The Code on Social Security, 2020 – Understanding Section 2(3): “Appropriate Government”

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 ⭐ The Code on Social Security, 2020 – Understanding Section 2(3): “Appropriate Government”

The concept of the “appropriate Government” is one of the most critical definitions under the Code on Social Security, 2020 (SSC 2020). It determines which Government—Central or State—has jurisdiction over an establishment for the purpose of administering and enforcing the Social Security Code, including EPF, ESI, Gratuity, Maternity Benefit, and other benefits.

Section 2(3) provides a comprehensive and expanded definition, ensuring clarity in cases where establishments operate across sectors, jurisdictions, or ownership structures.




🔷 1. Meaning of “Appropriate Government” under Section 2(3)

Section 2(3) divides the applicability into two broad categories:

A. Central Government as the Appropriate Government

The Central Government becomes the appropriate Government for the following categories of establishments:

1. Establishments carried on by or under the authority of the Central Government

These include ministries, departments, and any body functioning directly under Union authority.

2. Controlled industries notified by the Central Government

Industries declared as “controlled” under any law or notification fall under Central oversight.

3. The following specific sectors:

  • Railways (including Metro Railways)

  • Mines

  • Oil fields

  • Major ports

  • Air transport services

  • Telecommunication

  • Banking companies

  • Insurance companies

These sectors are traditionally regulated at the national level due to their strategic importance.

4. Corporations or authorities established by a Central Act

Any statutory authority or corporation created through a Central legislation automatically falls within this category.

5. Central Public Sector Undertakings (CPSUs)

This includes:

  • Main PSUs

  • Subsidiary companies of PSUs

  • Subsidiaries of principal undertakings

6. Autonomous bodies owned or controlled by the Central Government

These are organisations that may have independent functioning but remain under Union government ownership or control.

7. Contractors working for Central Government establishments

Contractor establishments are covered if they are engaged for the purposes of a Central Government-controlled organisation.

8. Companies where the Central Government holds ≥ 51% equity

Any company where the Central Government holds not less than 51% of paid-up share capital.

9. Establishments operating in more than one State

If an establishment has departments or branches in more than one State, then the Central Government becomes the appropriate Government, ensuring uniformity of administration.

B. State Government as the Appropriate Government

For all other establishments not covered above, the State Government becomes the appropriate Government.

This includes:

  • Shops and commercial establishments

  • Factories not covered by Central Government criteria

  • Private sector units operating within a single State

  • Local businesses and service providers

🔷 2. Important Explanations under Section 2(3)

Explanation 1 – Meaning of “Metro Railway”

The Code adopts the definition of “metro railway” from the Metro Railways (Operation and Maintenance) Act, 2002, ensuring consistency across legislations.

Explanation 2 – CPSU Equity Change Does Not Affect Jurisdiction

Even if the Central Government’s equity in a PSU reduces to below 50% after the commencement of the Code, the Central Government will continue to remain the appropriate Government.

This clause is extremely significant because it:

  • Ensures continuity even during disinvestment or restructuring

  • Prevents jurisdictional confusion

  • Protects employees from abrupt changes in regulatory administration

🔷 3. Why This Definition Is Critical

Understanding the “appropriate Government” is essential because it determines:

✔ Which authority will enforce Social Security provisions

Inspection, compliance orders, exemptions, and dispute resolution depend on the appropriate Government.

✔ Which rules and notifications apply

Central and State Governments both issue rules under the Code. The right authority’s rules must be followed.

✔ Jurisdiction for compliance filings

EPFO, ESIC, and other statutory bodies operate under different administrative jurisdictions.

✔ Employer and contractor obligations

Especially important for PSUs, multi-State establishments, and outsourced contracts.

🔷 4. Practical HR & Compliance Implications

  • Multi-State operations must treat Central Government as the appropriate Government.

  • Contractors serving Central Government establishments must follow Central jurisdiction even if the contractor is registered in a particular State.

  • During PSU disinvestment, compliance jurisdiction does not change, ensuring stability.

  • Media, telecom, banking, and insurance sectors must follow Central rules.

  • State Government rules apply to most private sector establishments operating within a single State.

⭐ Conclusion

Section 2(3) of the Code on Social Security, 2020 provides a detailed, expanded, and clarity-driven definition of the “appropriate Government.”
 It ensures smooth administration, avoids jurisdictional conflicts, and recognises the complexities of modern industries, PSUs, contractors, and multi-State establishments.

Understanding this section is foundational for HR, IR, Compliance Officers, and Labour Law practitioners implementing the Social Security Code.

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