RADHA AND ORS vs BBM ISPAT LIMITED AND ORS
- Court
- Karnataka High Court
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MFA No. 200447 of 2020
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IN THE HIGH COURT OF KARNATAKA
R
KALABURAGI BENCH
RD
DATED THIS THE 23 DAY OF APRIL, 2026
PRESENT
THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
AND
THE HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA
MISCL. FIRST APPEAL NO.200447 OF 2020 (WC)
BETWEEN:
1. RADHA W/O LATE VENKATACHALA RAJAGOPAL,
AGED ABOUT 44 YEARS, OCC: HOUSEHOLD,
R/O NO.1-3-285/27, ASHAPUR ROAD,
SUKHA SHANTI NAGAR, RAICHUR-584 101.
2. R. DENESH KUMAR
S/O LATE VENKATACHALA RAJAGOPAL,
AGED ABOUT 18 YEARS, OCC: STUDENT,
R/O NO:1-3-285/27, ASHAPUR ROAD,
SUKHA SHANTI NAGAR, RAICHUR-584 101.
3. R. BHUWANESHWARI
D/O LATE VENKATACHALA RAJAGOPAL,
AGED ABOUT 15 YEARS, OCC: STUDENT,
R/O NO.1-3-285/27, ASHAPUR ROAD,
SUKHA SHANTI NAGAR, RAICHUR
BEING MINOR, REPRESENTED BY HIS NATURAL MOTHER
RADHA W/O LATE VENKATACHALA RAJAGOPAL,
AGED ABOUT 42 YEARS, OCC: HOUSEHOLD,
R/O NO:1-3-285/27, ASHAPUR ROAD,
SUKHA SHANTI NAGAR, RAICHUR-584 101.
…APPELLANTS
(BY SRI. SHIVAKUMAR KALLOOR, ADVOCATE)
AND:
1. BBM ISPAT LIMITED,
BY ITS MANAGING DIRECTOR,
Digitally signed
by VARSHA N
RASALKAR
Location: HIGH
COURT OF
KARNATAKA
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#114 DANAPUR VILLAGE,
HOBBLI MARIYAMMANA HALLI, HOSPET,
DIST: BELLARY-583 101.
2. RANGANATH SWAMY, KALAVIBHAVI,
HIRIYUR, TQ: BELLARY, KARNATAKA-583 101.
3. RAMESH PUROHIT, BBM ISPAT LIMITED,
#114 DANAPUR VILLAGE, HOBBLI,
MARIYAMMANA HALLI, HOSPET,
DIST: BELLARY-583 101.
4. RAO B.V. #114, DANAPUR VILLAGE,
HOBBLI, MARIYAMMANA HALLI,
HOSPET, DIST: BELLARY-583 101.
5. THE NEW INDIA ASSURANCE COMPANY LIMITED,
REP. BY ITS DIVISIONAL MANAGER,
NEW INDIA ASSURANCE CO. LIT,
RAICHUR BRANCH (680601),
P.B. NO:355, OPP: RDCC BANK, LTD.,
GUNJ ROAD, RAICHUR-584 101.
…RESPONDENTS
(BY SMT. HEMA L.K., ADVOCATE FOR R1;
SMT. PREETI PATIL MELKUNDI, ADVOCATE FOR R5;
R-3, 4 & 5 - SERVED)
THIS MFA IS FILED UNDER SECTION 30(1) OF EMPLOYEES
COMPENSATION ACT, PRAYING TO ALLOW THE ABOVE
MISCELLANEOUS FIRST APPEAL AND SET ASIDE THE IMPUGNED
JUDGMENT AND ORDER DATED 30.01.2020 PASSED BY THE II ADDL.
SENIOR CIVIL JUDGE AND JMFC AND COMMISSIONER FOR
WORKMEN COMPENSATION AT RAICHUR IN E.C.A. NO.4/2017 AND
ALLOW E.C.A. NO.4/2017 FILED BY APPELLANTS, IN ENDS OF
JUSTICE AND EQUITY.
THIS APPEAL COMING ON FOR ADMISSION THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
and
HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA
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ORAL JUDGMENT
(PER: HON'BLE DR. JUSTICE CHILLAKUR SUMALATHA)
Heard Sri Shivakumar Kalloor, learned counsel for
the appellants, Sri Manjunath Ginni, who represents
Smt. Hema L.K., learned counsel on record for respondent
No.1 as well as Smt. Preeti Patil Melkundi, learned counsel
for respondent No.5.
2. Challenge in this appeal is the order that is
rendered by the Commissioner for Workmen’s
Compensation, Raichur in ECA No.04/2017 dated
30.01.2020.
3. On hearing learned counsel appearing for the
parties, following substantial questions of law are
formulated for consideration:
1) Whether appellants established jural
relationship between respondent No.1 and
M/s. Dinesh Contracts and if so whether such
relationship binds respondent No.1 to make
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good the loss sustained by appellants due to
the death of deceased Venkatachala Rajagopal?
2) Whether respondent No.5 being the insurer of
the risk of workmen who were working under
M/s. Dinesh Contracts is liable to compensate
the appellants by treating the deceased
Venkatachala Rajagopal to be a workman?
4. The matrix of the case as projected by
appellants before the Commissioner for Workmen’s
Compensation is that, the deceased Venkatachala
Rajagopal (hereinafter be referred to as ‘deceased’ for
brevity) through the establishment by name M/s. Dinesh
Contracts, though a proprietor of the said firm, was
working as a worker along with other workmen. The firm
was undertaking specialized work of repairing boilers. On
06.06.2016, work was entrusted by respondent No.1-
company to carry out the repair of a boiler and to arrest
leakage. While the deceased was attending said work,
boiler blasted and the deceased was thrown 6 feet away.
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Deceased thereby sustained injuries and died due to those
injuries.
5. Appellants/claimants claimed compensation of
Rs.66,70,000/- in total against respondent Nos.1 to 4.
With a plea that respondent No.5, who is the insurer of the
risk of the workmen, is the one who is liable to pay
compensation, respondent Nos.1 to 4 filed a petition
before the Commissioner for impleading respondent No.5
as party to the proceedings. Respondent No.5 thus got
impleaded.
6. ANSWERING SUBSTANTIAL QUESTION OF LAW
No.2:
Whether respondent No.5 being the insurer of
the risk of workmen who were working under
M/s. Dinesh Contracts is liable to compensate
the appellants by treating the deceased
Venkatachala Rajagopal to be a workman?
Respondent No.5 took a plea that respondent Nos.1
to 4 have no locus standi to make it as party to the
proceedings. It also contended that the deceased was
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contractor-cum-proprietor of M/s. Dinesh Contracts. If at
all the workmen employed by M/s. Dinesh Contracts,
sustained injuries or death was caused during the course
of employment, then it is liable to pay compensation.
Policy does not cover the risk of Proprietor. Deceased
himself took policy for his employees to cover their risk
and thus, no liability can be fastened.
7. Arguing the matter, learned counsel for the
appellants contended that the deceased was carrying out
the work entrusted by respondent No.1 when the incident
occurred and there is no dispute about said fact. Death
occurred due to the injuries sustained in the course of
employment. Therefore, liability vests upon respondent
No.1 as well as respondent No.5-Insurance Company to
pay compensation.
8. Per contra, learned counsel who represents
respondent No.5 submits that Ex.R1-Policy makes it clear
that the risk of three labourers or workers or temporary or
daily wages labourers is covered. As the deceased himself
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took policy and as he is not a workman, his risk is not
covered and therefore, the Insurance Company is not
liable to pay compensation.
9. A meticulous perusal of the contents of Ex.R1
makes it clear that it is M/s. Dinesh Contracts who took
the policy but not the deceased in his individual capacity.
There is no denial of the fact that while the deceased was
doing work, he sustained injuries and those injuries
resulted in his death. Also, there is no denial of the fact
that the work was entrusted by respondent No.1 to M/s.
Dinesh Contracts and the deceased was attending the
entrusted work. Admittedly, Ex.R1-Policy stood in force as
on the date of accident and said policy covers the risk of
three labourers. In the case on hand, except deceased,
none other workers or labourers sustained any loss.
Taking extremely technical view, respondent No.5-
Insurance Company tries to escape from liability of
compensating the loss sustained by the dependents of the
deceased who are the appellants herein. Facts of the case
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make it clear that the deceased was working in pursuance
of the contract entered by respondent No.1 with M/s.
Dinesh Contracts. Therefore, Ex.R1-Policy definitely covers
the risk of the deceased.
