Liability of Supervisory Personnel for Non-Remittance of ESI Contributions Irrespective of Designation: Supreme Court of India

The Supreme Court of India, in its judgment dated April 17, 2025, in Ajay Raj Shetty v. Director, has clarified that individuals occupying supervisory roles may be held liable for the non-remittance of Employees' State Insurance (“ESI”) contributions, regardless of their official designation. The Court emphasized that, pursuant to Section 2(17) of the Employees' State Insurance Act, 1948 (“ESI Act”), any person exercising supervision and control over an establishment qualifies as a ‘principal employer’ for the purposes of the Act, even if such responsibility is not explicitly reflected in their formal designation.

In the present case, M/s Electriex (India) Ltd. was declared a sick company by the Board for Industrial and Financial Reconstruction in 2001, resulting in legal proceedings concerning its management and financial liabilities. In 2011, ESI Corporation officials identified that INR 8,26,696, deducted from employees’ salaries, had not been remitted. Records identified Mr. Ajay Raj Shetty as General Manager and Principal Employer, thereby rendering him liable under the ESI Act. The trial court imposed a sentence of six months’ imprisonment and a fine of INR 5,000, which was upheld on appeal.

The Supreme Court held that liability under Section 2(17) of the ESI Act is determined by supervisory control rather than nominal designation. The Court rejected Mr. Shetty’s defense that he lacked financial authority, noting his failure to provide supporting evidence. Consequently, the Supreme Court dismissed the appeal and directed Mr. Shetty to serve the prescribed sentence.