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Basics of Employee's Compensation Act, 1923

The main objective behind implementation of the Employee's Compensation Act, 1923 was to provide payment by employers to employees in the form of compensation for any loss or injuries suffered by employees in an accident. At the time of enactment this act was referred to as Workmen Compensation Act but later on it was renamed as Employee�s Compensation Act, 1923 on 18th January,2010[1] the reason behind this is that now employees in clerical capacity are also entitled for compensation.

For any organization or company employees are considered to be the most asset and a valuable resource. They play an integral role in success of a company. Their major or key function is to achieve the desired goals in a company. In return they do expect certain kind of security from the employers in the form of security of their jobs and compensation for any sort of expenses incurred by them for the success of the organization. An employee ensures the success for an organization by meeting deadlines for work on time and ensuring customer satisfaction.

Now when it comes to employer it is very important to understand it's meaning well for that lets refer to section 2(e) of the Employee's Compensation Act 1923:

  1. Anybody of person whether incorporated or not.
  2. Managing agent of employer.
  3. Legal representative of a deceased employer.
All these factors contribute for compensation to be paid to employees. But as every side has two aspects similarly there are certain conditions where employers are not liable to pay any sort of compensation to employee. The entire concept of employers non liability is very well illustrated in Employee's Compensation Act, 1923.

Dependent According to section 2(d) of the Employee's Compensation Act 1923, the word dependent includes the following relatives of a deceased person, such as:
  1. a widow[2] of the deceased person, minor legitimate[3] child, unmarried legitimate daughter or a widowed mother;
  2. a son or daughter who has attained the age of 18 years and is infirm[4] or a person who is completely dependent on the earnings of the employee at the time of his death;
  3. a person who is partially or completely dependent on the earnings of deceased employee, this may include:
    1. a widower
    2. a parent apart from widower mother
    3. in case no parent of the workman is alive a paternal grandparent
    4. a widowed daughter in law.

Dependant also includes some other relations in respect to person partially dependent. But for an insight we can say that dependent is someone whose source of livelihood was earning of that deceased workman.


The term workman includes any person (except those whose employment is of casual nature or a person who is employed for the sake of employer's business or trade) who is:
  1. One who is not permanently employed in administrative, district or sub-divisional office of a railway but is a railway servant as defined in section 3 of the Indian Railway Act, 1890.
  2. Employed as per specified in schedule II.
The Act is applicable to all such people who are employed as cook in hotel, liquified petroleum gas, restaurants using power etc.

Partial disablement: According to section 2(1)(g) of Employee's Compensation Act, 1923 it can be classified into categories i.e.:
  1. Temporary partial disablement:

    It is a situation in which earning capacity of an employee decreases due to temporary disablement to perform his duty in the course of employment.
  2. Permanent partial disablement:

    In such a situation the earning capacity of employee deemed to be reduce permanently in every course of employment that he was capable of taking at that point of time.

Total disablement According to section (2)(l) of Employee's Compensation Act, 1923 it can be classified into two categories i.e.:
  1. Temporary total disablement

    In this case the injury is such that it causes disablement of a nature which leads to incapacity of performing any duty as he could at the time of accident.
  2. Permanent total disablement- It includes any such injury as specified in part I of Schedule I. Further total disablement includes those injuries as specified in part II.

Employer's liability for compensation:

The whole purpose of the Act is to provide compensation to employees who suffer any injury due to accident cause in course of employment. As per section 3(1) of the Act an employer is liable to pay compensation to an employee under the following circumstances:
  1. In case any sort of mental, physical or bodily injury is injury caused to employees i.e., personal injury takes place.
  2. The accident that occurred out of or in the course o9f employment.
  3. The injury caused is such that it leads to death, permanent or temporary disablement or say partial or total disablement of employees.
  4. The injury is cause out of employee- employer relationship.

Scope of arising out of employment:

The term arising out of employment includes conditions, nature, incident and obligation of employment as well. If during work a worker gets injured due to any of the above listed factors than it would be termed as injury arising out of employment.

Case law:
In Oriental Fire and General Insurance CO. Limited vs. Sunderbai Ramji[5] case, the scope of term arising out of employment was determined by Gujarat High Court. In this case the labourer was performing hard labour which involved physical exertion. One day labourer after performing his duty for 3 hours felt a pain in chest and fainted on spot. Later on, when taken to hospital he was declared dead.

