Supreme Court Clarifies Interest Calculation on Compensation under Workmen’s Compensation Act: North East Karnataka Road Transport Corporation vs. Smt. Sujatha (2018)

Introduction

Date of the Judgment: November 2, 2018
Citation: (2018) INSC 977
Judges: Abhay Manohar Sapre, J., Indu Malhotra, J.

When does an employer’s liability to pay compensation to an employee arise under the Workmen’s Compensation Act, 1923? The Supreme Court addressed this question in a case concerning the death of a bus driver due to a heart attack while on duty. The core issue revolved around when the interest on the compensation amount should begin accruing – from the date of the accident or from the date of the Commissioner’s order. This judgment clarifies the correct interpretation of Section 4A of the Act, ensuring that employees or their dependents receive fair compensation. The judgment was authored by Justice Abhay Manohar Sapre, with Justice Indu Malhotra concurring.

Case Background

Mallikarjuna, a driver employed by the North East Karnataka Road Transport Corporation, passed away on April 6, 1999, due to a heart attack while on duty. His wife, Smt. Sujatha, filed a claim petition before the Commissioner for Workmen’s Compensation, Bellary, seeking compensation under the Workmen’s Compensation Act, 1923. The transport corporation contested the claim. The Commissioner awarded a compensation of Rs. 3,79,120 to Smt. Sujatha, directing the corporation to deposit the amount within 45 days, failing which the amount would carry an interest of 12% per annum.

Timeline:

Course of Proceedings

The Commissioner for Workmen’s Compensation allowed Smt. Sujatha’s claim petition, awarding her Rs. 3,79,120 as compensation, with a direction to the transport corporation to deposit the amount within 45 days. The order specified that if the corporation failed to deposit the amount within 45 days, the amount would carry an interest of 12% per annum. The North East Karnataka Road Transport Corporation appealed the Commissioner’s order to the High Court of Karnataka at Bangalore. The High Court dismissed the appeal, upholding the Commissioner’s order.

Legal Framework

The case is governed by the Workmen’s Compensation Act, 1923. The key provision in question is Section 4A, which deals with the payment of compensation. Specifically, Section 4A(3) states:

“Where any employer is in default in paying the compensation due under this Act within one month from the date it fell due, the Commissioner shall direct that, in addition to the amount of the arrears, simple interest at the rate of twelve per cent per annum or at such higher rate not exceeding the maximum of the lending rates of interest charged by scheduled banks as may be specified by the State Government by notification in the Official Gazette, shall be payable on the amount of the arrears.”

The Supreme Court also highlighted Section 30 of the Act, which outlines the conditions for filing an appeal in the High Court. It specifies that appeals can only be made against specific orders and must involve a substantial question of law. The second proviso to Section 30 mandates that the employer must deposit the entire awarded sum as a precondition to filing an appeal, except in cases falling under clause (b) of the section.

Arguments

Since neither party appeared before the Supreme Court, the court reviewed the case records and the orders of the lower courts to determine the issue.

The primary argument revolved around the interpretation of Section 4A of the Workmen’s Compensation Act, 1923, specifically the point at which the payment of compensation becomes “due” and consequently, from when interest on such amount is payable.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

✓ Whether the High Court was justified in dismissing the employer’s appeal and thereby was justified in upholding the order of the Commissioner.

The Supreme Court also considered the sub-issue of whether the Commissioner’s direction regarding the calculation of interest on the awarded compensation amount was legally correct.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Pratap Narain Singh Deo vs. Srinivas Sabata & Anr. (1976) 1 SCC 289: AIR 1976 SC 222 – Supreme Court of India. This case established that an employer becomes liable to pay compensation as soon as the personal injury is caused to the workman in an accident arising out of and during the course of employment. The date of the accident, not the date of adjudication, is material.
• Kerala State Electricity Board & Anr. vs. Valsala K. & Anr. (1999) 8 SCC 254: AIR 1999 SC 3502 – Supreme Court of India. This case reiterated that the relevant date for determining the rate of compensation is the date of the accident, not the date of adjudication.
• National Insurance Company Ltd vs. Mubasir Ahmed & Anr. (2007) 2 SCC 349 – Supreme Court of India. This case held that payment of compensation would fall due only after the Commissioner’s order or with reference to the date on which the claim application is made.
• Oriental Insurance Company Ltd. vs. Mohmad Nasir & Anr. (2009) 6 SCC 280 – Supreme Court of India. This case also held that payment of compensation would fall due only after the Commissioner’s order or with reference to the date on which the claim application is made.
• Oriental Insurance Company Ltd vs. Siby George and others (2012) 12 SCC 540 – Supreme Court of India. This case clarified the conflict between the previous decisions and held that the law laid down in Pratap Narain and Valsala cases (supra) is the correct principle of law.

