ESI Clubbing Order Quashed for Lack of Integration Tests

Case Details: Smt. Zaverben Popatlal Premji Arrogyadham vs. Employees State Insurance Corporation [2026] 185 taxmann.com 227 (Bombay)

Judiciary and Counsel Details

Jitendra Jain, J.
S. C. Naidu, Manoj Gujar, T. R. Yadav & Pradeep Kumar for the Appellant.
Ms Seema Chopda for the Respondent.

Facts of the Case

In the instant case, the appellant trust ran a sanatorium for patients requiring isolation. It provided one-BHK apartments with individual kitchens for occupants, and did not operate any central kitchen or supply food.

A leave and license agreement was executed between KVO Sthanakwasi Jain Mahajan, Mumbai (licensor) and M/s. Manisha Caterers (licensee), permitting the latter to use the premises for its independent catering business. There was no arrangement appointing M/s. Manisha Caterers as a contractor or agent of the appellant, nor was the appellant a party to the catering operations for sanatorium occupants.

A Corporation Inspector surveyed M/s. Manisha Caterers and concluded that it was independently coverable under the ESI Act; accordingly, a separate ESI code was allotted. Subsequently, another Inspector visited the appellant’s premises, noted that a canteen employing seven persons was functioning, and that M/s. Manisha Caterers was complying under its own ESI code. Despite this, he recommended coverage of the appellant under Section 2(12).

Pursuant thereto, an order under Section 45A was passed, clubbing the appellant with M/s. Manisha Caterers on the ground that the canteen was located in the same premises, was incidental or complementary to the sanatorium, and that there existed a nexus between the two.

High Court Held

The High Court observed that the order under Section 45A merely recorded conclusions without furnishing reasons. It reiterated that clubbing of entities requires satisfaction of established tests such as unity of ownership, control and supervision, financial integrality, management, employment, geographical proximity, and functional integrity.

Since neither the Employees’ Insurance Court, Pune nor the respondent had examined or satisfied these parameters, the finding that the appellant and M/s. Manisha Caterers constituted a single establishment was unsustainable.

The Court further noted that M/s. Manisha Caterers had vacated the premises prior to the adjudication by the trial court, indicating lack of due application of mind and that the proceedings were based on mere suspicion. Accordingly, the impugned order passed under Section 45A was quashed and set aside.