THE EMPLOYEES COMPENSATION ACT, 1923 

STRUCTURE OF THE LESSON 

 Scope and Coverage of the Act

 Definitions

 Employers Liability for Compensation

 Compensation

 Appointment of Commissioners

The act considers compensation payable by an employer to his workmen in case of an accident as a measure of relief and social security. It also lays down the various amounts payable in case of accident depending upon the type and extent of injury. Under this act the employer now knows the amount of compensation he has to pay and is saved from many uncertainties to which he was subjected before the act actually came into force. 

Ways Open to Employees for claiming Compensation. 

An injured employee may file a civil suit for damages against the employer or claim 

compensation under Employees Compensation act, 1923. He/ She has to make a choice between these two reliefs. 

Section 3(5) provides that no claim for compensation can be made under the Act if the employee has already filed a civil suit. It further provides that the employee cannot file a suit for damages in any Court of Law if (i) he has filed a claim under Employees Compensation Act 1923, or (ii) there is an agreement between the employee and employer providing for payment of compensation under the provisions of the Employees compensation Act, 1923. 

A claim under the Employees’ Compensation Act 1923 is considered to be a safe and less costly affair as compared to a Civil suit in the Court of Law. 

SCOPE AND COVERAGE OF THE ACT 

The act extends to whole of India. It applies to employees employed in factories, mines, plantations, transport establishments, construction works, railways, ships, cruises and other 

hazardous occupations and other employments specified in schedule II of the Act. It covers all workmen ( other than casual workers and workers employed other than for the purposes of the employers’ trade or business). 

This Act does not apply to members of the Armed Forces of the Union. It is also to be noted that the workmen who are covered by Employees’ state Insurance Act,1948 are not entitled to compensation under the Employees’ Compensation Act as disablement and dependants’ benefit is available to the workmen under the former Act. 

EMPLOYER’S LIABILITY FOR COMPENSATION 

Section 3 of the Act provides for employer’s liability for compensation in case of occupational disease or personal injuries and prescribes the manner in which his liability can be ascertained. 

(a) In cases of occupational disease

I. Where an employee employed in any employment specified in Part A of Schedule III contracts any disease specified therein, as an occupational disease, peculiar to thatemployment, the contracting of disease shall be deemed to be an injury by accident arising out of and in the course of employment.

II. Where the employee employed in any employment specified in Part B of Schedule III,for a continuous period of not less than six months under the same employer, and whilst in the service contracts any disease specified in the Part B of Schedule III, the contracting of disease shall be deemed to be an injury by accident arising out of and inthe course of employment. The employer shall be liable even when the disease was contracted after the employee ceased to be in the service of the employer, if such disease arose out of the employment.

III. If an employee whilst in service of one or more employers (not necessarily the same employer) in any employment specified in Part C of Schedule III for such continuous period as the Central Government may specify, contracts any disease, even after he ceased to be in the service of any employer and disease arose out of such employment, specified in the Schedule, the contracting of disease shall be deemed to be an injury by accident arising out of and in the course of employment.

However, where the employment was under more than one employer, all such employers shall be liable for the payment of the compensation in such proportion as the commissioner may in circumstances deem just. [Section 3(2A)]

IV. If it is proved:

(a) that the employee whilst in the service of one or more employers in any employment specified in Part C of Schedule III has contracted a disease specified therein as an occupational disease peculiar to that employment during a continuous period which is less than the period specified under this sub-section for that employment, and

(b) that the disease has arisen out of and in the course of the employment;

the contracting of such disease shall be deemed to be an injury by accident within

the meaning of this section.

V. The Central Government or the State Government after giving, by notification in the Official Gazette, not less than three months notice of its intention so to do, may, by a like notification, add any description of employment to the employments specified in Schedule III, and shall specify in the case of employments so added the diseases which shall be deemed for the purposes of this section to be occupational diseases peculiar to those employments respectively, and thereupon the provisions of Sub-section (2) shall apply in the case of a notification by the Central Government, within the territories to which this Act extends or, in case of a notification by the State Government, within the State as if such diseases had been declared by this Act to be occupational diseases peculiar to those employments.

VI. Except as mentioned above no compensation shall be payable to an employee in respect of any disease unless the disease is directly attributable to a specific injury by accident arising out of and in the course of his employment.

(b) In case of personal injury

As regards personal injury, the employer becomes liable if the injury is caused to an employee by accident arising out of and in the course of his employment. 

(i) Personal injury

There must be personal injury caused to an employee.

Normally, Injury implies physical or bodily injury caused by an accident. However, such personal injury will also include nervous shock or break-down or mental strain. In the case of Indian News Chronicle v. Mrs. Lazarus,

A.I.R. 1961, Punj. 102, an electrician who had to go frequently to a heating room from a

cooling plant, contracted pneumonia which resulted in his death. It was held that the injury

caused by an accident is not confined to physical injury and the injury in the instant case was

due to his working and going from a heating room to a cooling plant as it was his

indispensable duty.

