Law and You > Labour Laws > The Code on Social Security, 2020 > Employees’ Compensation under Social Security Code

A beginning of social security in India was made with the passing of the Workmen’s Compensation Act in 1923. Prior to 1923, it was almost impossible for an injured workman to recover damages or compensation for any injury sustained by him in the ‘ordinary course of his employment. The dependants of a deceased workman could, in rare cases, claim damages under the Fatal Accidents Act, 1855; if the accident was due to a wrongful act, neglect or fault of the person who caused the death. In 1921, the government formulated some proposals for the grant of compensation and circulated them for opinion. The proposals received general support. As a result, the Workmen’s Compensation Act was passed in March 1923 and was put into force on July 1, 1924. Subsequently, there were a number of amendments to the Act. The new code on Social Security, 2020 deals with Employees’ Compensation under Chapter VII containing Section 73 to 99.

Object of the Provisions in the Code:

The object of the provisions related to employees’ compensation under code is to impose an moral obligation upon employers to pay compensation to workers for accidents arising out of and in the course of employment. The scheme of the Code is not to compensate the workman in lieu of wages, but to pay compensation for the injury sustained to him. These provisions aid in faster and cheaper disposal of disputes relating to compensation in comparison of proceedings of civil law.

Applicability of Chapter VII of the Code on Social Security, 2020:

Subject to the provisions of the Second Schedule, Chapter VII on Employees’ Compensation applies to the employers and employees to whom chapter IV (ESIC) does not apply.

Defences of the Employer:

Prior to the passing of this Act, the employer was liable to pay compensation only if he was guilty of negligence. Even in case of proved negligence, the employer could get rid of his liability by using any of the following defences:

• The Doctrine of Assumed Risks: If the employee knew the nature of the risks he was undertaking when working in a factory, the employer had no liability for injuries. The court assumed in such case that the workman had voluntarily accepted the risks incidental to his work. The doctrine followed from the rule Volenti Non Fit Injuria, which means that one, who has volunteered to take a risk of injury, is not entitled to damages if injury actually occurs.
• The Doctrine of Common Employment: Under this rule, when several Persons work together for a common purpose and one of them is injured by some act or omission of another, the employer is not liable to pay compensation for the injury.
• The Doctrine of Contributory Negligence: Under this rule’ a person is not entitled to damages for injury if he was himself guilty of negligence and such negligence contributed to the injury.

The three aforesaid defences and the rule “no negligence no liability made It almost impossible for an employee to obtain relief in cases of accident. The Workmen’s Compensation Act ‘of 1923 radically changed the law. According to this Act, the employer is liable to pay compensation irrespective of negligence. The Act looks upon compensation as relief to the workman and not as damages payable by the employer for a wrongful act or tort. Hence contributory negligence by the employee does not disentitle him from relief. For the same reason, it is not possible for the employer to plead to the defence of common employment or assumed risks for the purpose of avoiding liability. Thus the Act makes it possible for the workman to get compensation for injuries, unimpeded by the legal obstacles set up by the law of Torts.

Compensation:

The compensation shall be paid by the employer to a workman for any personal injury sustained by him in an accident arising out of and in the course of his employment.

Two Ways of Claiming Compensation:

An injured workman may, if he wishes, file a civil suit for damages against the employer. Section 74(7) of the Code, however, provides that if such a suit is filed, compensation cannot be claimed under the Act and if compensation has been claimed under the Act, or if an agreement has been entered into between the employer and the workman for the payment of .compensation, no suit can be filed in the civil court.

Thus the workman has to choose between two reliefs (i) civil suit for damages and (ii) claim for compensation under the Code. He cannot have both.

In a civil suit for damages, it is open to the employer to plead all the defences provided by the law of Torts. Therefore, a civil suit is a risky procedure for a workman and is rarely adopted.

Disablement:

Disablement, in ordinary language, means loss of capacity to work or move. Such incapacity may be partial or total and accordingly there are two types of disablement, partial and total. In the Code both types .of disablement are further subdivided into two classes, temporary and permanent.  Temporary Partial Disablement means such disablement as reduces the earning capacity of a workman in any employment in which he was engaged at the time of the accident, and Permanent Partial Disablement means such disablement as reduces his earning capacity in every employment he was capable of undertaking at that time. The Code is not limited only to physical capacity of disablement, but extends to the reduction of earning capacity as well.

Temporary Disablement:

According to Section 2(83) of the Code on Social Security, 2020 “temporary disablement” means a condition resulting from an employment injury which requires medical treatment and renders an employee, as a result of such injury, temporarily incapable of doing the work which he was doing prior to or at the time of the injury.

