Compensation Payment Mechanisms – Contractor to indemnify Principal Employer for paying compensation to an injured workman employed through the Contractor

 

The Gujarat High Court, in its judgment delivered on 9th June, 2016, in the case of ‘Bil Metal Industries v. Rameshbhai Gordhanbhai Solanki & Anr[1].’ has settled a key area of dispute regarding compensation of injured workers under the Employees Compensation Act, 1923 (“Act”).

Background

The Commissioner awarded compensation of INR 1,58,615.43 with 12% interest and 25% penalty to be recovered from both the Contractor and the Principal Employer jointly and severally, which was challenged before the High Court by the Principal Employer.

The contention of the Principal Employer (“Appellant”) was that he was not liable to pay compensation under the Act as the worker was not under the employment/ on the payroll of the Principal Employer. Further, relying on the judgment in R.M Tahir case[2], which laid down that the Contractor and not the Principal Employer shall be liable to compensate the injured worker in case the injury occurred outside the ‘ordinary work’ of the Principal Employer, it claimed that the worker was injured during the repair work of the machine undertaken by the contractor on behalf of the Principal Employer, which they claimed to be outside the ‘ordinary work’ of the Principal Employer.

This view was dismissed by the Gujarat High Court. It observed that repair of machine of Principal Employer cannot be said to be outside ‘ordinary work’ of the company and therefore the Principal Employer could not escape liability.

Position under law

This case reiterates the position under law and sets out the contours of Section 12 of the Act. Section 12 deals with compensation to be provided in case of accident occurring to a worker under the employment of a Contractor while executing a work for the Principal Employer.

Under Section 12(1), the Principal Employer is liable to pay compensation claimed by the injured worker, employed under a contractor, for executing any work which is ‘ordinarily part of the trade or business of the principal’. However, under Section 12(2) of the Act, if the Principal Employer is held liable to pay compensation, he can recover that amount from the Contractor, which in the absence of a contract is to be settled by the Commissioner.

Under Section 12(3) of the Act, the injured worker can claim compensation against the Contractor if he chooses to do so.

Section 12(4) states that the Section shall be applicable only if the accident occurs in the premises of the Principal Employer.

Inference

A Principal Employer is liable to pay compensation to an injured party under Section 12(1) of the Act to execute any work under its ordinary work and recover the amount from the Contractor as permitted under Section 12(2) of the Act. This right gets strengthened where there is a specific contractual arrangement with such contractor for such indemnification, otherwise the right to be indemnified will be subject to the decision of the Commissioner.

[1] First Appeal No. 1475 Of 2008, Decided on June 09, 2016.

[2] AIR 1929 Bombay 179

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