ESI Court findings on factual employee strength do not constitute a substantial question of law.

The respondent, Bahucharaji Bras Products, challenged a 'C-11' notice dated 09.07.2004 issued by the ESI Corporation, which sought to apply the Employees State Insurance Act, 1948, to their establishment.

The Corporation's claim was based on an inspector’s report from 11.05.2000 asserting that 11 persons were employed.

The respondent maintained that they never employed more than 7 persons, a claim supported by a subsequent inspection report dated 31.05.2004, where another ESI Inspector verified registers from 1998 to 2004 and found only 7 employees.

The ESI Court, Jamnagar, ruled in favor of the respondent, declaring the notice illegal.

The Corporation appealed under Section 82 of the ESI Act.

1. Whether the appeal involves a "substantial question of law" as required for maintainability under Section 82(2) of the ESI Act.

2. Whether the ESI Court was justified in holding that the Corporation failed to prove the requisite number of employees (10 or more) to trigger the Act's applicability.

The court applied Section 82(2) of the Employees State Insurance Act, 1948, which mandates that an appeal to the High Court lies only if it involves a "substantial question of law".

The Court defined "substantial question of law" by relying on the precedent set in Hero Vinoth v. Seshammal [(2006) 5 SCC 545] and the Constitution Bench in Sir Chunnilal V. Lal Mehta and Sons v. Century Spinning and Manufacturing Co. Ltd. [AIR 1962 SC 1314], which establish that a question is "substantial" only if it is fairly arguable, has room for difference of opinion, or is not settled by the highest court. Questions relating purely to factual findings or the application of settled principles to specific facts do not qualify.

The Court observed that the questions framed by the appellant Corporation (regarding the allotment of the ESI Code and the burden of proof) were purely factual assertions rather than legal questions.

The Court found the Corporation's reliance on the 2000 inspection report flawed because it lacked names, salary details, or employee signatures.

The 2004 report was comprehensive, based on salary and attendance registers, and corroborated the respondent's claim of having only 7 employees; the Corporation failed to lead evidence to rebut the later inspector's report.

The Court determined that the Corporation had chocked the judicial system by filing a frivolous appeal to avoid the consequences of its arbitrary notice.

The High Court upheld the ESI Court’s decision that the C-11 notice was arbitrary and the ESI Act was not applicable to the respondent.

The appeal was dismissed with exemplary costs of Rs. 5,000/- payable to the City and District Law Library, Ahmedabad, to discourage the filing of groundless litigation.