CA Firms not eligible for ESI Benefits: Gujarat HC

The Gujarat High Court issued a landmark verdict, classifying Chartered Accountancy (CA) businesses as professional establishments rather than commercial entities, making its employees ineligible for the Employees’ State Insurance (ESI) benefit plan.

The decision brings to an end a nearly eight-year-long dispute that began when the Employees’ State Insurance Corporation (ESIC) issued a recovery notice after reviewing Deloitte Haskins and Sells, a global professional services network.

The controversy surfaced in 2016 when an ESI court ruled that CA firms are not covered by the ESIC Act. Despite being reported to the regional director, the problem went unaddressed and eventually ended up before the Gujarat High Court, with Deloitte at the centre of the legal proceedings.

The legal team for Deloitte submitted persuasive data showing that the ESI Corporation could not create the CA business as a shop or commercial enterprise.

Following extensive consideration, a bench led by Justice Bharav D Karia determined that a CA’s responsibilities include accounting, auditing, refereeing, receivership, arbitration, and special commissioner positions, as stipulated by the Institute of Chartered Accountants of India (ICAI). These services are provided on-site and at places chosen by the management partner.

According to the court’s order, “the CA’s activity is not limited to the office premises alone. As a result, the Chartered Accountant’s firm cannot be included in the definition of shop or commercial establishment for the purposes of the Act.”

The court emphasised that CA firms operate in a variety of places, including multiple offices in India and around the world, where they provide professional services to their clients such as tax advising, financial advise, risk management, and other relevant services.

Justice Karia went on to say, “It is not acceptable to limit the role of the chartered accountant to what is considered a’shop’ under these circumstances. The term “shop” exclusively refers to a location where an institution provides services to clients, according to the Bombay Shop and institution Act, 1948.”

The ESI Corporation’s previous order was annulled as a result of the high court’s ruling, and they were ordered to repay the deposited sum plus interest. This decision establishes a precedent for CA businesses, recognising their status as professional institutions and exempting them from the ESI benefit plan.