(ii) Accident

The personal injury must be caused by an “accident”. The term “accident” has not been 

defined in the Act but its meaning has been sufficiently explained in number of decided cases. 

The expression accident must be construed to its popular sense. It has been defined as a mishap 

or an untoward event which is not expected or designed. What the Act intends to cover is 

what might be expressed as an accidental injury. 

(iii) Arising out of employment and in the course of employment

To make the employer liable, it is necessary that the injury is caused by an accident which 

must be raised out of and in the course of employment. 

Arising out of employment

The expression “arising out of employment” suggests some causal connection between the employment and the accidental injury. The cause contemplated is the proximate cause and not any remote cause. Thus, where a workman suffers from heart disease and dies on account of strain of work by keeping continuously standing or working, held that the accident arose out of employment (Laxmibai Atma Ram v. Bombay Port Trust, AIR 1954 Bom.180). Generally, if an employee is suffering from a particular disease and as a result of wear and tear of his employment he dies of that disease, employer is not liable. But if the employment is contributory cause or has accelerated the death that the death was due to disease coupled with the employment, then the employer would be liable as arising out of the employment. 

Arising in the course of employment

The expression “in the course of employment” suggests the period of employment and the place of work. In other words, the workman, at the time of accident must have been employed in the performance of his duties and the accident took place at or about the place where he was performing his duties.

The expression “employment” is wider than the actual work or duty which the employee has to do. It is enough if at the time of the accident the employee was in actual employment although he may not be actually turning out the work. Even when the employee is resting, or having food, or taking his tea or coffee, proceeding from the place of employment to his residence, and accident occurs, the accident is regarded as arising out of and in the course of employment.

Employment - The word "employment" has a wider meaning than work. A man may be in course of his employment not only when he is actually engaged in doing something in the discharge of his duty but also when he is engaged in acts belonging to and arising out of it (Union of India v. Mrs. Noorjahan, 1979 Lab. I.C. 652).

For the expression "accident arising out of and in the course of employment" the basic and indispensable ingredient is unexpectedness. The second ingredient is that the injury must be traceable within reasonable limits, to a definite time, place or occasion or cause. The Act should be broadly and liberally constructed in order to effectuate the real intention and purpose of the Act.

(iv) Theory of notional extension of employment 

To make the employer liable it is necessary that the injury caused by an accident must have arisen in the course of employment. It means that the accident must take place at a time and place when he was doing his master's job.

It is well settled that the concept of "duty" is not limited to the period of time the workman actually commenced his work and the time he downs his tools. It extends further in point of time as well as place. But there must benexus between the time and place of the accident and the employment. If the presence of the workman concerned at the particular point was so related to the employment as to lead to the conclusion that he was acting within the scope of employment that would be sufficient to deem the accident as having occurred in the course of employment (Weaver v. Tradegar Iron and Coal Co. Ltd.. (1940) 3 All, ER 15).

It is known as doctrine of notional extension of employment; whether employment extends to the extent of accident depends upon each individual case.

A workman while returning home after duty was murdered within the premises of the employer. It was held that there was casual and proximate connection between the accident and the employment. Since the workman was on spot only for his employment and his wife is entitled for compensation (Naima Bibi v. Lodhne Colliery (1920) Ltd., 1977 Lab. I.C. NOC 14). If an employee in the course of his employment has to be in a particular place by reason where he has to face a peril which causes the accident then the casual connection is established between the accident and the employment (TNCS Corporation v. Poonamalai, 1994 II LLN 950).

(v) When employer is not liable

In the following cases, the employer shall not be liable:

(i) When the injury does not result in disablement for a period exceeding 3 days.

(ii) When the injury not resulting in death or permanent total disability is due to any of the

following reasons:

(a) the employee was at the time of accident, under the influence of drink or drugs, or

(b) the employee wilfully disobeyed an order expressly given or a rule expressly framed for the purpose of securing safety of workers, or

(c) the employee, wilfully disregards or removes any safety guards or safety devices which he knew to have been provided for the safety of the employee.

Thus, where an employee dies due to an accident arising out of and in the course of employment, it cannot be pleaded that death was due to any of the reasons stated from (a) to (c)(R.B. Moondra & Co. v. Mst. Bhanwari, AIR, 1970 Raj. 111).

 COMPENSATION

Amount of Compensation (Sec.4)

The amount of compensation payable to a employee depends upon:-

(i) the nature of the injury caused by accident,

(ii) the monthly wages of the employee concerned, and

(iii) the relevant factor for working out lump-sum equivalent of compensation amount as specified in Schedule IV (as substituted by the amendment Act of 1984).

