Supreme Court clarifies compensation under Employee’s Compensation Act: K Sivaraman & Ors vs P Sathishkumar & Anr (2020)

Date of the Judgment: 13 February 2020

Citation: (2020) INSC 179

Judges: Dr Dhananjaya Y Chandrachud, J and Ajay Rastogi, J.

Can amendments to the Employee’s Compensation Act, 1923, that enhance compensation apply to accidents that occurred before the amendment came into force? The Supreme Court of India addressed this critical question in a recent judgment, clarifying the relevant date for determining compensation and setting aside a Madras High Court order. This case involved a claim for compensation following a fatal accident of a lorry driver. The Supreme Court bench comprised Justices Dr Dhananjaya Y Chandrachud and Ajay Rastogi, with the majority opinion authored by Dr. Chandrachud, J.

Case Background

On 31 January 2008, Dinesh Kumar, a 26-year-old driver, died in a road accident while driving a trailer lorry in Kota, Rajasthan. The accident occurred when a truck coming from the opposite direction collided with the trailer. At the time of the accident, Dinesh Kumar was employed by the first respondent. The appellants, who are Dinesh Kumar’s father, mother, sister, and brother, filed a claim for compensation under the Employee’s Compensation Act, 1923, before the Deputy Commissioner for Employee’s Compensation, Madurai, on 29 April 2013. The Deputy Commissioner initially awarded Rs 4,33,060 as compensation on 26 March 2014, proceeding ex parte. The appellants then appealed to the Madras High Court seeking an enhancement of the compensation.

Timeline:

Course of Proceedings

The Madras High Court initially remanded the case back to the Deputy Commissioner on 23 November 2015, noting that while the appellants had submitted a salary certificate (Exhibit P5) showing a monthly income of Rs 32,000 for the deceased, no witness from the employer’s side had verified it. The High Court granted the appellants an opportunity to examine the employer’s witness. On remand, the Commissioner for Workmen’s Compensation, Madurai, on 4 March 2016, maintained the original compensation of Rs 4,33,060. The Commissioner capped the monthly salary at Rs 4,000, based on a notification under Section 4(1B) of the Employee’s Compensation Act, 1923, despite the employer’s witness (PW2) confirming the deceased’s monthly pay of Rs 32,000 (including food expenses but pay of Rs 25,000). The High Court, in its subsequent appeal, enhanced the compensation to Rs 8,86,120, based on a later notification dated 31 May 2010, which specified a monthly wage of Rs 8,000 for calculating compensation. The High Court also awarded interest at 12% per annum from the date of the accident.

Legal Framework

The core of the legal framework lies in the Employee’s Compensation Act, 1923. Section 4(1)(a) of the Act states:

“4. Amount of compensation. —(1) Subject to the provisions of this Act, the amount of compensation shall be as follows, namely: —
(a) where death results from the injury an amount equal to fifty per cent of the monthly wages of the deceased employee multiplied by the relevant factor; or an amount of one lakh and twenty thousand rupees, whichever is more;”

The “relevant factor” is defined in Schedule IV of the Act. Prior to the 2009 amendment, Explanation II to Section 4 capped monthly wages at Rs 4,000 for compensation calculations, regardless of actual earnings. This was stated as:

“Explanation II – Where the monthly wages of a workman exceed four thousand rupees, his monthly wages for the purposes of clause(a) and clause(b) shall be deemed to be four thousand rupees only.”

However, the Act was amended by Act 45 of 2009, which came into force on 18 January 2010, deleting Explanation II. This amendment also introduced Section 4(1B), which allows the Central Government to specify monthly wages for compensation calculation purposes:

“(1-B) The Central Government may, by notification in the Official Gazette, specify, for the purposes of sub-section (1), such monthly wages in relation to an employee as it may consider necessary.”

A notification issued on 31 May 2010, specified a monthly wage of Rs 8,000 for the purposes of Section 4(1). The key issue is whether the removal of the wage cap and the subsequent notification apply retrospectively to accidents that occurred before the amendment. The Supreme Court also considered Section 5 of the Act, which deals with the method of calculating wages, particularly clause (a) which applies when the employee has been in service for at least 12 months prior to the accident.

Arguments

The amicus curiae, appointed by the Supreme Court, argued that both the Commissioner and the High Court had erred in calculating compensation. The Commissioner incorrectly used a monthly wage of Rs 4,000, while the High Court used Rs 8,000. The amicus curiae contended that Section 4(1)(a) of the Employee’s Compensation Act, 1923, stipulates that compensation should be 50% of the deceased’s monthly wages multiplied by the relevant factor from Schedule IV. The notification under Section 4(1B) does not impose a cap on monthly wages; it merely specifies a wage for calculation purposes. Therefore, if actual wages are proven to be higher, they should be used for calculating compensation. The amicus curiae further argued that the deletion of the deeming provision in Explanation II to Section 4 by Act 45 of 2009, which took effect from 18 January 2010, supports this position. They also referenced Section 5(a) of the Act, which applies to employees in continuous service for at least 12 months prior to the accident. The amicus curiae distinguished the judgments in Pratap Narain Singh Deo v Srinivas Sabata [(1976) 1 SCC 289] and Kerala State Electricity Board v Valsala K [(1999) 8 SCC 254], which held that the date of the accident is relevant for determining compensation, by relying on New India Assurance Company Ltd. v Neelakandan (Civil Appeal Nos. 16904 -09 of 1996) and National Insurance Co Ltd. v Mubasir Ahmed [(2007) 2 SCC 349].

The innovativeness of the argument of the amicus curiae lies in the interpretation of Section 4(1B) of the 1923 Act, arguing that the notification does not impose a ceiling on monthly wages but merely specifies a base for calculation, and also in contending that the deletion of Explanation II by Act 45 of 2009 should be applied to pending cases. This is further supported by the argument that the actual wages of the employee should be used for calculating compensation if they are higher than the specified amount in the notification.

