Supreme Court settles Compensation Calculation Under Workmen’s Compensation Act: Shantilata Sethy vs. New India Assurance (2021)

Date of the Judgment: 11 December 2021
Citation: 2021 INSC 753
Judges: Dr. Dhananjaya Y Chandrachud J and A S Bopanna J
Can an insurance company dispute the salary of a deceased employee when the employer has already admitted it? The Supreme Court recently addressed this question in a case concerning the calculation of compensation under the Workmen’s Compensation Act, 1923. The court clarified that when an employer admits to an employee’s salary, it cannot be disputed by the insurer without a valid reason. The judgment was delivered by a two-judge bench comprising of Dr. Dhananjaya Y Chandrachud J and A S Bopanna J, with the opinion authored by Dr. Dhananjaya Y Chandrachud J.

Case Background

The case revolves around the death of a young man who was employed as a helper on a truck. On 30 October 2004, the deceased was instructed by the truck driver to arrange for the loading of rice bags onto the truck. While doing so, the truck driver lost control of the vehicle and fatally struck the helper against a tree. The helper succumbed to his injuries on 1 November 2004. The parents of the deceased, the appellants in this case, filed a claim for compensation under the Workmen’s Compensation Act, 1923.

Timeline:

Course of Proceedings

The Commissioner under the Workmen’s Compensation Act, 1923 initially awarded a compensation of Rs. 2,64,895/- along with interest at 12% per annum from the date of the accident until the amount was realized. The High Court of Odisha, on appeal, modified this award. The High Court reduced the compensation to Rs. 1,98,807.70 and the interest to 8% per annum, calculated from the date of the award, not the date of the accident. The High Court reasoned that there was no evidence to support the deceased’s claimed salary of Rs. 2,400 per month and based the calculation on the minimum wage of Rs. 910. A review petition filed against this judgment was also dismissed. The appellants then appealed to the Supreme Court of India.

Legal Framework

The case is governed by the Workmen’s Compensation Act, 1923. The relevant provisions include:

• Section 2(m) of the Workmen’s Compensation Act, 1923: Defines ‘wages’ as “any privilege or benefit which is capable of being estimated in money, other than a travelling allowance or the value of any travelling concession or a contribution paid by the employer of a *[employee] towards any pension or provident fund or a sum paid to a *[employee] to cover any special expenses entailed on him by the nature of his employment”.
• Section 4 of the Workmen’s Compensation Act, 1923: Specifies the amount of compensation payable in case of death resulting from an injury. It states that the compensation shall be an amount equal to fifty percent of the monthly wages of the deceased multiplied by the relevant factor.
• Section 4(A) of the Workmen’s Compensation Act, 1923: Deals with the payment of compensation and states that interest is payable on the amount of compensation when it becomes due.

Arguments

Arguments by the Appellants:

• The appellants argued that the High Court erred in reducing the compensation amount. The employer had admitted that the deceased was earning a salary of Rs. 2,400 per month, and there was no basis to dispute this.
• The appellants submitted that the High Court failed to consider Section 4(A) of the Workmen’s Compensation Act, 1923, which governs the award of interest. They cited the Supreme Court’s judgment in North East Karnataka Road Transport Corporation vs Sujatha [(2019) 11 SCC 514], which held that interest on compensation is payable from the date of the accident, not from the date of the award.

Arguments by the Respondents:

• The respondents, the insurance company, did not specifically argue against the compensation amount but rather focused on the lack of documentary evidence to support the salary claim.
• The respondents argued that there was no provision in the Act to grant interest from the date of the accident.

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. Whether the High Court was justified in reducing the compensation amount based on the minimum wage, despite the employer admitting the deceased’s salary.
2. Whether the High Court was correct in awarding interest from the date of the award instead of the date of the accident.

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

The Supreme Court allowed the appeals, setting aside the judgment of the High Court. The Court held that the High Court was not justified in reducing the compensation amount based on the minimum wage when the employer had admitted the deceased’s salary. The Court also held that the interest on the compensation should be calculated from the date of the accident, not from the date of the award.

How each authority was viewed by the Court?

