definition, if a work by the employee is conducted under the immediate
gaze or overseeing of the principal, employer or his agent, subject to other conditions as
envisaged being fulfilled he would be an employee for the purpose of s. 2(9).6 A work that
is conducive to the work of the factory or establishment or that is necessary for the

3 Vincent v. Union of India, (1987) 2 SCR 468

4 Consumer Education and Research Centre vs. Union of India , AIR 1995 SC 992
5 Satya Sharma v. ESI Corporation, 1991 (63) FLR 339
6 CES Corporation Ltd. v. Subash Chandra Bose 1992 (1) LLJ 475.

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augmentation of the work of the factory or establishment will be incidental or preliminary to
or connected with the work of the factory or establishment. The casual employees shall also
be brought within it and are entitled to the benefits which the Act grants. The casual labour
employed to construct additional buildings for expansion of the factory are the employees
under the Act.7 Employees engaged for repairs, site clearing, construction of buildings, etc.
of the principal employer are employees within the meaning of s. 2(9) of the Act.8

It was observed in ESI Corporation v. Suvarna Saw Mills,9 that there is no such difference
as that of casual or temporary or permanent employee for the expression "employee" as
defined under s. 2(9) of the Act. It is so wide as to include even a casual employee who is
employed just for a day for wages. The test being whether the person is employed for wages
on any work which is connected with the work of a factory or establishment which bears the
application of the Act except those exempted by the definition.

It was held in Director General, ESI Corporation v. Scientific Instrument Co. Ltd.,10 that the
expression "employed for wages or in connection with the work of a factory or establishment"
is of very wide amplitude and its generality is not in any way prejudiced by the expression
and includes any person employed for wages or any work connected with the administration
of the factory or establishment or in connection with sale or distribution of the products of
the factory or establishments. The word "includes" in the statutory definition of a term is
generally used to enlarge the meaning of the preceding words and it is by way of extension
and not with restriction. In order to determine whether the employees of the company
working at its branch sales offices and carrying on acts of sale and distribution of goods
manufactured by the company as well as the goods produced by the foreign company are
"employees" what is pertinent is not whether they are "principally" and primarily engaged in
sale and distribution of the products of the company but whether the business of sale and
distribution either "principally" or "marginally" of the products of the foreign company is
being done on behalf of the company. If the main business of the company itself at the branch

7 Regional Director, ESIC v. South India Flour Mills Ltd. 1986 (53) FLR 178
8 Kirloskar Pneumatic Co. Ltd. v. ESI Corporation 1987 (70) FJR 199
9 ESI Corporation v. Suvarna Saw Mills, 1980 (57) FJR 154
10 Director General, ESI Corporation v. Scientific Instrument Co. Ltd. 1995 Lab. IC 651

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sales offices, is to sell and distribute products of foreign company and the employees working
have been employed by the company basically in connection with this work, it would be
difficult to hold that the employees at branch sales offices are not "employees" within the
meaning of the term defined in S.2(9) of the Act notwithstanding the fact that the sale and
distribution of the products of the company at such offices are only marginal.

POWERS OF ESI CORPORATION -

The ESI Corporation is conferred with the power to recover arrears of contributions from the
employer along with damages/interest on the contribution that remained due.
Correspondingly it is under an obligation to pay with interest the arrears of benefits to the
insured employees or his dependents. This was held in the case of ESI Corporation v. Bhag
Singh11.

BAR AGAINST RECEIVING OR RECOVERY OF COMPENSATION -

Section 53 of the ESI Act does not bar the remedy under s. 110A of the Motor Vehicles Act,
1939 as stated in the case of Deputy General Manager KSRTC v. Gopal Mudaliar12. In this
background and context I have to consider the effect of the bar created by Section 53 of the
ESI Act. This kind of bar is against receiving or recovering any compensation or damages
under the Workmen's Compensation Act or any other law for the time being in force or
otherwise in respect of an employment injury. The bar is absolute as can be seen from the
use of the words shall not be entitled to receive or recover, 'whether from the employer of
the insured person or from any other person', 'any compensation or damages' and 'under the
Workmen's Compensation Act, 1923 (8 of 1923), or any other law for the time being in force
or otherwise'. The words 'employed by the legislature' are clear and unequivocal. When such
a bar is created in clear and express terms it would neither be permissible nor proper to infer
a different intention by referring to the previous history of the legislation. That would amount
to bypassing the bar and defeating the object of the provision. In view of the clear language
of the section I find no justification in interpreting or construing it as not taking away the
right of the workman who is an insured person and an employee under the ESI Act to claim
compensation under the Workmen's Compensation Act.

11 1989 (2) LLJ 126

12 1983 (46) FLR 194

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TAXATION13 -
In the case of Yoshio Kubo Vs. Commissioner of Income Tax, the main issue was whether,
amounts paid by employers to pension, or social security funds or for medical benefits were
perquisites under section 17(1)(V) of the Income Tax Act and liable to be taxed – It was held
that the assesse does not- in any appeal, get vested right at time of contribution to fund by
employer and amount standing to credit of pension fund account, social security or medical
or health insurance would continue to remain invested till assesse became entitled to receive
it. Amounts paid by employers to pension, or social security funds, or for medical benefits,
were not perquisites under Section 17 (1) (v), therefore, amounts paid by employer in that
regard is not taxable in hands of employee - assesse.