10. It is not the deceased who obtained Ex.R1-
Policy as contended by respondent No.5 in the written
statement filed. Policy was obtained by M/s. Dinesh
Contracts to cover the risk of three labourers or workers or
temporary or daily wages labourer. Deceased was working
for M/s. Dinesh Contracts at the relevant time. Therefore,
for the loss he suffered, Insurance Company is liable to
compensate his dependents, as Ex.R1 clearly covers such
risk.
Substantial question of law taken up for
consideration is accordingly answered.
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11. ANSWERING SUBSTANTIAL QUESTION OF LAW
No.1:
Whether appellants established jural
relationship between respondent No.1 and M/s.
Dinesh Contracts and if so whether such
relationship binds respondent No.1 to make
good the loss sustained by appellants due to
the death of deceased Venkatachala Rajagopal?
It is respondent No.1 who issued the work order and
respondent No.1 does not deny said fact. Tribunal placing
much reliance upon clause(e) of sub-section (1) of Section
2 of the Workmen’s Compensation Act, 1923, which
defines the word “employer” and clause (n) of sub-section
(1) of Section 2, which defines the term “workman”, came
to a conclusion that deceased was not an employee of
respondent No.1-company. However, Section 12 of
Employee’s Compensation Act, 1923 reads as under:
“ 12. Contracting.- (1) Where any person
(hereinafter in this section referred to as the
principal) in the course of or for the purposes of his
trade or business contracts with any other person
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(hereinafter in this section referred to as the
contractor) for the execution by or under the
contractor of the whole or any part of any work
which is ordinarily part of the trade or business of
the principal, the principal shall be liable to pay to
any employee employed in the execution of the
work any compensation which he would have been
liable to pay if that employee had been immediately
employed by him; and where compensation is
claimed from the principal, this Act shall apply as if
references to the principal were substituted for
references to the employer except that the amount
of compensation shall be calculated with reference
to the wages of the employee under the employer
by whom he is immediately employed.
(2) Where the principal is liable to pay
compensation under this section, he shall be
entitled to be indemnified by the contractor or any
other person from whom the employee could have
recovered compensation and where a contractor
who is himself a principal is liable to pay
compensation or to indemnify a principal under this
section he shall be entitled to be indemnified by any
person standing to him in the relation of a
contractor from whom the employee could have
recovered compensation and all questions as to the
right to and the amount of any such indemnity
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shall, in default of agreement, be settled by the
Commissioner.
(3) Nothing in this section shall be construed as
preventing an employee from recovering
compensation from the contractor instead of the
principal.
(4) This section shall not apply in any case
where the accident occurred elsewhere that on, in
or about the premises on which the principal has
undertaken or usually undertakes, as the case may
be, to execute the work or which are otherwise
under his control or management.”
12. Aforementioned Section makes it clear that,
where a person in the course of his trade or business
contracts with any other person for the execution of any
work which is ordinarily part of his trade or business, the
said person i.e., principal shall be liable to pay to the
workman employed for the execution of the work any
compensation which he would have been liable to pay, if
that workman has been immediately employed by him. In
the case on hand, respondent No.1 employed M/s. Dinesh
Contracts to carry out the entrusted work. The deceased
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working under M/s. Dinesh Contract was carrying out the
entrusted work and during that course he sustained
injuries and succumbed to those injuries. Therefore, it has
to be held that respondent No.1 is liable to pay
compensation to the dependents of the deceased, as he
engaged the services of M/s. Dinesh Contracts and while
M/s. Dinesh Contracts was carrying out the work through
the deceased, the deceased succumbed to injuries during
the course of performing such work. Thus, it is clear that
respondent No.1 as well as respondent N.5 are liable to
compensate the appellants for the loss they sustained due
to the death of the deceased. Appellants are entitled to
claim compensation from both of them even as per Section
12(3) of the Workmen’s Compensation Act, 1923, which
makes it clear that the workman cannot be prevented
from recovering the compensation from the contractor
instead of the principal.
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Law governing the field and established legal
principles:
1. The Employees Compensation Act, 1923 (herein
after referred to as the ‘Act’ for brevity) is a piece
of social security and welfare legislation.
2. The object of the Act is to facilitate payment
of compensation by the Employer for the injury or
death by accident caused to the Employees arising
out of and in the course of employment .
3. Section 3 imposes liability upon employer to
pay compensation to a workman, who receives a
personal injury in an accident arising out of in the
course of his employment in accordance with
Chapter II of the Act
4. However employer shall not be liable to
pay compensation, if the case falls within the
exceptions mentioned under the proviso
to Section 3 of the Act.
5. Section 3(5) of the Act imposes a bar from
instituting a suit in a Civil Court for damages, if a
claim in respect of an injury has been filed before
the Commissioner or if an agreement has been
entered into between the parties for payment
of compensation in respect of the said injury in
accordance with the provisions of the Act.
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6. Section 4 of the Act lays down the manner in which
compensation payable to the injured workman or to
the dependents of a deceased workman is required
to be determined.
7. Section 4-A mandates payment of compensation by
employer as soon as it falls due. It provides for a
penalty for default in such payment.
8. Section 5 of the Act provides the method of
calculating wages in order to decide the quantum.
9. Sub-section (1) of Section 12 nails with liability on
principal to pay compensation to effected workman
employed in the execution of the work undertaken
by a contractor under the principal.
10. Sub-section (2) of Section 12 provides for
indemnity. The principal is required to be
indemnified by the contractor in respect of the
compensation payable by him to the injured
workman or the dependants of a deceased
workman. Commissioner, shall, in default of
agreement, resolve the right to as well as the
amount of such indemnity.
11. Sub-section (3) of Section 12 makes it clear
that the workman may proceed to
recover compensation from the contractor who is
his immediate employer instead of the principal.
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12. Applicability of Sub-sections (1) (2) and (3) of
Section 12 is exempted by Sub-section (4) of
Section 12. It says that those provisions will not be
attracted where the accident occurs elsewhere than
on, in or about the premises on which the principal
has undertaken, or usually undertakes to execute
the work or which are otherwise under his control
or management.
13. Section 12 of the Act is enacted for a solemn
object to secure compensation to the employees
who have been engaged through the Contractor by
the Principal employer for business, which, in the
ordinary course, the principal employer is supposed
to carry out by the employees employed by him
directly.
14. Claimants will always have option to claim
compensation either from the Principal or from the
Employer.
15. It is a recognised rule of interpretation of
statutes that the expressions used therein should
ordinarily be understood in a sense in which they
best harmonise with the object of the statute, and
which effectuate the object of the Legislature.
16. Principal Employer is a person with whom the
Employee is working, though not employed directly
by such a person. Employee is entitled to claim
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compensation from the person with whom he is
working i.e. the Principal although not directly
employed by the said Principal.
17. Principal is required to be indemnified by the
Contractor in respect of the compensation payable
by him to the injured or the dependants of the
deceased.
18. Employee may proceed to
recover compensation from the Contractor who is
his immediate employer instead of the Principal.
19. By applying too technical approach, Insurance
Companies, Principal Employers and Employers
should not add insult to the injury of
Workmen/Dependents.
Thus the substantial question of law is
answered holding that appellants established jural
relationship between respondent No.1 and M/s.
Dinesh Contracts and that relationship binds
respondent No.1 to make good the loss sustained by
appellants due to the death of deceased
Venkatachala Rajagopal.
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When the legal position is understood thus and
having regard to the findings given on substantial
questions of law, it is ultimately held that Respondent No.1
as well as Respondent No.5 are liable to pay the
compensation due under the Act to the
Appellants/Claimants.
13. Now coming to the sum which the appellants
are entitled to receive as compensation, the version of the
appellants is that, the deceased was aged around 45 years
as on the date of accident. Said fact is not in dispute. The
income of the deceased is required to be taken as
Rs.8,000/- per month. Also, 50% is liable to be deducted.
Having taken the age of the deceased as 45 years, the
applicable factor is 169.44 as per Schedule-IV to the
Employee’s Compensation Act, 1923. Thus, the appellants
are entitled to a sum of Rs.6,77,760/- (Rs.8,000 – 50% x
169.44) towards loss of dependency.
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14. Also, appellants are entitled to Rs.15,000/-
towards loss of estate and Rs.15,000/- towards funeral
expenses.
15. Thereby, the total sum which appellants are
entitled to receive as compensation is Rs.7,07,760/-
(Rs.6,77,760 + Rs.15,000 + Rs.15,000). Thus, the
following:
ORDER
i. Appeal is allowed in part.
ii. The order that is rendered by the
Commissioner for Workmen’s
Compensation, Raichur in ECA No.04/2017
dated 30.01.2020 is set aside.
iii. Respondent Nos.1 and 5 are jointly and
severally held liable to pay compensation to
the appellants.
iv. Appellants/claimants are entitled to a sum
of Rs.7,07,760/- together with interest at
the rate of 12% p.a. from the date of
accident till the date of deposit.