There is no distinction between an adult and a minir worker with respect to the amount of compensation. New Sec. 4(as substituted by the amendment act of 1984) provides for compensation for-

(1) Death

(2) Permanent total disablement

(3) Permanent partial disablement, whether total or partial. 

(4) Temporary disablement, whether total or partial.

For determining the amount of compensation, Sec. 4 has to be read with Schedule IV

(1) Meaning of compensation

"Compensation" has been defined under Section 2(1)(c) of the Act to mean compensation as provided for by this Act. The meaning of the term will be more clear in the following paragraphs.

(ii) Amount of compensation

Amount of compensation is payable in the event of an employee meeting with an accident resulting into temporary or permanent disability or disease as stated in Schedule II and III in terms of Section 4 of the Act, read with Schedule IV.

Schedule II contains a list of persons engaged in different employments/ operations specified therein who are covered by the definition of employee and entitled to compensation e.g. a person employed for loading/unloading of materials in a factory or ship, persons employed in work incidental or connected with manufacturing process. Schedule III contains a list of occupational diseases which if contracted while in employment entitles a employee to compensation such as disease caused by lead, mercury, etc. Schedule IV lays down the relevant factor (a certain figure) related to the age of the employee at the time of death, injury or accident by which wages are multiplied to arrive at compensation.

(iii) Compensation to be paid when due and penalty for default

Time of payment of compensation: Section 4A of the Act provides that compensation under Section 4 shall be paid as soon as it falls due. Compensation becomes due on the date of death of employee and not when Commissioner decides it (Smt. Jayamma v. Executive Engineer, P.W.D. Madhugiri Division, 1982 Lab. I.C. Noc 61).

The employer is required to deposit or to make provisional payment based on the extent of liability which he accepts with the Commissioner or hand over to the employee as the case may be even if the employer does not admit the liability for compensation to the extent claimed.

Where an employer is in default in paying compensation, he would be liable to pay interest thereon and also a further sum not exceeding fifty percent of such amount of compensation as penalty. The interest and the penalty stated above is to be paid to the employee or his dependent as the case may be.

(iv) Method of calculating wages

Monthly wages mean the amount of wages deemed to be payable for a months service and calculated as follows:

(a) Where the employee has, during a continuous period of not less than 12 months immediately preceding the accident, been in the service of the employer who is liable to pay compensation, the monthly wages of the employee shall be 1/12th of the total wages which have fallen due for payment to him by the employer in the last 12 months of that period.

(b) Where the whole of the continuous period of service was less than one month, the monthly wages of the employee shall be the average monthly amount which during the 12 months immediately preceding the accident was being earned by an employee employed on the same work by the same employer, or, if there was no employee so employed, by an employee employed on similar work in the same locality.

(c) In other cases, including cases in which it is not possible to calculate the monthly wages under clause (b), the monthly wages shall be 30 times the total wages earned in respect of the last continuous period of service, immediately preceding the accident from the employer who is liable to pay compensation, divided by the number of days comprising such period. (Section 5)

A period of service shall be deemed to be continuous which has not been interrupted by a period of absence from work exceeding 14 days.

(v) Review of half-monthly payment

Section 6 of the Act provides that any half-monthly payment payable under this Act, either under an agreement between the parties or under the order of a Commissioner may be reviewed by the Commissioner on the application either of the employer or of the employee accompanied by the certificate of a qualified medical practitioner that there has been a change in the condition of the employee or subject to rules made under this Act, an application made without such certificate.

Any half monthly payment, may on review, under the above provisions be continued, increased, decreased or ended, or if the accident is found to have resulted in permanent disablement, be converted to the lump sum to which the employee is entitled less any amount which he has already received by way of half-monthly payments.

(vi) Commutation of half monthly payments

Section 7 of the Act provides that any right to receive half-monthly payments may, by agreement between the parties or if the parties cannot agree and the payments have been continued for not less than 6 months on theapplication of either party to the Commissioner, be redeemed by the payment of a lump sum of such amount as may be agreed to by the parties or determined by the Commissioner as the case may be.

(1) Distribution of compensation

No compensation has to be paid in respect of an employee whose injury has resulted in death and no payment of lump sum compensation to a woman or a person under a legal disability except by deposit with the Commissioner. The employer cannot make payment of compensation directly to the deceased legal heirs. It is the Commissioner who decides on the distribution of compensation to the legal heirs of the deceased employee. (Section 8)

Right to claim compensation passes to heirs of dependant as there is no provision under the Act to this effect (AIR 1937 Cal. 496). Payment of ex-gratia or employment on compassionate grounds will not be employers' liability (LAB IC 1998 JK 767).

(ii) Compensation not to be assigned etc.