REIMBURSMENT TO RETIRED EMPLOYEE14 -

In the case of J.K. Sawhney Vs. Punjab National Bank, the petitioner was a retired bank
employee and had suffered a heart problem after his retirement. However, medical
reimbursement to Petitioner was denied by Respondent bank on ground that there was no
such scheme of reimbursement of medical expenses to retired employees. Therefore, the
issue of the case was whether, decision of Respondent to deny reimbursement to petitioner
was in violation of Articles 14 and 21 of Constitution of India? It was held that petitioner
was not a civil servant and was not holding a civil post being a bank employee. However,
he was not entitled to same protection as a civil servant was entitled to under Article 309
of Constitution of India as bank employees were bound by bipartite settlements which took
place from time to time governing service conditions of bank employee. Thus, there was
no provision to extend medical facilities to bank employees after their retirement.
Petitioner had not placed any material on record to show on what basis he had claimed his
right of grant of medical reimbursement after retirement. Thus, Petitioner could not
complain that by denying medical reimbursement, his fundamental rights had been
violated.

13 Yoshio Kubo Vs. Commissioner of Income Tax (2013)261CTR(Del)374

14 J.K. Sawhney Vs. Punjab National Bank, SLP (Civil) No.18757 of 2011

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 .CONCLUSION

The Employees' State Insurance Scheme has definitely revolutionized our economic angst
by providing the health protection and income preservation in unforeseen contingencies like
sickness, disablement, death due to employment injury and other issues that need medical
aid such as like maternity. Through this scheme, the government displays its commitment to
the welfare of workers and the creation of a safe and healthy workplace environment in the
Country. But at the same time, we need to understand that on paper these laws appear very
effective. Even otherwise, to a limited extent for the organized work force they do provide
certain amount of succor. Even the Government employees have a number of schemes and
provisions concerning medical benefits and care. But by and large they have been ineffective
in dealing with the unorganized sector. To begin with, these laws do not apply to small scale
industries. Also, implementation of these laws in many of the establishments to which they
apply is also difficult. For instance, if the employer has not deducted or deposited the ESI
contribution, the employee becomes disentitled to avail of the benefit. Similarly, many
occupational diseases are not covered by the Act and at times it has become difficult to prove
in courts that a disease occurred because of employment at a particular place. According to
survey by Marsh Insurance brokers, while 60 per cent of the corporates were providing
employer-sponsored cover for parents of employees in 2009, this number was down to 36
per cent in 2012. Faced with a rising outgo on account of higher health insurance premiums,
many companies are either withdrawing health cover for parents or making it voluntary for
the employee to pay separately for parental cover in group medi-claim policies. The main
advantage for policy-holders under group medi-claim is that pre-existing diseases are
covered from day one, unlike individual health insurance policies, which have a waiting
period of up to 4 years. However, for insurers, the selective cover for parents has made it a
loss-making proposition, with claim ratios exceeding 140 per cent.15 Court’s role has also
not been laudatory especially in recent times. Therefore, our Parliament should make further
improvement in legislations so that both organized and unorganized sector mandatorily come
under the purview of medical insurance of employees.

15http://www.thehindubusinessline.com/industry-and-economy/companies-tell-employees-sorry-no-more-
health-cover-for-parents/article5463148.ece; visited on April 5th, 2018.

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 BIBLIOGRAPHY

CASES
· Vincent v. Union of India, (1987) 2 SCR 468
· Consumer Education and Research Centre vs. Union of India , AIR 1995 SC 992
· Satya Sharma v. ESI Corporation, 1991 (63) FLR 339
· CES Corporation Ltd. v. Subash Chandra Bose 1992 (1) LLJ 475
· Regional Director, ESIC v. South India Flour Mills Ltd. 1986 (53) FLR 178
· Kirloskar Pneumatic Co. Ltd. v. ESI Corporation 1987 (70) FJR 199

· ESI Corporation v. Suvarna Saw Mills, 1980 (57) FJR 154

· Director General, ESI Corporation v. Scientific Instrument Co. Ltd. 1995 Lab. IC
651
· ESI Corporation v. Bhag Singh

· Deputy General Manager KSRTC v. Gopal Mudaliar

· Yoshio Kubo v. Commissioner of Income Tax (2013)261CTR(Del)374

· J.K. Sawhney v. Punjab National Bank, SLP (Civil) No.18757 of 2011

BOOKS & JOURNAL

· Labour Law & Labour Relations by S.C. Srivastava
· Taxmann's Labour Law
· Vijay Kanhere, The Clemenceau Debate and Occupational Health, Indian Journal of
Medical Ethics, Vol 3, No 2 (2006)

WEBSITES
· https://www.coverfox.com/health-insurance/employees-state-insurance-scheme/

· https://www.greythr.com/wiki/acts/employees-state-insurance-act1948/

· https://blog.ipleaders.in/employees-state-insurance-act-1948/

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