Total Disablement:

Total disablement means such disablement, whether of a temporary or permanent nature, as incapacitates a workman for all work which he was capable of performing at the time of the accident resulting in such disablement, provided that permanent total disablement shall be deemed to result from the permanent total loss of the sight of both eyes or from any combination of injuries specified in Schedule I, where the aggregate percentage of the loss of earning capacity as specified in that schedule against those injuries, amounts to one hundred per cent.

Permanent Partial Disablement:

According to Section 2(55) of the Code on Social Security, 2020 “permanent partial disablement” means, where the disablement is of a permanent nature, such disablement as reduces the earning capacity of an employee in every employment which he was capable of undertaking at the time of the accident resulting in the disablement: Provided that every injury specified in Part II of the Fourth Schedule shall be deemed to result in permanent partial disablement.

Permanent Total Disablement:

According to Section 2(56) of the Code on Social Security, 2020 “permanent total disablement” means such disablement of a permanent nature as incapacitates an employee for all work which he was capable of performing at the time of the accident resulting in such disablement: Provided that permanent total disablement shall be deemed to result from every injury specified in Part I of the Fourth Schedule or from any combination of injuries specified in Part II thereof where the aggregate percentage of the loss of earning capacity, as specified in the said Part II against those injuries, amounts to one hundred per cent.

Part I of Schedule IV, gives list of injuries deemed to result in permanent total disablement and Percentage of loss of earning capacity. Part II of Schedule IV, gives list of injuries deemed to result in permanent partial disablement and Percentage of loss of earning capacity.

In Sukhai v. Hukum Chand Jute Mills Ltd., AIR 1957 CAL 601 case, the Calcutta High Court held that in a case of Partial Disablement it is necessary that (a) there should be. an accident, (b) as a result of the accident the workman should suffer injury, (c) which should result in permanent disablement and (d) as a result whereof his earning capacity must have decreased permanently. In the proportion in which his earning capacity has been decreased permanently he is entitled to compensation.

Who are Entitled for Compensation:

• A widow or a minor who is a legitimate son or unmarried daughter or a widowed mother is entitled to compensation;
• If the family of the deceased is wholly dependent on the earnings of the employee at the time of his death or a son or daughter who has attained the age of eighteen years;
• A widower;
• A parent other than a widowed mother; 
• A minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or illegitimate or adopted if married and a minor or if widowed and a minor; 
• A minor brother or an unmarried sister or a widowed sister if a minor; 
• A widowed daughter-in-law;
• A minor child of a predeceased son;
• A minor child of a predeceased daughter where no parent of the child is alive, or; 
• A paternal grandparent if no parent of the employee is alive.

Employers’ liability for compensation (S. 74 of the SSC):

If an employee is injured due to an accident during work, the employer is liable to pay compensation. However, the employer is not liable to pay compensation in following situations:

• If the injury does not end in the entire or partial disablement of the employee for a period exceeding three days.
• If the injury, not leading in death or permanent total disablement, is caused by an accident which is directly attributable to: 
  • The employee having at the time of the accident is under the influence of drink or drugs; 
  • The willful disobedience of the employee to an order if the rule is expressly given or expressly framed, for the purpose of securing the safety of employees; or
  • The willful removal or disregard by the employee of any safety guard or other device which has been provided for the purpose of securing the safety of employees.

Rules Regarding Employees Compensation:

Section 74(1) of the Code lays down that if personal injury is caused to a workman by accident arising out of and in course of employment, his employer shalt be liable to pay compensation. From the above it follows that the employer is liable when

• Injury is caused to a workman by accident and
• The accident arises out of and in course of employment.
• An occupational disease is deemed to be an injury by accident and the employer is liable to pay compensation.

Accident:

Accident is an unpleasant event that happens unexpectedly and causes damage, injury or death.

In Fenton v, Thorley & Company, (1903) A.C. case, Lord Macnaughten defined an accident as “an unlocked for mishap or untoward event which is not expected or designed”. Thus a self-inflicted injury is not an accident ordinarily.

In Grime v. Fletcher, (1915) 1 K.B. case, where a person became insane as a result of accident and then committed suicide. It was held that death was the result of the accident and compensation was awarded. But where insanity was not the direct result of the accident compensation cannot be awarded. e.g., where suicide was due to brooding over the accident.

In Withers v. L. B. &. S. C. Railways, (1916) 2 K.B. case, where a series of tiny accidents, each producing some unidentifiable result and operating cumulatively to produce the final condition of injury, would constitute together an accident to furnish a proper foundation for a claim under the Act.