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v. On payment, liberty is granted to
Respondent No.1 to recover the amount
paid to appellants from respondent No.5.
vi. Out of the compensation granted, appellant
No.1 is entitled to 50% and appellant Nos.2
and 3 to 25% each.
vii. On deposit, appellant No.1 is permitted to
withdraw her entire share.
viii. The amount that falls to the share of
appellant Nos.2 and 3 shall be disbursed
only on producing sufficient proof that they
attained the age of majority.
Sd/-
(SURAJ GOVINDARAJ)
JUDGE
Sd/-
(DR.CHILLAKUR SUMALATHA)
JUDGE
LG
List No.: 2 Sl No.: 27
CT:SI
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Per Suraj Govindaraj J.
1. I have gone through the erudite judgment of my
learned sister in the above matter. I would like to
supplement the said order by the following analysis
and reasons, the operative portion of the order
remaining the same.
2. The appellants are before this Court seeking for the
following relief:
Please to allow the above miscellaneous first
appeal and set aside the impugned judgment
and order dated 30.01.2020 passed by II
Addl. Senior Civil Judge and JMFC and
Commisssioner for Workmen Compensation at
Raichur in E.C.A.No.4/2017 and allow
E.C.A.No 4/2017 filed by appellants, in ends
of justice and equity.
3. As noticed in the opinion authored by my learned
sister, the appellants instituted proceedings in ECA
No.4/2017 before the II Additional Senior Civil Judge
and JMFC-cum-Commissioner for Employees'
Compensation, Raichur, seeking compensation on
account of the death of the husband of appellant
No.1 and the father of appellants Nos.2 and 3.
4. The claim arose out of an accident that occurred
within the premises of respondent No.1. The
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deceased was engaged in carrying out repair work to
a boiler pursuant to leakage detected therein. During
the course of the repair work, the boiler allegedly
burst, throwing the deceased to a distance of about
six feet from the place where he was working. The
deceased sustained grievous injuries in the said
incident and subsequently succumbed to them.
5. The appellants contend that respondent No.1 had
entrusted the repair work to M/s. Dinesh Contracts,
of which the deceased was the proprietor. Proceeding
on that basis, it is asserted that respondent No.1,
being the principal employer, is liable to pay
compensation under Section 3 of the Employees'
Compensation Act, 1923 (formerly the Workmen's
Compensation Act, 1923).
6. It is further contended that respondent Nos.2 to 4
are officers of respondent No.1 and that respondent
No.5 is the insurer which had issued an insurance
policy in favour of M/s. Dinesh Contracts. On the
strength of these assertions, the appellants seek to
fasten joint and several liability upon respondent
Nos.1 to 5 for payment of compensation.
7. The claim petition, however, came to be dismissed by
the Commissioner for Employees' Compensation by
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the impugned judgment dated 30.01.2020. The
Commissioner held that respondent No.1 could not
be regarded as the employer of the deceased in
terms of Clause (e) of Section 2 and was therefore
not entitled to compensation thereunder.
8. Clause (e) of Section 2 of the Act is reproduced
hereunder for easy reference:
e) "employer " includes any body of persons whether
incorporated or not and any managing agent of an
employer and the legal representative of a deceased
employer, and, when the services of workman are
temporarily lent or let on hire to another person by the
person with whom the workman has entered into a
contract of service or apprenticeship means such other
person while the workman is working for him;
9. The Commissioner also held that the deceased was
not a workman within the definition of clause (n) of
Section 2 of the Act. The said clause (n) of Section 2
is reproduced hereunder for easy reference:
2. Definitions: xxx
(n) “workman” means any person (other than a person
whose employment is of a casual nature and who is
employed otherwise than for the purposes of the
employer’s trade or business) who is-
(i) a railway servant as defined in 3[clause (34) of
Section 2 of the Railways Act, 1989 (24 of
1989)], not permanently employed in any
administrative, district or subdivisional office of
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a railway and not employed in any such capacity
as is specified in Schedule II, or
[(i-a) (a) a master, seaman or other member of the crew
of a ship,
(b) a captain or other member of the crew of an aircraft,
(c) a person recruited as driver, helper, mechanic, cleaner
or in any other capacity in connection with a motor
vehicle,
(d) a person recruited for work abroad by a company, and
who is employed outside India in any such capacity as is
specified in Schedule II and the ship, aircraft or motor
vehicle, or company, as the case may be, is registered in
India, or]
(ii) employed in any such capacity as is specified in
Schedule II,
whether the contract of employment was made before or
after the passing of this Act and whether such contract is
expressed or implied, oral or in writing; but does not
include any person working in the capacity of a member
of the Armed Forces of the Union and any reference to a
workman who has been injured shall, where the workman
is dead, include a reference to his dependants or any of
them.
(2) The exercise and performance of the powers and
duties of a local authority or of any department 1[acting
on behalf of the Government] shall, for the purposes of
this Act, unless a contrary intention appears, be deemed
to be the trade or business of such authority or
department.
(3) The Central Government or the State Government, by
notification in the the Official Gazette, after giving not less
than three months' notice of its intention so to do, may,
by a like notification, add to Schedule II any class of
persons employed in any occupation which it is satisfied is
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a hazardous occupation, and the provisions of this Act
shall thereupon apply, in case of a notification by the
Central Government, within the territories to which the
Act extends, or, in the case of a notification by the State
Government, within the State, to such classes of persons:
Provided that in making addition, the Central Government
or the State Government, as the case may be, may direct
that the provisions of this Act shall apply to such classes
of persons in respect of specified injuries only.
10. The Commissioner, upon consideration of the
material placed on record, came to the conclusion
that the deceased was functioning as an independent
contractor and not as a workman/employee within
the meaning of the Act. The Commissioner
accordingly held that no jural relationship of
employer and employee existed between the
deceased and respondent No.1-company. It was
further held that the work being carried out by the
deceased was not in the capacity of a workman or
employee of respondent No.1-company. On these
findings, the Commissioner concluded that
respondent No.1 could not be fastened with any
liability to pay compensation for the death of the
deceased. Aggrieved by the said findings and the
consequent dismissal of the claim petition, the
appellants have preferred the present appeal.
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11. Shri Shivakumar Kalloor, learned counsel for the
appellants submitted that,
11.1. The Commissioner has proceeded on an
erroneous understanding of the statutory
scheme of the Employees' Compensation Act.
According to the learned counsel, the
Commissioner misdirected himself by
examining the claim solely through the prism of
the definition of "workman/employee"
contained in Section 2 of the Act.
11.2. The appellants do not assert that the deceased
was directly employed by respondent No.1.
Their case, on the contrary, is that respondent
No.1 had entrusted the repair work to M/s.
Dinesh Contracts and that the deceased was
engaged in the execution of such work. It is
therefore contended that the liability of
respondent No.1 arises not from a direct
contract of employment but by virtue of Section
12(1) of the Act, which fastens liability upon a
principal employer in respect of compensation
payable to workmen engaged through a
contractor. Consequently, respondent No.1,
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being the principal employer, is liable to
compensate the appellants.
11.3. Learned counsel further submitted that the
Commissioner has failed to give effect to the
special statutory provision contained in Section
12 of the Act. It is contended that where
liability of a principal employer is specifically
governed by Section 12, the determination of
the claim must necessarily be undertaken
within the framework of that provision. The
Commissioner, instead of examining the matter
under Section 12, erroneously applied the
general definitional provision contained in
Section 2 of the Act and thereby arrived at an
unsustainable conclusion.
11.4. Section 12 is reproduced hereunder for easy
reference:
12. Contracting .- (1) Where any person
(hereinafter in this section referred to as the
principal) in the course of or for the purposes of his
trade or business contracts with any other person
(hereinafter in this section referred to as the
contractor) for the execution by or under the
contractor of the whole or any part of any work
which is ordinarily part of the trade or business of
the principal, the principal shall be liable to pay to
any workman employed in the execution of the
work any compensation which he would have been
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liable to pay if that workman had been immediately
employed by him; and where compensation is
claimed from the principal, this Act shall apply as if
references to the principal were substituted for
references to the employer except that the amount
of 1 Subs. by Act No.9 of 1938 2 Ins. by Act No.9
of 1938 Sec. 14 The Workmen's Compensation Act,
1923 15 compensation shall be calculated with
reference to the wages of the workman under the
employer by whom he is immediately employed.
(2) Where the principal is liable to pay
compensation under this section, he shall be
entitled to be indemnified by the contractor, 1[or
any other person from whom the workman could
have recovered compensation and where a
contractor who is himself a principal is liable to pay
compensation or to indemnify a principal under this
section he shall be entitled to be indemnified by
any person standing to him in the relation of a
contractor from whom the workman could have
recovered compensation,] and all questions as to
the right to and the amount of any such indemnity
shall, in default of agreement, be settled by the
Commissioner.
