Employer's Liability for Compensation

2. Caused by accident, or by a listed occupational disease. Two routes, and the second is dealt with separately by section 74(3).

3. Arising out of the employment. The causal limb.

4. In the course of the employment. The time and place limb.

Both of limbs 3 and 4 must be satisfied, and the leading statement of them is Mackinnon Mackenzie.

Mackinnon Mackenzie & Co. Pvt. Ltd. v. Ibrahim Mahommed Issak, AIR 1970 SC 1906.

Facts. Shaikh Hassan Ibrahim was a deck-hand on the ship s.s. Dwarka. The medical log recorded that on 13 December 1961 he complained of chest pain and was examined. He was last seen on deck at about 3 a.m. on 16 December 1961 and was found missing at 6.25 a.m. His dependant claimed compensation. The Additional Commissioner held there was no evidence that the seaman was dead and, in any event, none to justify the inference that any death was caused by an accident arising out of the employment. The Bombay High Court reversed that finding.

Held. The appeal was allowed and the Commissioner restored. The injury by accident must arise both out of and in the course of the employment. "In the course of employment" means in the course of the work the employee is engaged to do and what is incidental to it. "Arising out of the employment" means the injury resulted from some risk incidental to the duties of the service which, but for the duty owed to the employer, it is reasonable to believe the employee would not have suffered; and the expression is not confined to the nature of the employment but applies to the employment as such, to its nature, its conditions, its obligations and its incidents. Although the onus of proving that the injury arose both out of and in the course of the employment rests on the applicant, these essentials may be inferred where the proved facts justify the inference. The authority must not surmise, conjecture or guess; it may draw an inference from proved facts so long as it is a legitimate one, and the evidence must be such as would induce a reasonable person to draw it.

Why it matters here. It is the definition of both limbs, the statement of the burden, and the line between a proper inference and a guess. It was decided under the Workmen's Compensation Act 1923, repealed by item 1 of section 164(1), but section 74(1) reproduces the same governing words, and the Code contains nothing reversing the burden. Note which way it went: the dependant lost.

The proviso to section 74(1): the four exceptions

Exception 1, the three day rule, clause (a). The employer is not liable in respect of an injury which does not result in the total or partial disablement of the employee for a period exceeding three days.

This applies to every injury, however caused. It keeps trivial claims out of the scheme.

Exceptions 2 to 4, clause (b), apply only to an injury not resulting in death or permanent total disablement, caused by an accident directly attributable to:

• (i) the employee having been at the time thereof under the influence of drink or drugs;
• (ii) the wilful disobedience of the employee to an order expressly given, or to a rule expressly framed, for the purpose of securing the safety of employees;
• (iii) the wilful removal or disregard by the employee of any safety guard or other device which he knew to have been provided for the purpose of securing the safety of employees.

The opening words of clause (b) are the most important thing on this page. Where the injury results in death or permanent total disablement, none of the three misconduct exceptions applies at all. A worker who is killed while drunk is still compensated. The exceptions exist to discipline careless workers, not to relieve the employer of the consequences of the worst outcomes.

Each of the three has a limit built into its own words. "At the time thereof": the drink must have been operating at the moment. "Wilful": mere carelessness or forgetfulness is not enough in either (ii) or (iii). "Expressly given" or "expressly framed": a general expectation is not an order or a rule. "Which he knew": in (iii) the employee must have known the guard was there for safety. And in all three, the accident must be directly attributable to the conduct, not merely accompanied by it.

Section 74(2): breaking the rules does not break the connection

An accident or occupational disease shall be deemed to arise out of and in the course of employment notwithstanding that the employee is at the time acting in contravention of any law applicable to him, or of any orders given by or on behalf of his employer, or is acting without instructions, if:

• (a) it would have been deemed so to arise had the act not been done in contravention or without instructions; and
• (b) the act is done for the purpose of, and in connection with, the employer's trade or business.

Sub-section (2) and the proviso can look contradictory and they are not. Sub-section (2) says disobedience does not by itself break the connection with the employment. The proviso says certain wilful disobedience of a safety order defeats the claim, but only for injuries short of death or permanent total disablement. So: ordinary rule-breaking in the employer's business is covered; wilful breach of a safety rule is not, unless the outcome is death or permanent total disablement.

