Remunerated managing director treated as employee; salary counts as wages, but not as principal employer under ESI law.

A remunerated director or managing director may fall within the definition of "employee" under the Employees' State Insurance Act, 1948 when engaged in the work of the company, following the later Supreme Court view. The managing director does not become the "principal employer" merely by holding that office if the factory is owned by the company and he is not the sole owner or occupier. Once treated as an employee, the salary paid for such services constitutes "wages" for contribution purposes, and the statutory exclusions do not remove it from that definition.

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Issues: (i) Whether a director or managing director of a company, when working for remuneration, is an employee under section 2(9) of the Employees' State Insurance Act, 1948; (ii) whether such director or managing director is the principal employer under section 2(17) of the Employees' State Insurance Act, 1948; (iii) whether salary paid to such director or managing director is wages under section 2(22) of the Employees' State Insurance Act, 1948.

Issue (i): Whether a director or managing director of a company, when working for remuneration, is an employee under section 2(9) of the Employees' State Insurance Act, 1948

Analysis: The governing definition of employee includes a person employed for wages in or in connection with the work of the establishment. The earlier view that a managing director could not be treated as an employee was displaced by the later Supreme Court ruling, which treated a remunerated managing director as falling within the statutory definition where the person is engaged in the work of the company and is not the sole owner or occupier of the factory.

Conclusion: Yes. A director or managing director working for remuneration is an employee under section 2(9).

Issue (ii): Whether such director or managing director is the principal employer under section 2(17) of the Employees' State Insurance Act, 1948

Analysis: The definition of principal employer refers to the owner or occupier of the factory, or the person responsible for supervision and control in other establishments. A managing director does not become the principal employer merely by virtue of office if the factory is owned by the company and he is not the sole owner or occupier. The statutory distinction between the company as owner and the managing director as a remunerated functionary is decisive.

Conclusion: No. A remunerated director or managing director who is not the sole owner or occupier of the factory is not the principal employer under section 2(17).

Issue (iii): Whether salary paid to such director or managing director is wages under section 2(22) of the Employees' State Insurance Act, 1948

Analysis: Wages encompass all remuneration paid or payable in cash to an employee under the contract of employment, and the exclusion clauses do not remove salary paid to a working managing director who is otherwise within the employee definition. Once the managing director is treated as an employee, the remuneration paid for services rendered falls within wages for contribution purposes.

Conclusion: Yes. Salary paid to a remunerated director or managing director is wages under section 2(22).

Final Conclusion: The statutory questions were answered in favour of treating a remunerated managing director as an employee whose salary is wages, and not as the principal employer; the appeal therefore succeeded and the contrary view was rejected.

Ratio Decidendi: A remunerated director or managing director of a company is an employee under the Employees' State Insurance Act, 1948, and the salary paid for such service is wages, unless he is the sole owner or occupier of the factory so as to attract the definition of principal employer.

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