Then on observing the case keenly the commissioner found out that it was his duty which caused him physical discomfort and pain due to which he died and hence he declared that labourer died due to nature of his job.

Furthermore. The High Court of Gujarat upheld the decision of commissioner that the injury was caused under the subhead of arising out of employment as specified in section 3(1) of the Act. It is a personal injury that led to his death and has direct nexus with employment.

Scope of arising in course of employment:

The term arising in course of employment implies accident that took place in course of employment. It involves injury arising out of the risk incident to employment. A very important factor to make employer liable is that the work performed by employee was at the time and place which is similar with employment.

Case law:
In National Iron and Steel Company Ltd. vs. Manorama[6] case, the deceased was a boy working at a tea stall outside the factory, his duty was to serve tea to the employees of the factory. One day after serving tea while he was on his way back from the factory, he crossed a violent mob of workers, police in order to protect themselves shot at the mob accidently bullet hit the boy and he was killed. The court held that since accident took place during the working hours and at place of employment hence deceased boy will be paid compensation.

Doctrine of Notional Extension:

The Doctrine of Notional Existence comes into force when there is any sort of link between the time and place of work and accident, in such a compensation is payable by employer to employee according to the provisions of Act. This doctrine was laid down in following cases-

Case law
In Moondra and Co. vs. Mst. Bhawani[7] case, a truck driver after taking due permission of the employer went inside the tank of truck to check the source of petrol leak, he lighted a matchstick inside the tank due to which accident took place and driver sustained huge burn injuries and eventually died. The court held that since accident took place at the time and place of work hence dependents of employee were entitled to compensation.

Conditions under which employer is not liable for payment of compensation:

According to section 3(1) of Employee's Compensation Act 1923, an employer is not liable for payment of compensation in following cases or circumstances-
  1. In case the injury caused is such that it does not cause the entire or partial disablement of an employee for a period exceeding three days.
  2. If the injury, not leading to the death or permanent total disablement of employee, is caused by an accident which is directly attributable to:
    • If the employee at the time when accident took place is under the influence of any sort of drugs or drinks due to which he is not in senses or say right frame of mind.
    • If he or she willfully disagrees or disobeys an order mentioned to them or framed for their safety purpose.
    • The willful denial or non-usage of any kind of safety equipment duly provided to them for the purpose of securing their safety while working.[8]
Under all the above-mentioned circumstances an employer is not liable to pay any sort of compensation to employee because he or she is themselves responsible for the injuries sustained by them as is clear from the conditions mentioned in section 3(1) of Employee's Compensation Act.

Next ground is that the workman died due to heart attack and, therefore, it is a natural death and it is not due to an accident arising out of his employment. The term Accident has no clear meaning in the Workmen's Compensation Act, 1923.

It is a natural death and not accident.

Doctrine of Added Peril.

According to this doctrine whenever an employee outperforms his duty that is, he does something which is not the part of his duty as well as it involves some sort of extra danger, the employer cannot be held responsible to pay compensation for the injury arising out of any such act of employee. This further disentitles the employee from claiming any sort of compensation on the basis that such danger was taken by employee at his own risk and same was not required by the employer in course of employment.

Hence assuming that such injury caused is not arising out of employment employee will not be entitled to any profit or compensation.

Case Laws:
In case of Devidayal Ralyaram vs. Secretary of State[9], a person appointed at a job of fitter went under the operating machine to collect scrap in order to make out some nuts and studs out of it. The machine when set in motion caused permanent injury to the employ. On analysing the case it was drawn that fitter was prohibited from doing so and it was not part of his duty to go under the machine and search for scrap. Hence all the damage or injuries caused to fitter were due to his voluntary actions and there was no duty imposed on him to do so. Further court held that employer can use doctrine of added peril as defence for pleading non- liability in case of compensation.

In case of Lancashire and Yorkshire Railway Co. v. Highley[10], an employee appointed a railway company while going to the messroom took the path through metal lines being well aware of the goods train standing by side. Suddenly the train started and employee was killed. On observing through clearly it was held that the accident that took place arose out of the employee's negligence and risk taken by him it was not out of the employment of employee. As a result of this observance court laid down the doctrine of added peril as an imperative of injury arising out of employment.

Self-inflicted Injury

If an injury caused to employee is self-inflicted that is, they are themselves responsible for the cause of the injury whether it may be intentional or accidental in such a case employer may not be held responsible for payment of compensation. Jobs like Law enforcement, medical employees, farmers, teachers, salesperson involves a very high risk of self- inflicted injuries.