Section 74(3): occupational disease

If an employee employed in an employment specified in the Second Schedule contracts a disease specified in the Third Schedule, being an occupational disease peculiar to that employment, whilst in the service of an employer in whose service he has been employed for a continuous period of not less than six months, then:

• the disease is deemed to be an injury by accident within the meaning of the section; and
• unless the contrary is proved, the accident is deemed to have arisen out of and in the course of the employment.

Note the three conditions: the employment must be in the Second Schedule, the disease must be in the Third Schedule and peculiar to that employment, and the employee must have served that employer for six continuous months.

Contrast the ESI Chapter. Section 36(1) grades the qualifying period by which Part of the Third Schedule the disease sits in: no period for Part A, six months for Part B, and a regulated period for Part C. Section 74(3) states a flat six months.

Section 74(4): commuting

An accident occurring to an employee while commuting from his residence to the place of employment for duty, or from the place of employment to his residence after performing duty, shall be deemed to have arisen out of and in the course of employment if nexus between the circumstances, time and place in which the accident occurred and his employment is established.

This is new. The Workmen's Compensation Act 1923 had no such provision, and the commuting worker had only the judge made doctrine of notional extension.

Saurashtra Salt Manufacturing Co. v. Bai Valu Raja, AIR 1958 SC 881.

Facts. The company's salt works stood across a creek from Porbandar town. Workers reached it either by a land route of six or seven miles, or by crossing the creek by boat from a point on the town side to a sandy patch and then on foot to the works. On the evening of 12 June 1952 a boat carrying workers back from the works capsized in bad weather when it had almost reached the town side, and several drowned. The Commissioner for Workmen's Compensation awarded compensation and the High Court affirmed. Evidence taken on remand established that there was no arrangement between the company and the boatmen, that the boats were public boats used by anyone on payment, and that the sandy patch and the footpath were open to the public.

Held. The appeal was allowed and the award set aside. As a rule the employment does not commence until the employee reaches the place of employment and does not continue after he leaves it, the journey to and from work being excluded. That rule is subject to the theory of notional extension of the employer's premises, which may extend the employment reasonably in both time and place, so that an employee may be in the course of his employment though he has not reached or has left the premises. But it is well settled that when a worker is on a public road, in a public place or on public transport he is there as any other member of the public and is not in the course of his employment, unless the very nature of his employment makes it necessary for him to be there. Even assuming the notional extension reached the works, it could not be extended beyond it: once the worker left the far bank by boat, or had left the town side and not yet reached the far bank, he was not in the course of his employment.

Why it matters here. It is the leading Indian authority on notional extension and on its limit, and it shows what the commuting worker faced before the Code. It was decided under the Workmen's Compensation Act 1923, which had no commuting provision. Section 74(4) now supplies one. The question is no longer whether the employer's premises can be stretched to reach the worker, but whether nexus between the circumstances, time and place of the accident and the employment can be established. Do not overstate the change: nexus must still be established, so the reasoning in Saurashtra Salt about public places remains useful in deciding whether it exists. What has changed is that there is a statutory route where there was only a doctrine.

Sections 74(5) to 74(7): the remaining rules

Section 74(5), amending the Schedules. The Central or a State Government may, after not less than three months' notice by notification, modify or add to the employments in the Second Schedule and the occupational diseases in the Third Schedule, and must specify which diseases are to be occupational diseases peculiar to those employments. A Central notification operates throughout India; a State one within that State.

Section 74(6), everything else. Save as provided by sub-sections (2), (3) and (4), no compensation is payable in respect of any accident or disease unless it is directly attributable to a specific injury by accident or disease arising out of and in the course of employment.

Section 74(7), election of remedies. Nothing in the Chapter confers any right to compensation on an employee if he has instituted in a civil court a suit for damages in respect of the accident or disease against the employer or any other person; and no suit for damages is maintainable by an employee in any court of law in the circumstances the sub-section goes on to state.

This is the doctrine of election, and it is the other half of the no fault bargain. The worker may take the statutory formula without proving fault, or he may sue for full damages and prove fault. He may not do both, and having chosen one he cannot return to the other.

Section 75: the collapse of a plantation house

This section is much narrower and much more specific than its heading suggests, and that specificity is what makes it examinable.

If death or injury is caused to any worker or a member of his family as a result of the collapse of a house provided by the employer in a plantation, and the collapse is not solely and directly attributable to a fault on the part of any occupant of the house or to a natural calamity, the employer shall be liable to pay compensation under section 76 and the Sixth Schedule, so far as applicable.

