When a new company is incorporated on the MCA portal, they get registered under the EPF and ESI Act by default irrespective of the applicability of such laws.
The automatic registration of new companies under these acts is indeed meant to ensure that employees are covered by these social security schemes, which provide benefits such as provident fund, pension, and medical insurance. However, it can also lead to challenges, when a company is not actually eligible or required to comply with these laws.
This is because the Companies are required to do the compliances irrespective of the applicability of the law, and it becomes difficult for the ESI department to identify the defaulting entities.
In order to solve this problem, Department of Employees State Insurance has issued communication No. P – 11 / 14 / 19/Misc/02/2022-Rev. II dated 2nd November, 2022 and 2nd June 2023 to provide opportunity to companies having default registration on MCA to change their status to dormant company for ESI compliances.
Guidance issued by the Competent Authority is as under:-
For Companies registered with ESI through MCA portal, if the number of employees is less than 10 then the company is not covered under the ESI Act. As the threshold number of employees i.e., 10 employees for statutory coverage under ESI Act has not been reached, you are not required to make compliance for 6 months from the date of coverage or till threshold limit for ESI coverage is reached, whichever is earlier.
In case threshold limit is not reached even after 6 months, you are required to login into ESIC website using your Authorized credentials and further extend the “dormant” mode.
In case such extension after 6 months is not done by the employer, ESIC registration will automatically get activated and unit has to start compliance under ESI Act.
In case of non-compliance, defaulter action will be taken against those unit as per existing provisions of ESI Act. Companies registered in ESIC through MCA Portal have to declare the status of the company within six month of registration to avoid defaulter action.
Before the end of the “Inactive” mode, the company can further extend tech Inactive mode for six months and continue to extend in similar manner as per the status of the company.
The option of declaring “ Inactive” mode is not available to employer after expiry of six months.
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