(3) Nothing in this section shall be construed as
preventing a workman from recovering
compensation from the contractor instead of the
principal.
(4) This section shall not apply in any case where
the accident occurred elsewhere than on, in or
about the premises on which the principal has
undertaken or usually undertakes, as the case may
be, to execute the work or which are otherwise
under his control or management.
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11.5. Elaborating upon the scope and effect of
Section 12 of the Act, learned counsel
submitted that the provision creates a distinct
statutory liability upon a principal employer in
cases where work is entrusted to a contractor.
According to him, Section 12 is a beneficial
provision intended to ensure that a workman,
or in the event of his death, his dependants,
are not deprived of compensation merely
because the workman was engaged through an
intermediary contractor rather than directly by
the principal employer. The legislative intent
underlying the provision is to secure payment
of compensation by fastening primary liability
upon the principal employer, who has engaged
the contractor for execution of work connected
with the principal's trade or business.
11.6. Learned counsel submitted that a plain reading
of Section 12(1) indicates that certain essential
requirements must be satisfied before liability
can be imposed upon the principal employer.
Firstly, there must exist a contractual
arrangement between the principal and the
contractor. Secondly, such arrangement must
have been entered into in the course of, or for
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the purposes of, the trade or business of the
principal. Thirdly, the contract must relate to
the execution of the whole or any part of the
work which ordinarily forms part of the trade or
business of the principal. Fourthly, the
workman must have been employed in the
execution of such work and must have suffered
injury or death arising out of and in the course
of such employment.
11.7. It was contended that all the aforesaid
ingredients stand satisfied in the present case.
Respondent No.1 had admittedly entrusted the
repair work of its boiler to M/s. Dinesh
Contracts. The repair and maintenance of
machinery and equipment installed in the
industrial establishment of respondent No.1
was, according to learned counsel, an activity
integrally connected with the functioning of the
establishment and, therefore, formed part of, or
was undertaken for the purposes of, its trade or
business. The deceased was engaged in the
execution of the said work and it was during
the course of such execution that the fatal
accident occurred. Consequently, the liability
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contemplated under Section 12(1) stood
attracted.
11.8. Learned counsel further submitted that the
Commissioner proceeded on an erroneous
understanding of the statutory scheme by
examining whether there existed a direct
employer-employee relationship between the
deceased and respondent No.1. According to
him, such an enquiry was misplaced in a case
governed by Section 12. The appellants do not
assert that the deceased was directly employed
by respondent No.1. Their case is that
respondent No.1 had entrusted the repair work
to M/s. Dinesh Contracts and that the deceased
was engaged in the execution of such work.
The very purpose of Section 12 is to impose
liability upon a principal employer
notwithstanding the absence of a direct
contract of employment between the principal
employer and the workman. If the existence of
a direct employer-employee relationship were
to be insisted upon, the operation of Section 12
itself would stand substantially defeated.
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11.9. It was therefore submitted that once it is
established that the deceased was engaged in
the execution of work entrusted by respondent
No.1 to a contractor and that the accident
occurred during the course of such execution,
respondent No.1 would, by operation of law,
assume the position of a principal employer and
become liable to pay compensation under
Section 12(1).
11.10. Referring to Section 12(2), learned counsel
submitted that while Section 12(1) fastens
primary liability upon the principal employer
vis-à-vis the workman or his dependants,
Section 12(2) simultaneously safeguards the
interests of the principal employer by conferring
upon it a statutory right of indemnification
against the contractor. Thus, the legislative
scheme strikes a balance between the interests
of the workman and those of the principal
employer. The workman is assured of an
effective and financially secure remedy, while
the principal employer is entitled to recover the
amount paid by it from the contractor who had
directly engaged the workman.
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11.11. According to learned counsel, disputes relating
to indemnification are matters to be worked out
inter se between the principal employer and the
contractor and cannot constitute a ground to
defeat the claim of the workman or his
dependants. The liability towards the workman
is primary and immediate, whereas the right of
indemnity is secondary and consequential.
11.12. Learned counsel further submitted that M/s.
Dinesh Contracts had obtained an insurance
policy from respondent No.5–Insurance
Company. Consequently, if respondent No.1
were required to satisfy the compensation claim
under Section 12(1), it would be entitled to
seek indemnification from the contractor under
Section 12(2), and the liability of the contractor
would, in turn, be required to be discharged by
respondent No.5 in accordance with the terms
and conditions of the policy issued in favour of
the contractor.
11.13. Referring thereafter to Section 12(3), learned
counsel submitted that the provision expressly
preserves the right of a workman to recover
compensation from the contractor instead of
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the principal employer. The use of the
expression "instead of the principal"
demonstrates that the statute contemplates
concurrent remedies against both the principal
employer and the contractor. The workman, or
in the event of his death, his dependants, are
therefore entitled to proceed against either of
them for recovery of compensation, leaving
questions of indemnity and ultimate liability to
be determined separately.
11.14. Learned counsel also relied upon Section 12(4),
which stipulates that the accident must have
occurred on, in or about the premises where
the principal has undertaken or ordinarily
undertakes the execution of the work, or which
are otherwise under his control or
management. He submitted that the accident in
the present case admittedly occurred within the
premises of respondent No.1 while the
deceased was carrying out repair work on the
boiler belonging to respondent No.1. Thus, the
requirement stipulated under Section 12(4) also
stood fully satisfied.
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11.15. Proceeding on the aforesaid basis, learned
counsel submitted that respondent No.1 and
M/s. Dinesh Contracts were admittedly bound
by a contractual arrangement for carrying out
the repair work and that the deceased was
engaged in the execution thereof. Thus, for the
purposes of Section 12, respondent No.1 would
assume the position of principal employer and
the deceased would be a workman engaged
through a contractor. It was therefore
contended that the Commissioner erred in
concluding that no jural relationship existed so
as to attract liability under the Act, since the
matter ought to have been examined in the
light of Section 12 rather than solely with
reference to the definition contained in Section
2.
11.16. On the basis of the aforesaid statutory scheme,
learned counsel contended that every
ingredient necessary for the invocation of
Section 12 stood established on the facts of the
present case. The Commissioner, however,
failed to examine the matter from the
perspective of Section 12 and instead confined
the enquiry to the question whether the
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deceased was directly employed by respondent
No.1. Such an approach, according to learned
counsel, defeats the object and purpose of
Section 12 and has resulted in an erroneous
rejection of the claim petition.
11.17. Learned counsel lastly submitted that, having
regard to the statutory scheme embodied in
Section 12 and the existence of insurance
coverage in favour of the contractor,
respondent No.5 could be directed to satisfy the
compensation awarded to the appellants. On
these grounds, he urged that the impugned
judgment and award be set aside, the appeal
be allowed, and respondent No.1 be held liable
as the principal employer with liberty to seek
indemnification in accordance with law from the
contractor and its insurer.
12. Per contra, Sri Manjunath Ginni, learned counsel
appearing on behalf of Smt. Hem L.K., learned
counsel for respondent No.1, while not disputing the
contractual arrangement between respondent No.1
and M/s. Dinesh Contracts for carrying out the repair
work, submitted that respondent No.1 cannot be held
liable to compensate the appellants merely on
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account of the occurrence of the accident. According
to him, there is no material on record to establish
any negligence, breach of duty or omission on the
part of respondent No.1 which contributed to the
accident resulting in the death of the deceased.
Learned counsel therefore contended that,
notwithstanding the contractual relationship between
respondent No.1 and the contractor, respondent No.1
cannot be saddled with liability to pay compensation.
He accordingly submitted that the Commissioner was
justified in rejecting the claim petition and that the
appeal is liable to be dismissed.
13. Ms. Preeti Patil Melkundi, learned counsel appearing
on behalf of respondent No.5–Insurance Company,
supported the impugned judgment and order and
opposed the appeal. Elaborating her submissions,
she contended as under:
13.1. Learned counsel submitted that a careful
reading of the claim petition would indicate that
the appellants had not laid any independent
foundation for fastening liability upon
respondent No.5–Insurance Company. The
primary case pleaded before the Commissioner
was that respondent No.1 was liable to
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compensate the appellants on account of the
death of the deceased and that respondent
No.1 stood in the position of an employer vis-à-
vis the deceased. It was therefore submitted
that the Commissioner was justified in
examining the existence of a jural relationship
between the deceased and respondent No.1
with reference to the relevant definitions
contained in Section 2 of the Act.
