Section 1(6) of ESI Act has specific provision regarding number of persons falling below the limit specified under this Act. The provision reads as under-
“A factory or an establishment to which this Act applies shall continue to be governed by this Act notwithstanding that the number persons employed therein at any time falls below the limit specified by or under this Act or the manufacturing process therein ceases to be carried on with the aid of power.”
In view of the said provision, even if the number of persons employed in an establishment falls below the limit specified under this Act, the Act continues to be applicable.
The Hon’ble Supreme Court in State Insurance Corporation v. Harrison Malayalam Private Limited held that the ESI Act envisages automatic obligation to pay the contribution once the factory or establishment is covered by the Act and the obligation commences from the date of application of the Act to such industry or establishment.
Thus , a factory or establishment, which is covered by the Act, continues to be governed by the Act even if the number of employees employed by it falls below the limit specified or when the manufacturing process ceases to be carried on with the aid of power.