Establishments cannot be exempted from obligations under the ESI Act, unless such exemption is granted by the appropriate government in compliance with the provisions of ESI Act

The Petitioner, a spinning mill located in rural Inkollu, Andhra Pradesh, challenged a demand for ESI contributions amounting to INR 89,373 for the period April, 2003 to October 2003. The Petitioner claimed exemption from contribution under the Employees’ State Insurance Act, 1948 (“ESI Act”), since there was no ESI dispensary in its vicinity thus no practical medical benefits were available to the workers. The question arose in this C.M.A.No.1150 of 2011 before the Court was whether the unavailability of medical facilities in the area could be a legitimate reason to deny obligatory statutory contributions and whether an application for exemption was necessary. The Court reiterated that the coverage under the ESI Act depends upon the nature of an industry and the number of employees employed therein, and not the local availability of ESI dispensary or service.

Once a unit is covered, it has to make contributions, unless it obtains an exemption from the appropriate government. The claims of the Petitioner that they were covered by private insurance, and the distance to the nearest ESI hospital was 40 Kms, were considered to be irrelevant and does not exempt the Petitioner from obligation to contribute under the ESI Act.

Accordingly, the appeal was dismissed on May 9, 2025, and the Court upheld the ruling of the ESI Court and reinforced an important principle that mere practical inconvenience cannot be the basis for setting aside obligations arising under social security legislation, like the ESI Act. A set of benefits comes along with the scheme of responsibilities-and here an employer cannot opt out simply because the service is not located nearby.