13.2. According to learned counsel, the entire
adjudication before the Commissioner
proceeded on the question whether respondent
No.1 could be regarded as the employer of the
deceased and whether the deceased could be
treated as a workman or employee under the
Act. The Commissioner, upon appreciation of
the evidence on record, arrived at the
conclusion that no such relationship had been
established. It was submitted that the said
finding was based on the pleadings and
evidence adduced by the parties and did not
warrant interference in appeal.
13.3. Learned counsel further contended that the
appellants cannot be permitted to substantially
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alter the nature of their claim at the appellate
stage by shifting the foundation of their case
from one based on a direct employer-employee
relationship to one based on the statutory
liability contemplated under Section 12 of the
Act. According to her, an appellate proceeding
is not intended to provide an opportunity to
construct an entirely new cause of action or
introduce a fundamentally different basis of
liability which was not specifically pleaded or
urged before the Commissioner.
13.4. Learned counsel further submitted that there
exists no contractual relationship whatsoever
between respondent No.1 and respondent
No.5–Insurance Company. The contract of
insurance was entered into exclusively between
respondent No.5 and M/s. Dinesh Contracts.
Thus, the rights and obligations arising under
the policy are governed entirely by the terms of
the contract executed between the insurer and
the insured.
13.5. According to her, in the absence of any
contractual nexus between respondent No.1
and respondent No.5, the Insurance Company
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cannot be directed to satisfy any liability
allegedly arising on the part of respondent
No.1. It was contended that the liability of an
insurer cannot be enlarged beyond the scope of
the contractual undertaking embodied in the
policy and that no direction can be issued
against the insurer except in accordance with
the express terms and conditions governing the
policy.
13.6. Learned counsel submitted that the appellants
are, in effect, seeking to bypass the contractual
limitations contained in the policy and directly
fasten liability upon the Insurance Company
without first establishing the legal liability of the
insured in terms of the contract of insurance.
Such an approach, according to her, is wholly
impermissible in law.
13.7. Referring to the insurance policy, learned
counsel submitted that the policy was
admittedly issued in favour of M/s. Dinesh
Contracts and was intended to provide
indemnity in respect of liabilities arising
towards workmen or employees engaged by the
insured concern. The coverage under the policy
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was therefore confined to employees or
workmen falling within the scope of the policy
and the provisions of the Act.
13.8. Learned counsel emphasised that the deceased
was not an employee of M/s. Dinesh Contracts
but was, in fact, its sole proprietor. The
proprietor and the establishment are distinct
legal entities for the purpose of determining
employer-employee relationships. A proprietor
cannot simultaneously occupy the position of
both employer and employee in relation to the
same establishment. Consequently, the
deceased could not be treated as a workman
employed by M/s. Dinesh Contracts.
13.9. It was therefore contended that the very
foundation upon which an insurance claim could
arise under the policy is absent in the present
case. The policy would become operative only
where a liability arose on account of injury
caused to, or death suffered by, a workman
employed by M/s. Dinesh Contracts. Since the
deceased himself was the proprietor of the
concern, no such liability could arise and no
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corresponding obligation could be fastened
upon the insurer.
13.10. Learned counsel further submitted that the risk
undertaken by the insurer is confined to those
categories of persons specifically covered under
the policy. In the absence of any provision
extending coverage to the proprietor of the
concern, the Court cannot rewrite the terms of
the contract or enlarge the scope of coverage
by a process of interpretation. According to her,
an insurer can be made liable only in respect of
risks expressly assumed under the policy and
not in respect of risks which were never
intended to be covered.
13.11. Referring to the submissions advanced on
behalf of the appellants based upon Section 12
of the Act, learned counsel submitted that the
provision itself does not support the case of the
appellants. According to her, Section 12
proceeds on the premise that a workman is
employed by a contractor and is engaged in the
execution of work undertaken by a principal
employer. The statutory liability contemplated
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under the provision is therefore in respect of a
workman employed through a contractor.
13.12. Learned counsel submitted that the language
employed in Section 12(1), particularly the
expression "workman employed in the
execution of the work", makes it abundantly
clear that the beneficiary of the provision must
be a workman standing in a relationship of
employment with the contractor. The provision
cannot be extended to cover a contractor
himself or the proprietor of the contracting
establishment.
13.13. According to her, the deceased, being the
proprietor of M/s. Dinesh Contracts, occupied
the position of a contractor and not that of a
workman employed by a contractor. Thus, one
of the foundational requirements for the
invocation of Section 12 stood absent. In such
circumstances, the statutory liability sought to
be fastened upon respondent No.1 under
Section 12 does not arise at all.
13.14. She further submitted that even assuming,
without admitting, that respondent No.1 could
be regarded as a principal employer, the
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liability of respondent No.5 would nevertheless
depend upon the terms of the insurance policy
issued to M/s. Dinesh Contracts. Since the
policy does not cover the proprietor of the
concern, the insurer cannot be made liable
either directly or indirectly.
13.15. Learned counsel also disputed the contention
that respondent No.5 could be directed to
satisfy the compensation amount on the basis
of the indemnity mechanism contained in
Section 12(2). According to her, the right of
indemnification contemplated under Section
12(2) is a statutory right available inter se
between the principal employer and the
contractor. Such a right can arise only after
liability under Section 12(1) is established and
only in respect of a workman who falls within
the ambit of the provision.
13.16. It was submitted that the appellants cannot
directly invoke the indemnity arrangement
contemplated under Section 12(2) against the
insurer. The right of indemnity belongs to the
principal employer and not to the claimants.
Therefore, the appellants cannot seek a
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direction compelling the insurer to discharge a
liability which has neither accrued nor been
established in accordance with law.
13.17. Learned counsel lastly submitted that the
appellants themselves did not invoke Section
12 before the Commissioner nor did they seek
adjudication of the claim on the basis of the
statutory liability contemplated thereunder. No
specific issue was framed on that basis and no
adjudication was sought regarding the
applicability of Section 12 to the facts of the
case.
13.18. According to her, the attempt made in the
present appeal is to introduce an entirely new
legal and factual foundation for the claim.
Permitting such a course would cause serious
prejudice to the respondents, particularly
respondent No.5, which had contested the
proceedings before the Commissioner on the
basis of the pleadings as originally framed. It
was therefore submitted that the appellants
cannot be permitted to fundamentally alter the
nature of the proceedings at the appellate
stage.
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13.19. On the basis of the aforesaid submissions,
learned counsel contended that the
Commissioner was fully justified in dismissing
the claim petition and that no grounds had
been made out for interference with the
impugned judgment. She accordingly prayed
that the appeal be dismissed insofar as
respondent No.5–Insurance Company is
concerned.
14. I am in agreement with the substantial questions of
law formulated by my sister, which reads as under:
15. The substantial questions of law formulated are as
under
i. Whether appellants established jural
relationship between respondent No.1
and M/s Dinest Contractors and if so
whether such relationship binds
respondent No.1 to make good the
loss sustained by appellants due to
the death of deceased Venkatachala
Rajagopal?
ii. Whether respondent No.5 being the
insurer of the risk of workmen who
were working under M/s Dinesh
contracts is liable to compensate the
appellants by treating the deceased
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Venkatachala Rajagopal to be a
workman?
16. I answer the substantial questions as under:
17. Answer to Substantial Question No.1: Whether
appellants established jural relationship
between respondent No.1 and M/s Dinest
Contractors and if so whether such relationship
binds respondent No.1 to make good the loss
sustained by appellants due to the death of
deceased Venkatachala Rajagopal?
Analysis of the Statutory Scheme
17.1. The Commissioner examined the claim entirely
from the standpoint of the definitions of
"employer" under Section 2(e) and "workman"
under Section 2(n) of the Act. In my considered
opinion, such an approach was fundamentally
flawed. The Commissioner proceeded on the
premise that unless a direct employer-
employee relationship was established between
the deceased and respondent No.1, no liability
could be fastened upon respondent No.1. Such
an approach overlooks the statutory framework
specifically enacted by Parliament to govern
situations where work is executed through
contractors.
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17.2. Section 2(e) defines "employer" for the general
purposes of the Act, while Section 2(n) defines
"workman". These provisions ordinarily operate
in cases where the claim is founded upon a
direct relationship of employment between the
employer and the workman. They do not
govern the special situation contemplated by
Section 12, where a principal employer entrusts
work to a contractor and the workman engaged
in the execution of such work suffers injury or
death.
17.3. Section 12 of the Act creates a distinct and self-
contained statutory regime. The provision is
founded upon the legislative recognition that, in
modern industrial and commercial
establishments, work forming part of, or
connected with, the trade or business of an
establishment is frequently executed through
contractors. If liability under the Act were
confined only to cases of direct employment, a
principal employer could, by the simple
expedient of outsourcing work through
contractors, effectively avoid responsibility
towards persons engaged in the execution of
work undertaken for its benefit. Such a
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consequence would substantially dilute the
beneficial object of the legislation and
undermine the protection intended to be
conferred upon workmen and their dependants.
