Applicability of ESI on NGOs

Dear Dialogue Members,

I share bellow a case of one NGO being pulled up by ESI.

Miracle Foundation India partners with one NGO in a small town in Tamil Nadu, the NGO runs a children’s home which cares for approximately 130 children and has a staff of 16-18 persons. We have been associated with this NGO for the past three year and consider them to be one the most transparent and honest organization. Their work with the children is outstanding

About a year & half back, an inspector of ESI office visited this children’s home and demanded documents which was dutifully shared. He told them that they have defaulted by not registering with ESI. The management tried its best to convince that they do not qualify for ESI, but he was unwilling to consider it.

Later the organization received notice form ESI to comply with requirement and pay the amount stipulated in their letter. The organiation made a representation to the local ESI head and requested him to look into the case; nothing happened.

Now after a long gap, the organization received a letter from ESI that they have withdrawn Rs.89,000/- (approx) form the bank. This NGO has now filed a case in the Madurai court and is awaiting their hearing, which they are not sure when it would take place.

My questions are:
Are NGOs, who are running children’s homes and take care of orphans (and are not manufacturing units) covered under ESI?
Why should ESI withdraw such amount without any notice?
What can be done in this case?
I look forward to a dialogue on this

Thank you & regards,

Nivedita DasGupta
India Country Head
Miracle Foundation India
A-149, Second Floor
New Delhi, 110017

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One Response to Applicability of ESI on NGOs

  1. Subhash Mittal says:

    Dear Mrs Dasgupta,

    ESI is covered by Employees’ State Insurance Act 1948. The Act was promulgated by the central Govt. It initially covered non-seasonal factories employing 10 or more persons. It also empowered the state Governments to extend the provisions of this Act to any other class of establishments. Generally most of the State Govts. have extended the provisions of the Act to establishments employing 20 or more persons in shops, hotels, restaurants, cinemas, motor transport undertakings and newspaper establishments. The scheme in several states including Tamilnadu has also been extended to Educational Institutions employing more than 20 persons. However only those employees will be covered who are not drawing more than Rs 15,000/-.

    The case mentioned by you is neither a factory nor gets covered under the type of establishments mentioned above. Closest it comes to is a restaurant or hotel, however since the instution you mention is not operating on commercial basis that they do not charge for providing food, hence it would not be treated as a hotel or restaurant. Further since it is not an educational institution providing education. It only houses children who are go to school outside the premises. My understanding is that the institution does not run any educational institution. They may arrange for private tution for some of the children who require the same. Thus the institution should not be treated as an educational institution.

    In view of the above, on face of it, ESI applicability to it seems doubtful. However since apparently ESI authorities have raised demand, it needs to be contested in the appropriate legal forum. Regarding recovery of funds from the bank account, most govt authorities have elaborate powers to recover their demands.

    In fact if I remember correctly, the same issue was deliberated upon sometime in Sept 2013 (see blog ). At that time also it was suggested that the institution should hire a local consultant / lawyer with expertise in the domain subject and contest the demand.


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