Three things make it unusual, and all three are worth naming.

It compensates a family member, not only a worker. Nothing else in Chapter VII does. The reason is that plantation labour lives on the estate in housing the employer provides, so the employer's provision reaches the whole household.

It has nothing to do with the course of employment. A house does not collapse in the course of anybody's employment. Liability here rests on the employer having provided the house.

It has its own two exceptions, and they are not the exceptions in the proviso to section 74(1). The employer escapes only where the collapse is solely and directly attributable to the fault of an occupant, or to a natural calamity. "Solely and directly" is a high bar: a contributing fault is not enough.

The Explanation defines "worker" for this section as a person employed in a plantation for hire or reward, directly or through any agency, on skilled, unskilled, manual or clerical work, including a person employed on contract for more than sixty days in a year, but excluding:

• a medical officer employed in the plantation;
• any person employed in the plantation, including medical staff, whose monthly wages exceed the amount the appropriate Government notifies;
• any person employed primarily in a managerial or administrative capacity, even if his wages are below that amount;
• any person temporarily employed on the construction, development or maintenance of buildings, roads, bridges, drains or canals.

Read section 75 with the OSH Code's plantation provisions, sections 92 and 93, taken in the plantations chapter of Module IV. The two Codes divide the same industry: this one pays for the collapse, the other regulates safety and welfare on the estate.

A worked example

Ganesh operates a lathe at a workshop covered by Chapter VII and not by Chapter IV. Consider five accidents.

1. A metal splinter cuts his hand and he is back at work in two days. No liability. Clause (a) of the proviso excludes an injury which does not disable him, totally or partially, for more than three days.

2. He removes a guard he knows is there for safety, catches his hand, and loses two fingers. The injury does not result in death or permanent total disablement, and it is directly attributable to the wilful removal of a safety guard which he knew to have been provided for securing safety. The employer is not liable: proviso, clause (b)(iii).

3. Same facts, but the accident kills him. The employer is liable. Clause (b) applies only to an injury not resulting in death or permanent total disablement, so none of the three misconduct exceptions is available.

4. He takes a forbidden shortcut across the shop floor while carrying a component to another machine, and is hurt. Liable. Section 74(2) deems the accident to arise out of and in the course of employment despite the contravention, because it would have been so deemed had the order not been broken, and the act was done for the purpose of and in connection with the employer's trade or business. This is not a safety order wilfully disobeyed within clause (b)(ii); it is ordinary rule-breaking in the employer's business.

5. He is knocked off his scooter on his usual route home, twenty minutes after his shift. Under section 74(4) the accident is deemed to arise out of and in the course of employment if nexus between the circumstances, time and place and his employment is established. Returning home directly after performing duty, by his usual route, shortly after the shift, is the paradigm case. Under the old law this would have been fought on notional extension, and Saurashtra Salt shows how narrow that doctrine was.

Now a disease. Ganesh has worked for this employer for eight months in an employment listed in the Second Schedule and contracts a disease listed in the Third Schedule as peculiar to it.

Is it compensable? Yes. Section 74(3) deems it an injury by accident, and unless the contrary is proved deems the accident to have arisen out of and in the course of employment, because the employment is in the Second Schedule, the disease is in the Third and peculiar to that employment, and he has served this employer for a continuous period of not less than six months.

Had he served only four months? Section 74(3) would not apply, and section 74(6) would then require the disease to be directly attributable to a specific injury by accident or disease arising out of and in the course of his employment.

Finally, Ganesh sues the employer in the civil court for negligence. He forfeits his right to compensation under this Chapter: section 74(7). He must elect.

What this does NOT mean

Liability is not fault based. Section 74(1) requires connection with the employment, not negligence. The employer's care is irrelevant except so far as the proviso makes the employee's conduct relevant.

The misconduct exceptions do not apply to the worst injuries. Clause (b) opens with "in respect of such injury, not resulting in death or permanent total disablement".

Section 74(2) does not cancel the proviso. Sub-section (2) preserves the connection where a worker breaks a rule while doing the employer's work. The proviso defeats the claim where he wilfully disobeys a safety order and the outcome is less than death or permanent total disablement.

Not every disease is covered. Section 74(3) needs the employment in the Second Schedule, the disease in the Third and peculiar to that employment, and six continuous months with that employer. Otherwise section 74(6) governs.