Statutes:

• Workmen’s Compensation Act, 1923
  • Section 4A: Pertains to compensation and its payment.
  • Section 4A(3): Deals with the payment of interest on compensation when an employer defaults in payment.
  • Section 30: Specifies the conditions for filing an appeal in the High Court.

Judgment

The Supreme Court analyzed the submissions and authorities as follows:

How each authority was viewed by the Court?

• Pratap Narain Singh Deo vs. Srinivas Sabata & Anr. (1976) 1 SCC 289: The Supreme Court followed this case, reiterating that the employer’s liability to pay compensation arises from the date of the accident, not the date of adjudication.
• Kerala State Electricity Board & Anr. vs. Valsala K. & Anr. (1999) 8 SCC 254: The Supreme Court followed this case, which reinforced the principle that the date of the accident is the relevant date for determining compensation.
• National Insurance Company Ltd vs. Mubasir Ahmed & Anr. (2007) 2 SCC 349: The Supreme Court held that this case was decided without noticing the law laid down in Pratap Narain and Valsala cases and hence did not lay down the correct principle of law.
• Oriental Insurance Company Ltd. vs. Mohmad Nasir & Anr. (2009) 6 SCC 280: The Supreme Court held that this case was decided without noticing the law laid down in Pratap Narain and Valsala cases and hence did not lay down the correct principle of law.
• Oriental Insurance Company Ltd vs. Siby George and others (2012) 12 SCC 540: The Supreme Court approved this case, which had correctly distinguished the conflicting precedents and followed the law laid down in Pratap Narain and Valsala cases.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure that the compensation was paid from the date it became due, which, according to the established legal principle, is the date of the accident. The Court emphasized the importance of adhering to precedents set by larger benches and ensuring that the benefits of compensation are not unduly delayed.

Fact:Law Ratio

Logical Reasoning:

The Supreme Court considered the alternative interpretation that the payment of compensation would fall due only after the Commissioner’s order. However, this interpretation was rejected as it was contrary to the established precedents and the intent of the Act. The Court emphasized that the liability to pay compensation arises immediately upon the occurrence of the accident.

The court’s decision was based on the following reasons:

• The principle laid down in Pratap Narain Singh Deo vs. Srinivas Sabata & Anr. (1976) 1 SCC 289 is that the employer becomes liable to pay compensation as soon as the personal injury is caused to the workman in an accident arising out of and during the course of employment.
• The relevant date for determining the rate of compensation is the date of the accident, not the date of adjudication of the claim.
• The decisions in National Insurance Company Ltd vs. Mubasir Ahmed & Anr. (2007) 2 SCC 349 and Oriental Insurance Company Ltd. vs. Mohmad Nasir & Anr. (2009) 6 SCC 280 were held to be per incuriam as they did not consider the earlier decisions of larger benches.

The Supreme Court stated:

“…an employer becomes liable to pay compensation as soon as the personal injury is caused to the workman in the accident which arose out of and in the course of employment.”

“…it is the date of the accident and not the date of adjudication of the claim, which is material.”

“…the law laid down in Pratap Narain and Valsala cases (supra) was held to hold the field through out as laying down the correct principle of law on the subject.”

Key Takeaways

✓ Interest on compensation under the Workmen’s Compensation Act, 1923, is to be calculated from the date of the accident, not from the date of the Commissioner’s order.

✓ Employers are liable to pay compensation from the moment an accident occurs during the course of employment.

✓ This judgment ensures that employees or their dependents receive fair compensation without undue delay.

Directions

The Supreme Court directed the Commissioner to:

✓ Calculate the total amount payable by the appellant to the respondent, including interest at 12% per annum from the date of the accident (April 6, 1999).

✓ Issue notice to both parties and enable the appellant to deposit the amount within one month.

Development of Law

The ratio decidendi of this case is that the interest on compensation under the Workmen’s Compensation Act, 1923, should be calculated from the date of the accident, clarifying the correct interpretation of Section 4A(3). This judgment reinforces the principle that an employer’s liability arises immediately upon the occurrence of an accident. The Supreme Court also reiterated the importance of following the precedents set by larger benches, thereby ensuring that the law remains consistent and predictable. This judgment has overruled the view taken in National Insurance Company Ltd vs. Mubasir Ahmed & Anr. (2007) 2 SCC 349 and Oriental Insurance Company Ltd. vs. Mohmad Nasir & Anr. (2009) 6 SCC 280.

Conclusion

The Supreme Court’s judgment in North East Karnataka Road Transport Corporation vs. Smt. Sujatha clarifies that interest on compensation under the Workmen’s Compensation Act, 1923, must be calculated from the date of the accident, not the date of the Commissioner’s order. This decision reinforces the principle that the liability to pay compensation arises immediately upon the occurrence of an accident. The Court modified the Commissioner’s order to ensure that the respondent received the correct amount of interest, thereby upholding the rights of employees and their dependents to fair and timely compensation.