SHORT NOTE ON APPLICABILITY OF SHOPS AND ESTABLISHMENTS ACT

AND EMPLOYEES’ STATE INSURANCE ACT ON AN NGO

What is a ‘shop’ as per the Karnataka Shops and Establishments Act

Section 2 (u) - A “shop” means any premises where any trade or business is carried on or
where services are rendered to customers, and includes officers, store-rooms, go-downs, or
warehouses, whether in the same premises or otherwise, used in connection with such trade
or business, but does not include a commercial establishment or a shop attached to a factory
where the persons employed in the shop fall within the scope of the Factories Act, 1948.

What is a ‘commercial establishment’ as per the Act

Section 2 (e) - A “commercial establishment” means a commercial or trading or banking or

insurance establishment, an establishment or administrative service in which persons
employed are mainly engaged in office work, a hotel restaurant, boarding or eating house, a
café or any other refreshment house, a theatre or any other place of public amusement or
entertainment and includes such establishments as the State Government may by notification
declared to be a commercial establishment for the purposes of this Act.

Does an NGO need to apply for Shops and Establishment License?

Mandatory: According to the NGO laws in India, if an NGO employs any individuals in their
office to carry out any work pertaining to the NGO, then the said NGO shall obtain a License
under the Shops and Establishments Act. This act would apply to any establishment which
employee 20 or more employees.

About the ESI

The Employees' State Insurance Scheme is an integrated measure of Social Insurance
embodied in the Employees' State Insurance Act and it is designed to accomplish the task of
protecting 'employees' as defined in the Employees' State Insurance Act, 1948 against the
impact of incidences of sickness, maternity, disablement and death due to employment injury
and to provide medical care to insured persons and their families. The ESI Scheme applies to
factories and other establishment's viz. Road Transport, Hotels, Restaurants, Cinemas,
Newspaper, Shops, and Educational/Medical Institutions wherein 10 or more persons are
employed. However, in some States threshold limit for coverage of establishments is still 20.
Employees of the aforesaid categories of factories and establishments, drawing wages up to
Rs. 15,000/- a month, are entitled to social security cover under the ESI Act. ESI Corporation
has also decided to enhance wage ceiling for coverage of employees under the ESI Act from
Rs. 15,000/- to Rs. 21,000/-.

Coverage / Applicability of the ESI Act

In an area notified u/s 1 (3) by Central Govt. all factories where 10 or more persons are
employed attract coverage under Section 2 (12) of ESI Act. Further, according to the
notification issued by the appropriate Government (Central/State) under Section 1(5) of the
Act, the following establishments employing 10 or more persons attract ESI coverage.
(i) Shops
(ii) Hotels or restaurants not having any manufacturing activity, but only engaged in
'sales'.
(iii) Cinemas including preview theatres;
(iv) Road Motor Transport Establishments;
(v) Newspaper establishments. (that is not covered as factory under Sec.2 (12));
(vi) Private Educational Institutions (those run by individuals, trustees, societies or
other organizations and Medical Institutions (including Corporate, Joint Sector,
trust, charitable, and private ownership hospitals, nursing homes, diagnostic
centres, pathological labs).
In some states coverage is still for 20 or more persons employed under sec 1(5). A few State
Governments have not extended scheme to Medical & Educational Institutions.