• Pratap Narain Singh Dea v. Srinivas Sabata and Anr. [(1976) 1 SCC 289]*: The Court relied on this case to reiterate that 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 was held that it is the date of the accident and not the date of adjudication of the claim, which is material.
• North East Karnataka Road Transport Corporation vs Sujatha [(2019) 11 SCC 514]*: The Court relied on this case to reiterate that the question as to when does the payment of compensation under the Act “becomes due” and consequently what is the point of time from which interest on such amount is payable as provided Under Section 4-A (3) of the Act.
• Section 2(m) of the Workmen’s Compensation Act, 1923: The Court used this provision to define ‘wages’ and to determine what constitutes special expenses.
• Section 4 of the Workmen’s Compensation Act, 1923: The Court used this provision to calculate the amount of compensation payable in case of death resulting from an injury.
• Section 4(A) of the Workmen’s Compensation Act, 1923: The Court used this provision to determine the date from which interest should be awarded on the compensation amount.

What weighed in the mind of the Court?

The Supreme Court was primarily concerned with ensuring that the appellants, the parents of the deceased, received fair compensation without being subjected to unnecessary litigation. The Court emphasized the following points:

• The admission by the employer regarding the deceased’s salary should be given due weight.
• The purpose of the Workmen’s Compensation Act, 1923 is to provide timely relief to the families of deceased workers.
• Insurance companies should not use litigation as a means to harass and torture the families of victims of accidents.

The Court’s reasoning was based on a combination of factual considerations (such as the employer’s admission of salary) and legal principles (such as the interpretation of Section 4(A) of the Workmen’s Compensation Act, 1923 and the precedent in North East Karnataka Road Transport Corporation vs Sujatha [(2019) 11 SCC 514]).

The Court rejected the High Court’s interpretation and upheld the Commissioner’s award, emphasizing the need for a just and expeditious resolution of compensation claims.

The Court stated, “There was absolutely no basis for the High Court to reduce the award on the ground that there was no material to establish the salary that the deceased was earning at the time of the accident.”

The Court also noted, “As a matter of fact, we are clearly of the view that there was no justification for the insurer to take a matter involving such a paltry sum of compensation based on the facts of the case to the High Court and to allow a poor farmer and his wife who have already lost the solace of an earning member of the family into a long drawn out litigation.”

Further, the Court clarified, “Therefore, Rs 25 that was paid by as food expense by the employer would fall within the ‘special expenses that he is entitled to by the nature of his employment’ which is specifically excluded by the provision.”

Key Takeaways

• When an employer admits to an employee’s salary, it cannot be disputed by the insurer without a valid reason.
• Interest on compensation under the Workmen’s Compensation Act, 1923 should be calculated from the date of the accident, not from the date of the award.
• Insurance companies should not use litigation as a means to delay or reduce compensation payments to the families of deceased workers.
• Special expenses paid to an employee by nature of his employment is excluded from the definition of wages under Section 2(m) of the Workmen’s Compensation Act, 1923.

Directions

The Supreme Court directed the first respondent to pay Rs. 2,62,164 along with an interest of 12% from the date of accident till it is realised. The Court also directed that the balance amount should be paid to the appellants within one month. The Commissioner was directed to personally ensure that the amount is paid to the appellants. Additionally, the appellants were awarded costs of Rs. 1 lakh for their expenses in the proceedings.

Development of Law

The ratio decidendi of this case is that when an employer admits to an employee’s salary, it cannot be disputed by the insurer without a valid reason and that interest on compensation under the Workmen’s Compensation Act, 1923 should be calculated from the date of the accident, not from the date of the award. This judgment reinforces the principle that the Workmen’s Compensation Act, 1923 is a beneficial legislation intended to provide timely relief to the families of deceased workers.

Conclusion

The Supreme Court’s judgment in Shantilata Sethy vs. New India Assurance (2021) clarifies the calculation of compensation under the Workmen’s Compensation Act, 1923. The Court emphasized the importance of relying on the employer’s admission of salary and awarding interest from the date of the accident. This judgment serves as a reminder to insurance companies to avoid unnecessary litigation and to ensure that the families of deceased workers receive fair compensation without delay.