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Liability to pay ESI in case of outsourced work

(Querist) 29 February 2008 This query is : Resolved 
Dear Friends

I am working in an company which is into executing projects on BOOT basis ( Build Own Operate and Transfer).

In one of the projects we have hired employees through a contractor to execute our project and all these employees are working on the project which is in the premises of the party who has given us the project. In this scenario, in case of Statutory Liability of P.F & E.S.I are we liable to be treated as principle employer. In case yes, Is there a way to get out of it, as the liability is going to be unbearable.

Look forward to prompt reply from all learned friends.

Himanshu Sharma (Querist) 29 February 2008
Dear Friends,

Please help me to resolve the issue.

Manish Singh (Expert) 07 March 2008
It depends upon several facts like whom you are paying the consideration and agreements made between you and the contractor etc.
If you are paying consideration to the contractor and not to the workers directly, then you only renders principal-agent relationship and you don't need to pay anything to the employees engaged since they are the employees of your agent not yours.
Kalpana.S (Expert) 08 March 2008
The principal employer is not liable to pay ESI on outside jobs executed through contract labour. This clarification has come from the highest court of the land, the Hon'ble Supreme Court.

In the case of ESIC Bangalore V/s JMD Fashions (No. MFA 1089/2001), the Karnataka High Court held that outside establishments are not immediate employers under Section 2(13) of the ESI Act. The ESIC decided to go on appeal against this verdict, before the Supreme Court. The SC in its judgment dated 12.03.2007 dismissed the petition of the ESIC and upheld the decision of the HC.

Recently the MP High Court had also given a similar judgment, stating that in case of job works done by contract labour, there is no element of supervision by the principal employer, and therefore the principal employer will not be responsible for payment of ESI contributions in respect of such contract labour.

Earlier, the ESI authorities had been demanding and in many cases, even recovered the ESI contributions from the employers for outside jobs done by contracted vendors.
Hiralal Das (Expert) 07 April 2009
Thanks all of you the ld. members and the author.
I think your valuable opinions will assist everybody to solve their problem/matter in question properly.
Sachin Bhatia (Expert) 13 October 2009

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