Personal Injury:

A personal injury is not necessarily confined to physical or bodily injury. Injury includes psychological at physiological injury such as nervous shock, insanity etc. The injury must be personal. An injury to the belonging of a workman does not come within the Code.

According to Section 2(28) of the Code on social Security, 2020 “employment injury” means a personal injury to an employee, caused by accident or an occupational disease, as the case may be, arising out of and in the course of his employment.

The Indian News Chronick Ltd. v. Mrs. Luis Lazarus, April 25, 1951 case, where a workman had to go into a heating room and from there to cooling plant. The changes of temperature caused pneumonia an, the workman died. The P&H High Court held that the death was due to personal injury.

In Santon Fernandez v. B.P. (India) Ltd., AIR 1957 BOM 52 case, where the workman was performing his duties suffered from a heat stroke and collapsed. He went into coma. His temperature rose to 110 degrees. He was removed to the ice room, artificial respiration was restored to, but he died. The Bombay High Court held that the death was the result of heat-stroke and dependant was entitled to compensations.

Arising out of and in the Course of Employment:

This phrase been copied from the English Act on the subject. The phrase has been interpreted in a large number of cases, English and Indian. But difficulties still remain. In the course of employment: This part of the phrase covers the period of time during which the employment continues. Compensation is payable if the accident occurs within the period of employment. Generally speaking employment commences when the employee reaches his place of work and ceases when he leaves the place. ‘But there are several exceptions to the above rule.

• When the workman uses transport provided by the employer for the purpose of going to and from the place of work the time during which he uses the transport, is included in the course of his employment.
• The time during which the workman is upon the premises of the employer should be included in the period of employment. An employee of the E. I. Railways was knocked down and killed by a train while returning from duty by crossing the platform area, Held, the accident arose out of and in course of employment.
• If the workman reaches the place of employment before the time when the employment begins: if it was necessary and not too early, or if at the time of accident he was doing something to equip himself for the work, he is in course of employment
• If the workman with the knowledge and permission of the employer lives at some distance from the place where he is called upon to work and if in the course of proceeding at a reasonable time and in a reasonable manner from his place to the place of work he meets with fatal accident then his accident must be held to arise out of and in course of employment.
• The period of rest during the period of employment is in the course of employment. But if the workman goes outside the employer’s premises during the rest period and meets with an accident, it is not in course of employment.

As a rule the employment of a workman does not commence until he has reached the place of employment and does not continue when he has left the place of employment, the journey to and from the place of employment being excluded. It is now well settled, however, that this is subject to the theory or notional extension of employer’s premises so as to include an area which the Workman passes and repasses in going to and in leaving the actual place of work.

In Dennis v. White, [1917] UKHL 517 case, it was observed that, “When a man runs a risk incidental to his employment and is thereby injured, then the injury arises out of the employment.”

Amount of Compensation:

The Code provides for compensation for (1) Death(2) Permanent total disablement (3) permanent partial disablement and (4) Temporary disablement. For determining the amount of compensation payable under the Code, Section 76of the Code has to be rad with Schedule VI of the Code.

The rules regarding the amount of compensation, as laid down under Section 76 of the Code, are stated below; .

• For Death: The employer must pay the amount mentioned in column 2 of Schedule VI.
• For Permanent Total Disablement: The employer must pay the amount mentioned in column 3 of Schedule VI.
• For Permanent Partial Disablement: Schedule IV to the Code contains a list of injuries deemed to result in permanent partial disablement together with the percentage loss of earning capacity which is presumed to occur in each case When permanent partial disablement occurs from an injury specified in Schedule IV, the amount of compensation is to be calculated by finding out from Schedule VI the compensation payable for permanent total disablement to the workman concerned and multiplying it with the percentage loss of earning capacity as stated in Schedule I.

Example:

Suppose that there is an injury which, according to Schedule IV, causes a 30% loss of earning capacity. Suppose that the monthly wage of the workman is Rs. 50. From Schedule VI it is seen that for permanent total disablement be would have obtained Rs. 10,080. Hence for the permanent partial disablement he would get 30% of Rs. 10,080, i.e., Rs. 3,024.

In the case of an injury not specified in Schedule IV, the percentage loss of earning capacity permanently caused must be found out. This figure multiplied by the amount of compensation for permanent total disablement gives the amount of compensation payable for the partial disablement. Where more injuries than one are caused by the same accident, the amount of compensation payable under this head shall be aggregated but not so in any case as to exceed the amount which would have been payable if permanent total disablement had resulted from the injuries.