17.4. It is for this reason that Section 12 introduces a
statutory fiction. The provision treats a
workman engaged through a contractor, for the
limited purpose of compensation under the Act,
as if he had been immediately employed by the
principal employer. The liability thereby created
is neither contractual in origin nor dependent
upon proof of negligence. It is a statutory
liability imposed by operation of law once the
conditions specified in Section 12 are satisfied.
17.5. The Commissioner appears to have proceeded
on the assumption that the absence of a direct
contract of employment between the deceased
and respondent No.1 was sufficient to non-suit
the appellants. Such an approach overlooks the
distinction between a claim founded upon direct
employment under Section 3 of the Act and a
claim founded upon the statutory liability of a
principal employer under Section 12. The latter
provision operates precisely in situations where
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the workman is not directly employed by the
principal employer.
17.6. The Commissioner's error lay in ignoring
Section 12 altogether. The appellants' case,
both before the Commissioner and before this
Court, has consistently been that the deceased
sustained fatal injuries while executing the
repair work entrusted by respondent No.1 to
M/s. Dinesh Contracts. Such a claim necessarily
attracts consideration under Section 12. The
Commissioner, however, confined the enquiry
to whether the deceased could be regarded as a
workman directly employed by respondent No.1
and thereby overlooked the true statutory basis
of the claim.
17.7. Respondent No.1 has not disputed that it had
entrusted the repair work of its boiler to M/s.
Dinesh Contracts. Learned counsel appearing
for respondent No.1 has fairly admitted the
existence of such a contractual arrangement.
The accident resulting in his death which
occurred while the repair work was in progress
and within the premises over which respondent
No.1 exercised control and management. Thus,
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the existence of a contractual relationship
between respondent No.1 and M/s. Dinesh
Contracts, the execution of the entrusted work
pursuant thereto, and the occurrence of the
fatal accident during the course of such
execution are not matters of dispute.
17.8. Once respondent No.1 itself admits having
entrusted the repair work to M/s. Dinesh
Contracts, the existence of the contractual
relationship forming the foundation of Section
12 is no longer a matter requiring proof. The
dispute therefore does not concern the
existence of the contract but the legal
consequences flowing therefrom.
Analysis of the Ingredients of Section
12(1)
17.9. Having regard to the admitted and undisputed
facts on record, it becomes necessary to
examine whether the requirements stipulated
under Section 12 are satisfied.
Ingredient (i) – Existence of a contractual
arrangement between the principal and
the contractor
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17.10. The existence of a contractual arrangement
between respondent No.1 and M/s. Dinesh
Contracts is not in dispute. Learned counsel
appearing for respondent No.1 has fairly
admitted that respondent No.1 had entrusted
the repair work of the boiler to M/s. Dinesh
Contracts. Once respondent No.1 itself admits
having entrusted the work to the contractor,
the foundational requirement of Section 12
stands established and requires no further
proof.
Ingredient (ii) – Contract entered into in
the course of or for the purposes of the
trade or business of the principal
17.11. A boiler installed in an industrial establishment
cannot be regarded as an independent or
unrelated piece of equipment. It forms part of
the operational infrastructure necessary for the
functioning of the industrial undertaking. The
maintenance, repair and restoration of such
equipment are activities undertaken to ensure
the continued functioning of the establishment.
Though respondent No.1 may not itself be
engaged in the business of repairing boilers,
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the repair and maintenance of a boiler are
undoubtedly activities undertaken in the course
of, and for the purposes of, its trade or
business.
17.12. The expression "in the course of or for the
purposes of his trade or business" employed in
Section 12 is of wide amplitude and is intended
to include not merely the principal commercial
activity of the establishment but also those
activities reasonably necessary for carrying on
such business effectively. Repair and
maintenance of essential industrial equipment
would therefore squarely fall within the ambit of
the provision.
Ingredient (iii) – Work contracted forms
the whole or part of the work ordinarily
connected with the principal's trade or
business
17.13. The repair of a boiler forming part of the
industrial infrastructure of respondent No.1
cannot be viewed as an activity wholly
disconnected from its business operations.
Maintenance and repair of industrial machinery
are integral incidents of industrial activity. Such
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work is ordinarily undertaken to ensure
continuity of operations and forms part of the
broader business activity of the establishment.
This ingredient is therefore satisfied.
Ingredient (iv) – Engagement in execution
of the contracted work
17.14. The material on record clearly establishes that
the deceased was personally engaged in
carrying out the repair work at the time of the
accident. The fatal accident occurred during the
course of execution of the very work entrusted
by respondent No.1 to M/s. Dinesh Contracts.
The requirement that the injury or death should
arise during execution of the contracted work
therefore stands satisfied.
17.15. Whether the deceased, having regard to his
status as proprietor of M/s. Dinesh Contracts,
can be regarded as a "workman" or "employee"
for the purpose of invoking Section 12 is a
distinct question which shall be considered
while answering substantial question No.2. For
the purpose of the present point, it is sufficient
to note that the deceased was admittedly
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engaged in the execution of the contracted
work when the accident occurred.
Ingredient (v) – Compliance with Section
12(4)
17.16. Section 12(4) requires that the accident should
occur on, in or about the premises on which the
principal has undertaken or ordinarily
undertakes the execution of the work or which
are otherwise under his control or
management. This requirement constitutes an
important jurisdictional condition for the
applicability of Section 12.
17.17. In the present case, it is not disputed that the
accident occurred within the factory premises of
respondent No.1 while the deceased was
carrying out the repair work entrusted to M/s.
Dinesh Contracts. The premises were under the
control and management of respondent No.1.
The statutory requirement contained in Section
12(4) therefore stands fully satisfied.
Analysis of the Submission of Respondent
No.1
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17.18. Sri Manjunath Ginni, learned counsel appearing
for respondent No.1, contended that no
negligence, breach of duty or omission has
been established against respondent No.1 and
that liability cannot therefore be fastened upon
it.
17.19. This submission proceeds upon a misconception
of the statutory scheme of the Employees'
Compensation Act. Liability under Section 12 is
statutory and not tortious. The Act does not
predicate compensation upon proof of
negligence. Unlike an action for damages
founded in tort, liability under the Act arises
once the statutory ingredients are satisfied and
the accident is shown to have arisen out of and
in the course of employment. The absence of
negligence on the part of the principal employer
neither destroys nor diminishes the statutory
liability created by Section 12.
17.20. Importing a requirement of negligence into
Section 12 would amount to reading into the
statute a condition which Parliament has
consciously not incorporated. Such an
interpretation would substantially defeat the
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welfare-oriented object of the enactment. The
submission advanced on behalf of respondent
No.1 is therefore rejected.
17.21. Consequently, the finding recorded by the
Commissioner, insofar as it proceeds on the
basis that respondent No.1 could not be held
liable in the absence of a direct employer-
employee relationship, cannot be sustained.
Position of Respondent Nos.2, 3 and 4
17.22. The appellants have also sought to fasten
liability upon respondent Nos.2, 3 and 4, who
are officers of respondent No.1. However,
neither before the Commissioner nor before this
Court has any material been placed establishing
any independent or personal liability on their
part.
17.23. Section 12 fastens liability upon the "principal",
namely the person or entity which contracts
with the contractor for execution of the work.
In the facts of the present case, respondent
No.1 is the principal employer. Respondent
Nos.2, 3 and 4 are merely officers of
respondent No.1 acting in their official
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capacities. No specific act, omission, direction
or conduct attributable to them individually has
been pleaded or proved so as to justify
fastening personal liability upon them.
17.24. The claim insofar as it is directed against
respondent Nos.2, 3 and 4 in their personal
capacities, is therefore not established. The
statutory liability, if any, rests upon respondent
No.1.
Jural Relationship and its Legal
Consequences
17.25. The expression "jural relationship" requires to
be understood in the context of Section 12. The
relationship contemplated by Section 12 is not
the conventional master-servant relationship
arising from direct employment. Rather, it is a
statutory relationship created between a
principal employer and a person engaged in the
execution of work through a contractor.
17.26. Once the ingredients stipulated in Section 12(1)
are established, the statute treats the principal
employer, for the limited purpose of
compensation under the Act, as standing in the
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position of an employer vis-à-vis the person
engaged in the execution of the contracted
work. The relationship thus created is statutory
in character and arises by operation of law.
17.27. In the present case, respondent No.1
admittedly entrusted the repair work to M/s.
Dinesh Contracts; the work was undertaken for
the purposes of respondent No.1's industrial
activity; the accident occurred during execution
of the entrusted work; and the accident took
place within the premises of respondent No.1.