Submissions by Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the benefit of Act 45 of 2009, which deleted the deeming provision in Explanation II that capped monthly wages at Rs 4,000, applies to accidents that occurred before its enforcement on 18 January 2010, where final adjudication is pending.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ Pratap Narain Singh Deo v Srinivas Sabata [(1976) 1 SCC 289]*: The Court relied on this case to establish that compensation falls due on the date of the accident, and this date is relevant for determining compensation.

✓ Kerala State Electricity Board v Valsala K [(1999) 8 SCC 254]*: The Court relied on this case to overrule the judgment in New India Assurance Company Ltd. v Neelakandan and to reiterate that amendments enhancing compensation do not apply retrospectively.

✓ New India Assurance Company Ltd. v Neelakandan (Civil Appeal Nos. 16904 -09 of 1996)*: This case was overruled by Kerala State Electricity Board v Valsala K.

✓ National Insurance Co Ltd. v Mubasir Ahmed [(2007) 2 SCC 349]*: The Court distinguished this case and held that it is not a binding precedent due to its conflict with Pratap Narain Singh Deo and Valsala K.

✓ United India Insurance Co. Ltd v. Alavi*: The Court approved this judgment to the extent that it was in accord with the judgment of the larger bench in Pratap Narain Singh Deo.

✓ Oriental Insurance Company v Siby George [(2012) 12 SCC 540]*: The Court cited this case to note that the judgment in Mubasir Ahmed is contrary to the judgments in Pratap Narain Singh and Valsala and hence not a binding precedent.

✓ Commissioner of Income Tax v Vatika Township Private Limited [(2015) 1 SCC 1]*: The Court discussed this case to clarify that amendments conferring a benefit must be given retrospective application only if it does not inflict a corresponding detriment on others and if it is the intention of the legislature.

✓ Rathi Menon v Union of India [(2001) 3 SCC 714]*: The Court distinguished this case due to the different schemes of the Railways Act, 1989, and the Employee’s Compensation Act, 1923.

✓ Union of India v Rina Devi [(2019) 3 SCC 572]*: The Court discussed this case to show the change in the position of law regarding the date relevant for determining compensation under the Railways Act, 1989.

✓ Kalandi Charan Sahoo v General Manager, South -East Central Railway, Bilaspur [(2019) 12 SCC 387]*: The Court discussed this case in the context of the apparent conflict with the judgment in Rathi Menon.

✓ Thazhathe Purayil Sarabi v Union of India [(2009) 7 SCC 372]*: The Court cited this case to show that a claimant is also entitled to the payment of interest which accrues from the date of the incident under the Railways Act, 1989.

✓ Mohamadi v Union of India [(2019) 12 SCC 389]*: The Court cited this case to show that the decision in Thazhathe was subsequently followed by this Court.

✓ Union of India v Radha Yadav [(2019) 3 SCC 410]*: The Court cited this case to show that the judgment in Rina Devi was recently followed by this Court.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the established legal principle that amendments to laws generally apply prospectively unless explicitly stated otherwise. The Court emphasized that the Employee’s Compensation Act, 1923, is a social welfare legislation aimed at providing compensation to employees for accidents arising out of employment. However, the Court also noted that while the amendments to the Act are intended to further this purpose, there was nothing to indicate that the legislature intended for the benefit of enhanced compensation to extend to accidents that occurred prior to the amendment’s enforcement. The Court also considered that the amendments enhancing compensation impose a corresponding burden on employers, and therefore, the benefit could not be applied retrospectively.

The Court’s reasoning was heavily based on legal precedents and principles. The factual aspects of the case, while important, played a secondary role in the final decision. The Court’s emphasis on the legal framework and established case law indicates that the decision was primarily driven by legal considerations.

The Court considered the argument that the 1923 Act is a social welfare legislation and that amendments should be interpreted to benefit employees. However, the Court balanced this with the principle that laws generally apply prospectively and that the legislature did not explicitly intend for the amendment to be retrospective. The Court also noted that retrospective application would impose a burden on employers. The Court rejected the argument that the notification under Section 4(1B) does not impose a cap on monthly wages, holding that the relevant date for determining compensation is the date of the accident. The Court also clarified that the judgment in Mubasir Ahmed is not a binding precedent and that the law laid down in Pratap Narain Singh and Valsala holds the field.

The Court’s decision was based on the principle of prospective application of laws, particularly when they impose a burden on a party. The Court also emphasized the importance of adhering to established legal precedents set by larger benches of the Court. While the Court acknowledged the social welfare objective of the 1923 Act, it held that this objective could not override the principle of prospective application in the absence of a clear legislative intent for retrospective application. The Court also took note of the fact that no appeal was filed by the respondents against the judgment of the High Court enhancing the compensation. The Court clarified the law as noted above and dismissed the appeal.

The majority opinion was authored by Dr. Dhananjaya Y Chandrachud, J. There were no dissenting opinions.

“…The employer therefore became liable to pay the compensation as soon as the aforesaid personal injury was caused to the workman by the accident. It is true that the actual amount of compensation would be determined later, but the liability of the employer arose on the date of the accident. “

Conclusion

In conclusion, the Supreme Court clarified that the relevant date for calculating compensation under the Employee’s Compensation Act, 1923, is the date of the accident. Amendments to the Act that enhance compensation do not apply retrospectively to accidents that occurred before the amendment came into force unless explicitly stated by the legislature. The court upheld the High Court’s enhanced compensation in this particular case by using its power under Article 142 of the Constitution of India. This judgment reinforces the principle of prospective application of laws and provides clarity on the interpretation of the Employee’s Compensation Act, 1923.