The Gujarat High Court has made a significant ruling, categorizing Chartered Accountancy (CA) firms as professional establishments rather than commercial entities, leading to the ineligibility of their employees for the Employees' State Insurance (ESI) benefit scheme. This decision brings an end to a longstanding dispute that has spanned almost eight years, initiated when the Employees' State Insurance Corporation (ESIC) issued a recovery notice after evaluating Deloitte Haskins & Sells, a global professional services network.
The controversy began in 2016 when an ESI court determined that CA firms do not fall under the purview of the ESIC Act. Despite being referred to the regional director, the matter remained unresolved and ultimately reached the Gujarat High Court, with Deloitte at the center of the legal proceedings.
Deloitte's legal team presented compelling evidence, arguing that the ESI Corporation could not establish the CA firm as a shop or commercial establishment.
Following thorough deliberation, a bench of justice Bharav D Karia observed that a CA's activities encompass accounting, auditing, refereeing, receivership, arbitration, and special commissioner roles, as prescribed by The Institute of Chartered Accountants of India (ICAI). These services are performed on-premises and at locations determined by the managing partner.
The order from the court stated, "The activity of the CA is not confined to the office premises only. The firm of the Chartered Accountant, therefore, cannot be covered in the definition of shop or commercial establishment so as to attract the provisions of the Act."
The court emphasized that CA firms operate at various locations, including different branches within India and globally, where they provide professional services to their clients, including tax consulting, financial advisory, risk management, and related services.
Justice Karia further explained, "In such circumstances, confining the office of the Chartered Accountant within the definition of 'shop' cannot be accepted. Shop, as per the provisions of the Bombay Shop and Establishment Act, 1948, only refers to a place where services are rendered to customers by any establishment."
As a result of the high court's ruling, the ESI Corporation's previous order was quashed, and they were directed to refund the deposited amount with accrued interest. This judgment sets a precedent for CA firms, establishing their distinction as professional establishments and exempting them from the ESI benefit scheme.
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