Consequently, the statutory relationship
contemplated under Section 12 stands
established.
17.28. Substantial question No.1 is answered in the
AFFIRMATIVE. The appellants have successfully
established the existence of a contractual
relationship between respondent No.1 and M/s.
Dinesh Contracts and the consequent statutory
relationship contemplated under Section 12 of
the Employees' Compensation Act, 1923.
17.29. The finding recorded by the Commissioner that
no jural relationship existed between
respondent No.1 and the deceased is therefore
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unsustainable. The Commissioner erred in
approaching the matter exclusively through the
definitions contained in Section 2 and in failing
to consider the legal consequences flowing from
Section 12.
17.30. Consequently, respondent No.1 cannot avoid
consideration of its statutory liability solely on
the ground that the deceased was not directly
employed by it. However, whether such
statutory relationship ultimately fastens liability
upon respondent No.1 to pay compensation to
the appellants depends upon the determination
of Point No.2, namely, whether the deceased
falls within the class of persons protected under
Section 12 of the Act.
18. Answer to Substantial Question No. 2: Whether
respondent No.5 being the insurer of the risk of
workmen who were working under M/s Dinesh
contracts is liable to compensate the appellants
by treating the deceased Venkatachala
Rajagopal to be a workman?
18.1. The determination of this point requires an
examination of the interplay between the
statutory liability created under the Employees'
Compensation Act, 1923, particularly Section
12 thereof, and the contractual obligation
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undertaken by respondent No.5 under the
policy of insurance issued in favour of M/s.
Dinesh Contracts. The issue cannot be resolved
merely by applying technical principles of
employment law in isolation, nor can it be
answered solely by reference to the
nomenclature assigned to the deceased in
relation to M/s. Dinesh Contracts. What is
required is an examination of the true nature of
the work being performed, the object sought to
be achieved by the Act, the circumstances in
which the accident occurred and the purpose
for which the insurance policy came to be
issued.
18.2. At the outset, it is necessary to notice that
while answering substantial question No.1, I
have already held that the contractual
arrangement between respondent No.1 and
M/s. Dinesh Contracts attracts the operation of
Section 12 of the Act. I have also held that
respondent No.1 occupied the position of a
principal employer and that the fatal accident
occurred while the contracted work was being
executed within the premises of respondent
No.1. The accident was not a fortuitous
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occurrence unconnected with the contractual
work. It arose directly from and during the
execution of the very work entrusted by
respondent No.1 to M/s. Dinesh Contracts.
Thus, the foundational facts necessary for the
invocation of Section 12 stand conclusively
established.
The Scope and Object of Section 12 and its
Application to Proprietary Concerns
18.3. Since the principal controversy raised by
respondent No.5 centres around the status of
the deceased as proprietor of M/s. Dinesh
Contracts, it becomes necessary to examine the
scheme, purpose and legislative philosophy
underlying Section 12 of the Employees'
Compensation Act in some detail.
18.4. Section 12 is one of the most significant
provisions contained in the Act. It constitutes a
deliberate statutory departure from the
ordinary principles governing employer-
employee relationships. Under the general law,
liability for employment-related injuries
ordinarily rests upon the employer who directly
engages the workman. Section 12, however,
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recognises the commercial reality that
industrial and commercial activity is frequently
organised through contractors and sub-
contractors and that substantial portions of the
work of a principal employer are often executed
through such arrangements.
18.5. Parliament was conscious that if liability under
the Act were confined only to situations
involving direct employment, principal
employers could effectively avoid statutory
responsibility by outsourcing substantial
portions of their operations. Such a
consequence would substantially defeat the
social welfare object underlying the enactment.
It was therefore considered necessary to enact
a provision which would ensure that the
protection afforded by the Act remained
available notwithstanding the contractual
structure adopted for execution of the work.
18.6. Section 12 must therefore be understood as a
provision intended to look beyond the technical
architecture of contractual arrangements and
identify the substantive reality of the work
being performed. The focus of the provision is
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not upon the formal legal relationship between
the parties but upon the execution of work
undertaken for the purposes of the principal
employer's trade or business and the
occupational risks associated therewith.
18.7. Significantly, Section 12 creates a statutory
fiction. Once the ingredients prescribed therein
are satisfied, the principal employer becomes
liable to pay compensation "as if" the workman
had been immediately employed by him. The
legislature has therefore consciously chosen to
disregard the absence of a direct contract of
employment and substitute a statutory
relationship in its place. The provision expands
the reach of the compensation regime beyond
conventional contractual boundaries.
18.8. The importance of this statutory fiction lies in
the fact that Parliament deliberately preferred
substance over form. The enquiry mandated by
Section 12 is directed towards identifying who
was engaged in the execution of the work and
whether the accident arose during such
execution. The provision is not primarily
concerned with the corporate, contractual or
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organisational structure through which the work
was arranged.
18.9. The expression "any workman employed in the
execution of the work" occurring in Section 12
must therefore be interpreted in a manner
consistent with the object sought to be
achieved by the provision. The expression
cannot be construed in isolation from the
legislative purpose. If a narrow and technical
interpretation were adopted, the remedial
character of Section 12 would be substantially
diluted.
18.10. The significance of Section 12 becomes even
more apparent when sub-sections (2), (3) and
(4) are examined. Section 12(2) creates a right
of indemnity between the principal employer
and the contractor. Section 12(3) preserves the
workman's right to proceed against the
contractor. Section 12(4) specifies the
circumstances in which the provision applies.
Collectively, these provisions create a
comprehensive statutory mechanism intended
to ensure that compensation reaches the
injured person or his dependants while
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questions of ultimate financial responsibility are
resolved between the principal employer,
contractor and insurer.
18.11. The legislative concern is therefore not merely
with identifying who ultimately bears the
burden of compensation. The dominant concern
is to ensure that compensation is not denied to
a person who suffers injury or death while
engaged in work undertaken for the benefit of
the principal employer. Once that objective is
appreciated, Section 12 necessarily requires a
liberal and purposive construction.
18.12. The principal objection advanced on behalf of
respondent No.5 is that the deceased Sri
Venkatachala Rajagopal was admittedly the
proprietor of M/s. Dinesh Contracts and
therefore could not be treated as a workman.
According to the insurer, the policy issued in
favour of M/s. Dinesh Contracts was intended
to cover only employees engaged by the
concern and not the proprietor himself.
18.13. There can be no dispute with the proposition
that a proprietary concern has no legal
existence separate from its proprietor. A
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proprietary concern is merely the trade name,
business style or commercial identity through
which an individual carries on business. Unlike
a company, corporation or partnership
possessing an independent legal personality, a
sole proprietary concern and its proprietor are,
in law, one and the same person.
18.14. Equally, under traditional principles of
employment law, a proprietor cannot ordinarily
claim to be an employee of his own
establishment. However, the controversy
before this Court does not arise in the context
of ordinary employment law. It arises in the
context of a beneficial legislation which seeks
to provide compensation to persons exposed to
occupational hazards and to protect their
dependants from the financial consequences of
industrial injury or death.
18.15. The submission of respondent No.5 proceeds
upon the assumption that the status of
proprietor and the status of workman are
mutually exclusive and incapable of
coexistence. In the considered opinion of this
Court, such an assumption overlooks both
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commercial reality and the structure of a vast
number of proprietary establishments
functioning throughout India.
18.16. In India, a substantial proportion of commercial
and industrial activity is carried on through sole
proprietary concerns. Unlike large corporate
organisations, public limited companies,
multinational enterprises and major partnership
concerns where ownership, management and
labour are frequently separated into distinct
layers, the proprietor of a small proprietary
concern often constitutes the principal
technician, mechanic, operator, supervisor,
manager and administrator rolled into one. He
secures the contract, arranges the resources,
supervises the work and very often personally
executes the work itself.
18.17. In many specialised trades such as electrical
works, fabrication, welding, mechanical repairs,
boiler maintenance, plumbing, civil works and
other technical services, the proprietor
frequently constitutes the principal labour force
of the concern. The concern itself merely
provides a recognised business identity through
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which such work is undertaken. The reality is
that the proprietor is simultaneously the owner
of the business and the person physically
executing the work.
18.18. The establishment of a proprietary concern is
therefore often no more than the adoption of a
recognised business name and style. The legal
form adopted by the individual does not alter
the substance of the work actually performed
by him.
18.19. The Employees' Compensation Act is concerned
with occupational exposure to risk. The
underlying philosophy of the enactment is that
a person who exposes himself to employment-
related hazards while engaged in productive
work should not be denied protection merely
because of the legal structure through which
such work is organised.
18.20. In determining whether a person answers the
description of a workman for the purposes of
the Act, the Court cannot be guided exclusively
by his ownership status. The Court must
examine the substance of the activity
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undertaken and the nature of the risk to which
the individual was exposed.