Save as provided by this Act, no lump sum or half-monthly payment payable under this Act can be assigned, or charged or attached or passed to any person other than the employee by operation of law nor can any claim beset-off against the same. (Section 9)

(iii) Compensation to be first charge

The compensation money shall bear the first charge on the assets transferred by the employer. It says that where an employer transfers his assets before any amount due in respect of any compensation, the liability whereof accrued before the date of transfer has been paid, such amount shall, notwithstanding any thing contained in any other law for the time being in force, be a first charge on that part of the assets so transferred as consists of immovable property. (Section 14A)

(vii) Insolvency of employer and the compensation

Following provisions under Section 14 of the Act have been made in this respect: 

(1) Where any employer has entered into a contract with any insurers in respect of any liability under this Act to any employee, then in the event of the employer becoming insolvent or making a composition orscheme of arrangement with his creditors or, if the employer is a company, in the event of the company having commenced to be wound up, the rights of the employer against the insurers as respects that liability shall, notwithstanding anything in any law for the time being in force relating to insolvency or the winding up of companies, be transferred to and vest in the employee, and upon any such transfer the insurers shall have the same rights and remedies and be subject to the same liabilities as if they were the employer, so, however, that the insurers shall not be under any greater liability to the employee than they would have been under the employer.

(ii) If the liability of the insures to the employee is less than the liability of the employer to the employee, the employee may prove for the balance in the insolvency proceedings or liquidation.

(iii) Where in any case such as is referred to in sub-section (1) the contract of the employer with the insurers is void or voidable by reason of non-compliance on the part of the employer with any terms or conditions of the contract (other than a stipulation for the payment of premia), the provisions of that sub-section shall apply as if the contract were

But the employee is required to give notice of accident and resulting disablement therefrom to the insurers as soon as possible after he becomes aware of the insolvency or liquidation proceedings otherwise the above provisions shall not be applied.

(iv) There shall be deemed to be included among the debts which under Section 49 of the Presidency Towns Insolvency Act, 1909, or under Section 61 of the Provincial Insolvency Act, 1920 or under Section 530 of the Companies Act, 1956, are in the distribution of property of an insolvent or in the distribution of the assets of a company being wound up to be paid in priority to all other debts, the amount due in respect of any compensation the liability wherefor accrued before the date of the order of adjudication of the insolvent or the date of the commencement of the winding up, as the case may be, and those Acts shall have effect accordingly.

(v) Where the compensation is half-monthly payment, the amount due in respect thereof shall, for the purposes of this Section, be taken to be the amount of the lump sum for which the half-monthly, payment could, if redeemable be redeemed if application were made for that purpose under Section 7, and a certificate of the Commissioner as to the amount of such sum shall be conclusive proof thereof. 

(vi) The provisions of sub-section (iv) shall apply in the case of any amount for which an insurer is entitled toprove under sub-section (iii) but otherwise those provisions shall not apply where the insolvent or the company being wound up has entered into such ao cntract with insurers as if referred to in sub-section (i).

(vii) This Section shall not apply where a company is wound up voluntarily merely for purpose of reconstructionor of amalgamation with another company.

(viii) Contracting out of compensation

Section 17 provides that any contract or agreement whereby an employee relinquishes any right of compensation from the employer for personal injury arising out of or in the course of the employment shall be null and void in so far as it purports to remove or reduce the liability of any person to pay compensation under this Act. (Section 17)


APPOINTMENT OF COMMISSIONERS

Section 20 as amended by the Workmen's Compensation (Amendment) Act, 2009 provides that the State Government may, by notification in the Official Gazette, appoint any person who is or has been a member of aState Judicial Service for a period of not less than five years or is or has been for not less than five years an advocate or a pleader or is or has been a Gazetted Officer for not less than five years having educational qualifications and experience in personal management, human resource development and industrial relations to be a Commissioner for Employee's Compensation for such area as may be specified in the notification. Where more than one Commissioner has been appointed for any area, the Government may by general or special order regulate the distribution of business between them.

Every Commissioner shall be deemed to be a public servant within the meaning of the Indian Penal Code. Section 20(3) empowers the Commissioner to appoint or choose any person, possessing special knowledge of any matter relevant to the matter under inquiry, to assist him in holding the inquiry.



(a) an order awarding as compensation a lump sum whether by way of redemption of a half- monthly payment or otherwise or disallowing a claim in full or in part for a lump sum;

(aa) an order awarding interest or penalty under Section 4A; (b) an order refusing to allow redemption of a half-monthly payment;

(c) an order providing for the distribution of compensation among the dependants of a deceased employee or disallowing any claim of a person alleging himself to be such dependant;

(d) an order allowing or disallowing any claim for the amount of an indemnity under the provisions of Sub-section (2) of Section 12; or


(a) an order refusing to register a memorandum of agreement or registering the same or



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