For Temporary disablement, where as a result of the injury there is a temporary disablement, total or partial, the employer is required to make a half-monthly payment to the workman. The rate of half-monthly payment is given in column 4 of Schedule VI. (There are different-rates for different wage groups.)

Distribution of Compensation:

Section 81 of the Code lays down the following rules regarding the distribution of compensation:

• Compensation for death and lump sum payment due to a woman or to a person under a legal disability must be deposited with the Commissioner.
• But in the case of a deceased workman, an employer may make to .any dependent advances on account of compensation not exceeding an aggregate of one hundred rupees. So much of such aggregate as does not exceed the compensation payable to that dependent shall be deducted by the Commissioner from such compensation and repaid to the employer.
• Any other sum amounting to not less than Rs. 10 which is payable as compensation may be deposited with the Commissioner on behalf of the person entitled thereto.
• The receipt of the Commissioner shall be sufficient discharging respect of any compensation deposited with him.
• After the deposit of the compensation, the Commissioner shall deduct therefrom the actual cost of the- workman’s funeral expenses to an amount not exceeding Rs. 50 and pay the’ same to the person by whom the expenses were incurred.
• The Commissioner may serve notices calling upon the dependents to appear before him for the purpose of determining the distribution of the compensation.
• If the Commissioner is satisfied that no dependent exists, he shall repay the balance of the money to the employer.
• The Commissioner shall on application by the employer, furnish a statement showing in detail all disbursements made.
• The compensation money is to be distributed among the dependents in such proportions as the Commissioner thinks fit. The whole of it may be given to one person.
• Except in the case of a woman or a person under a legal disability, the compensation money is to be paid Jo the person entitled thereto
• Money payable to a woman or a person under a legal dis ability may be invested or otherwise dealt with as the Commissioner thinks fit. Half-monthly payments payable to a person under a legal disability may be paid to a dependent of the workman or to any other person whom the Commissioner thinks best fitted to provide for the welfare of the workman.
• The orders of the Commissioner regarding the distribution of compensation may be varied later if necessary.
• Notice must be given to the parties affected.
• Where under the previous para, the Commissioner varies an order on the ground .that the payment of compensation to any person has been obtained by fraud, impersonation or other improper means, any amount so paid may be recovered by the procedure laid down for the recovery of arrears of land revenue.

Payment of Compensation:

Compensation shall be paid as soon as it falls due. Where the employer does not accept the liability to the extent claimed, he must make provisional payment based on the extent of liability which he accepts. This is without prejudice to the right of the workman to make any further claim. If an employer fails to pay the compensation within one month of the date on which it fell due, the Commissioner may direct the payment of simple interest thereon at 6%. If the Commissioner thinks that there. is no justification for the delay, he may direct the payment of a further sum, not exceeding 50% of the sum due, by way of penalty.

Protection of Compensation:

Save as provided by this Code, no lump sum or half-monthly payment payable- under the Code shall in any way be capable of being assigned or charged or be liable to attachment or pass to any person other than’ the workman by operation of law, nor shall any claim be set off against the same. This section has been framed, to protect as far as possible the workman from moneylenders.

Conclusion:

The provision on employees’ compensation in the Code on Social Security, 2020, is a cornerstone of social security in India, aimed at ensuring that employees receive financial compensation for injuries, diseases, or death sustained in the course of employment. The Code emphasizes no-fault liability, meaning that an employee or their dependents are entitled to compensation without the need to prove employer negligence.

The Code provides comprehensive protection to employees engaged in hazardous or physically demanding jobs, offering compensation for both temporary and permanent disabilities. Compensation is payable regardless of whether the employer is at fault. This simplifies the process for workers and ensures that they or their families are not left without financial support after a workplace accident. Employers are obligated to provide timely compensation, and failure to do so can result in penalties. The Act also ensures coverage for contract workers under principal employers. The Code acknowledges occupational diseases, linking compensation to work-related ailments beyond physical injuries, thus broadening its scope.

Courts have consistently upheld the principles of the Act, as seen in various case laws, reinforcing the rights of workers and dependents to receive compensation. Amendments over time have enhanced the protection provided by the Act, such as removing wage caps and increasing compensation amounts. Thus, the provision on employees’ compensation in the Code on Social Security, 2020, plays a vital role in safeguarding the rights and welfare of employees, ensuring they or their dependents receive financial security in case of employment-related injuries or death. It reflects the state’s commitment to social justice and the welfare of the workforce.

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