Supreme Court Clarifies ESIC Powers: Section 45A Cannot Be Used If Employer Cooperates
Court says dissatisfaction with records is not enough to invoke Section 45A
Employers must be assessed under Section 75 when records are produced
By Our Legal Reporter
New Delhi: January 26, 2026
In a landmark judgment, the Supreme Court of India has drawn a clear boundary around the powers of the Employees’ State Insurance Corporation (ESIC). The Court ruled that ESIC cannot invoke its exceptional powers under Section 45A of the Employees’ State Insurance Act, 1948 when an employer has produced records and cooperated with inspections. This decision, delivered in Carborundum Universal Ltd vs ESIC, is expected to have far-reaching implications for employer contribution disputes across the country.
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The ruling comes after decades of litigation over contribution demands raised against Carborundum Universal Ltd for the period between 1988 and 1992. The Court’s message is simple: cooperation and record production by employers mean ESIC must follow the proper adjudication process under Section 75, not bypass it using Section 45A.
What is Section 45A of the ESI Act?
Section 45A gives ESIC the power to determine contributions on a “best judgment” basis when employers fail to produce records, obstruct inspections, or refuse to cooperate. It is meant to be an exceptional provision, like summary assessment powers in tax law.
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The Supreme Court clarified that this section cannot be used as a shortcut whenever ESIC is dissatisfied with the quality or completeness of records. Instead, disputes over adequacy or correctness of contributions must be resolved under Section 75(2)(a), which provides for proper adjudication before the Employees’ Insurance Court.
The Case: Carborundum Universal Ltd vs ESIC
The dispute began when ESIC raised a demand of ₹5.42 lakh plus interest against Carborundum Universal Ltd for contributions between 1988 and 1992. ESIC claimed the company had failed to provide adequate supporting bills for certain expenditure heads and invoked Section 45A to raise the demand.
The company challenged this, arguing that it had produced detailed records including ledgers, cash books, vouchers, contractor records, and contribution returns. Multiple hearings were attended by its representatives, showing full cooperation.
Despite this, the ESIC Regional Office passed an order in 2000, upheld by the Employees’ Insurance Court in 2015 and later by the Madras High Court in 2023. The matter finally reached the Supreme Court in 2025.
Supreme Court’s Observations
The bench of Justice Manoj Misra and Justice Ujjal Bhuyan made several important observations:
- Foundation of Section 45A: It can only be used when there is non-production of records, lack of cooperation, or obstruction during inspection.
- Dissatisfaction ≠ Non-production: If records are produced, even if incomplete, ESIC cannot treat this as non-production.
- Proper Route is Section 75: Any dispute about adequacy or correctness of records must be decided under Section 75, not Section 45A.
- Avoiding Misuse: Using Section 45A merely because verification is inconvenient or time-consuming would amount to misuse of law.
The Court concluded that both the Employees’ Insurance Court and the Madras High Court committed a “grave error” by upholding ESIC’s order without examining this jurisdictional defect.
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Why This Matters
This ruling is significant for several reasons:
- Employer Protection: It prevents misuse of Section 45A against employers who cooperate.
- Clarity in Law: It distinguishes between exceptional and ordinary situations in contribution disputes.
- Impact on ESIC Practices: ESIC will now have to rely more on Section 75 adjudication, ensuring fair hearings.
- Labour Law Precedent: The judgment strengthens the principle that beneficial legislation must be applied fairly, without overreach.
Wider Implications
Legal experts believe this decision will influence future disputes between employers and ESIC. Many companies have faced contribution demands under Section 45A despite producing records. The Supreme Court’s ruling sets a precedent that could help employers contest such demands.
It also reinforces judicial scrutiny over the use of summary powers by statutory bodies. Just as tax authorities cannot arbitrarily invoke “best judgment” assessments, ESIC too must respect due process when employers cooperate.
Conclusion
The Supreme Court’s ruling in Carborundum Universal Ltd vs ESIC is a landmark in labour law and social security jurisprudence. By restricting the use of Section 45A to truly exceptional cases, the Court has ensured that employers who cooperate are not penalized unfairly.
This judgment balances the interests of employees, who benefit from ESIC contributions, and employers, who deserve fair treatment under the law. It is a reminder that beneficial legislation must be implemented with fairness, not arbitrary power.
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