Section 74(4) does not cover every journey. The nexus of circumstances, time and place with the employment must be established.

Limits and criticism

"Nexus" in section 74(4) is undefined, so the statutory commuting cover will be worked out case by case, most likely by reusing the reasoning Saurashtra Salt built for notional extension.

The three day rule bites hardest on the lowest paid, who lose three days' earnings with no remedy.

Section 74(7) forces a hard election at a time when the worker cannot yet know whether negligence is provable, and it operates on the mere institution of a suit.

The Schedules can be changed by notification, so the scope of the disease cover is executive rather than legislative, subject only to three months' notice.

Quick revision

• Section 74(1): personal injury by accident or a Third Schedule occupational disease, arising out of and in the course of employment; the employer shall be liable, no fault needed.
• Proviso, four exceptions. (a) injury not disabling, totally or partially, for more than three days. (b), only where the injury does not result in death or permanent total disablement, and the accident is directly attributable to (i) drink or drugs at the time, (ii) wilful disobedience of an express safety order or rule, or (iii) wilful removal or disregard of a safety guard he knew was provided for safety.
• Section 74(2): contravention of law, of the employer's orders, or acting without instructions does not break the connection, if the act was done for the purpose of and in connection with the employer's trade or business.
• Section 74(3): Second Schedule employment, Third Schedule disease peculiar to it, and six continuous months with that employer: deemed an injury by accident, and deemed to arise out of and in the course of employment unless the contrary is proved.
• Section 74(4): commuting to or from the residence is deemed to arise out of and in the course of employment on proof of nexus of circumstances, time and place.
• Section 74(5): Schedules amendable by notification on not less than three months' notice.
• Section 74(6): otherwise, compensation only if directly attributable to a specific injury by accident or disease arising out of and in the course of employment.
• Section 74(7): election. A civil suit for damages forfeits the statutory right, and the statutory route bars the suit.
• Section 75: the collapse of an employer provided house in a plantation killing or injuring a worker or a member of his family; compensation under section 76 and the Sixth Schedule; the employer escapes only if the collapse is solely and directly attributable to an occupant's fault or a natural calamity.

Test yourself

1. State the rule in section 74(1) and its four exceptions. The employer is liable to pay compensation where personal injury is caused to an employee by accident or a Third Schedule occupational disease arising out of and in the course of his employment. He is not liable for an injury not disabling the employee totally or partially for more than three days; nor, where the injury does not result in death or permanent total disablement, for an accident directly attributable to the employee being under the influence of drink or drugs at the time, to his wilful disobedience of an express safety order or rule, or to his wilful removal or disregard of a safety guard he knew was provided for safety.

2. A drunk worker is killed by a machine he was operating. Is the employer liable? Yes. Clause (b) of the proviso applies only to an injury not resulting in death or permanent total disablement, so the drink exception is unavailable.

3. Reconcile section 74(2) with clause (b)(ii) of the proviso. Section 74(2) preserves the connection with the employment where the worker acts in contravention of a law, an order or his instructions, provided the act was done for the purpose of and in connection with the employer's trade or business. Clause (b)(ii) defeats the claim only where the disobedience is wilful, the order or rule was expressly given or framed for securing the safety of employees, the accident is directly attributable to that disobedience, and the injury falls short of death or permanent total disablement.

4. What three conditions must be satisfied for an occupational disease to be compensable under section 74(3)? The employment must be specified in the Second Schedule; the disease must be specified in the Third Schedule as an occupational disease peculiar to that employment; and the employee must have been in the service of that employer for a continuous period of not less than six months.

5. A worker is injured on a public road on his way home. How does the position under the Code differ from Saurashtra Salt? Saurashtra Salt was decided under the Workmen's Compensation Act 1923, which had no commuting provision, and held that a worker on a public road or public transport is there as any member of the public unless the nature of his employment requires him to be there, so the notional extension could not be stretched to the journey. Section 74(4) of the Code now deems a commuting accident to arise out of and in the course of employment where nexus between the circumstances, time and place of the accident and the employment is established.

6. A worker has filed a civil suit for damages against his employer. Can he also claim compensation under Chapter VII? No. Section 74(7) provides that nothing in the Chapter confers any right to compensation on an employee who has instituted a suit for damages in a civil court in respect of the accident or disease against the employer or any other person.