18.21. Where a proprietor merely owns a business and
does not personally participate in the execution
of the work, different considerations may arise.
However, where the proprietor personally
undertakes and executes the work forming the
subject matter of the business, contributes his
own labour, skill and physical effort, exposes
himself to the same occupational hazards as
any other worker and suffers injury or death in
the course thereof, there exists no rational
basis for denying him the character of a
workman for the purposes of the Act.
18.22. If the interpretation suggested by respondent
No.5 is accepted, manifestly anomalous
consequences would follow. A technician
employed by a proprietary concern would
receive protection under the Act, but the
proprietor who personally performs the
identical work, assumes the identical risk and
suffers death in the identical accident would be
denied compensation. Such a distinction rests
entirely upon the legal form of the business
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organisation and bears no nexus to the object
sought to be achieved by the legislation.
18.23. The hazard arises from the nature of the work
performed and not from the legal form of the
entity undertaking it. The source of the risk is
the work itself. A person who physically
performs that work and is exposed to its
hazards cannot be denied protection merely
because he also happens to own the business
through which the work is carried on.
18.24. It is equally significant that Section 12 contains
no language excluding a sole proprietor who
personally executes the work. Had Parliament
intended such an exclusion, it could easily have
incorporated one. Courts cannot introduce
limitations which the legislature itself has not
chosen to impose.
18.25. This Court is therefore of the considered opinion
that for the purposes of the Employees'
Compensation Act, and particularly Section 12
thereof, a sole proprietor who personally
undertakes and executes the work forming the
subject matter of the contract and is exposed
to the occupational risks arising therefrom is
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entitled to be treated as a workman
notwithstanding his ownership of the
proprietary concern.
18.26. The deceased Sri Venkatachala Rajagopal was
admittedly present at the site of work. He was
personally carrying out the repair of the boiler
entrusted to M/s. Dinesh Contracts. The boiler
burst while such repair work was in progress,
throwing him away from the place of work and
causing the injuries which ultimately resulted in
his death. The risk that materialised was not a
commercial risk associated with ownership of a
business. It was an occupational risk arising
directly from the execution of hazardous
industrial work. He therefore answers the
description of a workman for the purposes of
the Act.
Liability of Respondent No.5 – Insurance
Company
18.27. Once it is held that the deceased answers the
description of a workman for the purposes of
the Act, the objection raised by respondent
No.5 substantially loses force.
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18.28. The policy issued by respondent No.5 was
admittedly obtained by M/s. Dinesh Contracts
to cover liabilities arising under the Employees'
Compensation Act. The very purpose of
obtaining such a policy is to protect against
financial consequences arising from injury or
death occurring during execution of the work
undertaken by the insured concern.
18.29. The insurer contends that the policy was intended
to cover only employees and not the proprietor.
However, no exclusion clause has been brought
to the notice of this Court expressly excluding the
proprietor of a sole proprietary concern from the
scope of coverage. Equally, no material has been
produced demonstrating that the insurer
specifically excluded the risk which ultimately
materialised in the present case.
18.30. It is a settled principle of insurance law that
exclusions must be clear, express and
unambiguous. An insurer seeking to avoid liability
on the basis of an exclusion bears the burden of
demonstrating that the case falls squarely within
the exclusion relied upon. In the absence of such
an exclusion, the policy must be interpreted in a
manner consistent with its purpose.
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18.31. Insurance contracts issued to indemnify liabilities
arising under welfare legislation must be
construed harmoniously with the statutory object
sought to be achieved. Where the insurer has
accepted premium for covering liabilities arising
from occupational injury or death connected with
the execution of the contracted work, it cannot
subsequently avoid liability by relying upon a
narrow technical distinction that finds no
expression in the policy itself.
18.32. The construction sought to be placed by
respondent No.5 would result in a situation where
the policy covers every person who physically
performs the work except the person who owns
the proprietary concern and personally executes
the work. Such an interpretation would create an
artificial distinction unsupported either by the
language of the policy or by the object sought to
be achieved by the insurance contract.
18.33. A sole proprietary concern, unlike a corporation or
a large commercial organisation, frequently
derives its identity and operational capability
from the personal labour, skill and expertise of its
proprietor. When the insurer issues a policy
covering liabilities arising under the Employees'
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Compensation Act in favour of such a concern, it
must be presumed to be aware of the nature of
the insured entity and the manner in which such
entities ordinarily function. If the insurer intended
to exclude the proprietor who personally executes
the work from the scope of coverage, it was
incumbent upon the insurer to expressly stipulate
such exclusion. Having failed to do so,
respondent No.5 cannot be permitted to rely
upon an implied exclusion which finds no place in
the policy.
18.34. The absence of an express exclusion assumes
even greater significance when viewed in the
context of the beneficial object of the Employees'
Compensation Act. Insurance policies intended to
support the operation of welfare legislation must
receive a construction which advances the
statutory purpose rather than frustrates it. Any
ambiguity regarding the extent of coverage must
ordinarily be resolved in favour of the class of
persons whom the legislation seeks to protect.
18.35. The indemnity mechanism contemplated under
Section 12 further reinforces this conclusion.
Under Section 12(1), respondent No.1, as
principal employer, becomes liable to compensate
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the appellants. Under Section 12(2), respondent
No.1 becomes entitled to indemnification from
the contractor. M/s. Dinesh Contracts had
obtained insurance coverage precisely to meet
liabilities arising under the Act. The statutory and
contractual arrangements therefore operate in a
continuous chain of liability and indemnity.
18.36. The legislative purpose underlying Section 12
would be substantially undermined if
compensation were made payable by the
principal employer but the indemnity chain were
permitted to break at the stage of insurance
merely because the person executing the work
happened to be the proprietor of the contracting
concern. Such an interpretation would not only
defeat the object of Section 12 but would also
render the insurance coverage illusory in respect
of a significant category of proprietary
establishments functioning throughout the
country.
18.37. To permit respondent No.5 to avoid liability
merely because the workman happened also to
be the proprietor of the concern would defeat
both the object of Section 12 and the purpose for
which the policy was issued. Such an
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interpretation would enable insurers to collect
premium for occupational risks while avoiding
liability when those very risks materialise in
relation to the person who personally executes
the work.
18.38. The submission advanced on behalf of respondent
No.5 that Section 12 was not specifically invoked
before the Commissioner also does not merit
acceptance. The applicability of a statutory
provision is a question of law. All foundational
facts necessary for the application of Section 12
were pleaded, proved and remain undisputed.
The appellate Court is not precluded from
applying the correct statutory provision merely
because the Commissioner failed to do so.
18.39. No prejudice has been demonstrated to have
been caused to respondent No.5. The insurer has
participated fully in the proceedings before this
Court, addressed elaborate submissions on the
applicability of Section 12 and had every
opportunity to contest both the factual and legal
aspects of the matter.
18.40. A sole proprietor who personally undertakes and
executes the work forming the subject matter of
the proprietary concern and is exposed to the
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occupational hazards associated therewith is a
workman for the purposes of the Employees'
Compensation Act, 1923 and particularly for the
purposes of Section 12 thereof.
18.41. In the absence of any express exclusion clause to
the contrary, the insurance policy issued by
respondent No.5 in favour of M/s. Dinesh
Contracts extends to and covers such proprietor-
workman who personally executes the work of
the proprietary concern and is exposed to the
occupational risks insured against under the
policy.
18.42. The deceased Sri Venkatachala Rajagopal was
personally engaged in the execution of the boiler
repair work entrusted to M/s. Dinesh Contracts.
He suffered fatal injuries on account of the
occupational hazards inherent in that work. The
risk that materialised was precisely the risk
against which protection was sought under the
Employees' Compensation policy obtained by M/s.
Dinesh Contracts.
18.43. Consequently, respondent No.5, being the insurer
under the policy issued in favour of M/s. Dinesh
Contracts covering liabilities arising under the
Act, is liable to indemnify and satisfy the
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compensation payable to the appellants, subject
to the terms and limits of the policy.
18.44. Substantial question No.2 is answered in the
AFFIRMATIVE. Respondent No.5 is held to be
liable to satisfy the compensation payable to the
appellants by treating the deceased Sri
Venkatachala Rajagopal as a workman for the
purposes of the Employees' Compensation Act,
1923 and the policy of insurance issued in favour
of M/s. Dinesh Contracts.
19. In view of the above discussion, substantial questions
No.1 and 2 are accordingly answered while concurring
with sister Dr. Chillakur Sumalatha. J.
20. The appeal is allowed in part in the aforesaid terms.
21. Parties to bear their costs.
Sd/-
(SURAJ GOVINDARAJ)
JUDGE
Ln/-