Section 45 of the Employees State Insurance Act, 1948 (ESI Act) empowers certain Social Security Officers (SSOs) to carry out an inspection of an employer of an establishment (by virtue of which they may call for any information; search premises; examine any person (including an employer, his agent, or persons present at the premises) or make copies of any documents or registers maintained by the employer) for the determination of such employer’s compliance with the provisions of the ESI Act. The Employees State Insurance Corporation (ESIC) is empowered to carry out re-inspections or test inspections, to determine the accuracy of such an inspection conducted by SSOs.

Section 45-A provides that where an establishment does not maintain returns and records in accordance with the ESI Act, or no records are provided to the SSOs or the ESIC when called for in accordance with section 45, the authorities may, by an order, determine the amount of contributions payable in respect of the employees of that establishment. In June 2010, section 45-A was amended to state that no such order shall be passed by the ESIC in respect of the period beyond five years from the date on which the contributions shall become payable. Further, in April 2012, the ESIC updated the ESI Inspection Policy setting out guidelines for SSOs for conducting inspections. This limited the right of SSOs to call for records relating to 5 years prior to the date of inspection.

While these amendments introduced a limitation on the period of order and the inspections carried out by SSOs, the period for which test inspections could be conducted was not clear. By an accompanying notification, the ESIC had set out guidelines for test inspections and provided that test inspections must be conducted initially for one year at a time and if grave omissions/commissions were noticeable, the test inspection could relate to the entire period of the inspection that was being verified. This notification did not indicate a time frame within which a test inspection could be carried out for the purpose of verifying an inspection.

In order to prohibit the ESIC from calling for records and registers of an establishment for earlier periods, the ESIC has issued a notification on 20 December 2012, limiting the period of test inspections (as permitted under Section 45) to five years prior to the date on which the contribution became payable, thereby aligning the period of inspections.

By virtue of this notification, test inspections must be conducted such that the stipulation under section 45-A (limiting orders to 5 years) is followed. Therefore, there is now further clarity on the duration for which records under the ESI Act need to be retained.