Self- inflicted injuries and suicides cannot be termed as accident in course of employment.

Contributory Negligence

It is held that employees also have duty towards employers to perform their task with utmost care and attention so as to avoid any sort of injury or accident. Although employers are deemed to be vicariously liable for their employee's negligence but are entitled to claim a contribution or indemnity from their negligent employee in appropriate circumstances. However, in case there is negligence on the part of both employer and employee then the employer is only liable to pay compensation to the extent of his own negligence but not the employee.

Therefore, the only benefit is that the compensation amount may reduce because the employer will not be liable to for any sort of negligence committed on the part of employer.

Employer's liability when contractor is engaged:

Sometimes an employer instead of directly employing an employee for the sake of doing work or trade may hire the same but through contractor. Now in such a case what if an injury is caused to employee due to some accident whom is to be held responsible? Section 12 of the Act defines the employer's liability in case contractor is involved.

Section 12(1) of the Act defines employer's liability when contractor is engaged in certain circumstances:

  1. When the contractor is involved in any sort of work which is part of the employer's (principal) work.
  2. The employees are involved in the course of employment of work.
  3. The accident has occurred at the place where the principal i.e., employer has undertaken to manage and execute the concerned work.

Amount of Compensation:

Section- 4 of the Employee's Compensation Act, 1923 defines amount of compensation when Death results from injury- If the employee dies due to any such reason then amount payable is equal to rupees eighty thousand or fifty percent of the monthly wages multiplied by a factor as per mentioned in the Schedule 4 of the Act whichever is more.

When permanent total disablement is caused by injury- If by any chance the employee faces permanent total disablement due to injury then the amount payable is ninety thousand rupees or sixty percent provided whichever is more.

When permanent partial disablement is caused by injury- In such a case the amount payable is ninety thousand rupees or sixty percent of the disablement.

Liability of Insurer

Always remember that liability of insurer is determined on the basis of wages paid to employees. The insurance policy covers the wages of employees and the insurer is liable to pay only that part of amount as covered under wages. It is on the part of the insurer to prove that injury caused is due to occupational disease.

Distribution of Compensation:

Section-8 of the Act talks about rights of heirs of dependents in terms of distribution of compensation

  1. The amount of compensation will be deposited to the commissioner because no direct payment of compensation can be made by employer to employee who is injured and is dead. Also, in in case of legal disability no lumpsum payment can be made.
  2. Dependent receives the payment of compensation from employer in case the employee is already dead. The amount of compensation shall be equal to three months wage of the employee. In case the amount payable to dependent exceeds it shall be deducted by commissioner and returned to employer.
  3. In case of amount not less than 10 rupees shall be paid by commissioner on behalf of that person.
  4. In case when the amount of compensation is payable to a woman or any other person who is legally not entitled then such amount deposited with commissioner shall be paid by him to the person who is entitled to get it.
  5. In case of lumpsum amount deposited with commissioner which is payable to a woman or other person who is legally disable, then such an amount can be used for the benefit of any other disable person.

Procedure in the proceedings before commissioner:

Section - 20 of the Act talks about this. A commissioner shall be appointed by the state of central government. A specific may regulate the business in case state government appoints more than one commissioner for a particular area. A commissioner can choose any person to assist him in inquiry provided he possess a special knowledge.


Section-30 of the Act talks about appeals. An appeal can be made in front of High court by orders of commissioner.
  1. A lumpsum amount is awarded as compensation by way of an order, redemption of half of the monthly payment is away.
  2. Gain of a half monthly compensation shall be reduced by an order.
  3. Compensation shall be distributed to the family of deceased by an order, similarly a claim can be disallowed by an order.
  1. Employee's Compensation Act 1923, Taxman
  2. A woman whose spouse is dead and she has not married again.
  3. Something lawful.
  4. A person who is not physically or mentally strong
  5. Oriental Fire and General Insurance Co. Limited vs. Sunderbai Ramji, (1999) IIILJ 265 Guj
  6. National Iron and Steel Company Ltd. vs. Manorama, AIR 1953Cal. 143
  7. Moondra and Co. vs. Mst. Bhawani AIR 1970 Raj 111
  8. Section 3(1) of Employee's Compensation Act,1923
  9. Devidayal Ralyaram v. Secretary of State, (AIR) 1937 Sind 288
  10. Lancashire and Yorkshire Railway Co. v. Highley, (1917) A.C. 352

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