The Supreme Court of India, in a significant ruling, has held that an insurance company can be made a party to a compensation claim under the Workmen’s Compensation Act, 1923 (now the Employee’s Compensation Act, 1923) and can be directed to pay the compensation, jointly and severally with the employer. A bench comprising Justice Manoj Misra and Justice N. Kotiswar Singh set aside a Calcutta High Court order that had shifted the initial liability to pay compensation solely onto the employer, with a provision for later reimbursement from the insurer. The apex court restored the award passed by the Commissioner for Workmen’s Compensation, West Bengal.
Background of the Case
The case originated from a claim filed by a driver (the second respondent) against his employer, Alok Kumar Ghosh (the appellant), and The New India Assurance Company Ltd. (the first respondent) under the Workmen’s Compensation Act, 1923. The driver had suffered a disabling injury from an accident that arose out of and in the course of his employment.
The Commissioner for Workmen’s Compensation, West Bengal, adjudicated the claim (Claim Case No. 12/2006) and, on March 4, 2011, awarded a compensation of Rs. 2,58,336 with statutory interest at 12% per annum. The Commissioner found that the risk was covered by the insurance policy and held the insurance company liable to pay the compensation.
The insurance company appealed this decision to the High Court at Calcutta. The High Court, by its order dated April 9, 2015, partly allowed the appeal on a technical ground. It modified the Commissioner’s award, directing that the employer must first pay the compensation to the workman and then seek reimbursement from the insurer. Aggrieved by this modification, the employer filed an appeal before the Supreme Court.
Arguments of the Parties
The appellant-employer argued before the Supreme Court that since there was no dispute regarding the insurance coverage or the right to reimbursement, the High Court’s modification was unjustified. It was submitted that the High Court had erroneously ignored the precedent set by the Supreme Court in Mahendra Rai vs. United India Insurance Company Ltd. & Anr., where a similar plea by an insurance company had been rejected.
Conversely, the respondent-insurance company supported the High Court’s decision. It argued that the 1923 Act only imposes liability on the employer, and unlike the Motor Vehicles Act, 1988, it contains no provision for fastening liability directly onto the insurer. The insurer’s counsel contended that the rights are governed by the contract of insurance, which is one of indemnity, meaning the insurer is only liable to reimburse the insured employer. The insurer cited the decisions in New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya & Anr. and Gottumukkala Appala Narasimha Raju and others v. National Insurance Co. Ltd. in support of its arguments.
Court’s Analysis and Decision
The Supreme Court framed the central question for its consideration as: “Whether in a proceeding initiated under the 1923 Act for compensation payable under the said Act, insurer could be made a party respondent? If yes, whether compensation can be awarded against it if otherwise admissible under the contract of insurance?”
The bench observed that the issue was “no longer res integra” and had been settled by the court in the Gottumukkala Appala Narasimha Raju case. In that case, the court had held that an insurer may be made a party to the proceeding and could be held liable to indemnify the owner.
The Supreme Court heavily relied on the interpretation of Section 19 of the 1923 Act, which grants the Commissioner jurisdiction to settle any question “as to the liability of any person to pay compensation.” Quoting the Gottumukkala judgment, the bench noted: “Section 19 of the 1923 Act specifically provides that any question in regard to the liability of a person who is required to indemnify the employer must be determined in the proceeding under the said Act and not by way of a separate suit.”
The court emphasized that the 1923 Act is a social welfare legislation intended to provide a speedy and efficacious remedy to workmen. The judgment stated, “No doubt, Section 3 of the 1923 Act fixes liability to pay compensation on an employer but where the liability of an employer is covered by a contract of insurance, exclusion of the insurer from being jointly and severally liable for payment of the compensation awarded would have deleterious effect on the very purpose which the legislation seeks to achieve and would render the remedy illusory.” The court reasoned that if the employer fails to pay due to financial incapacity, the workman would be left “high and dry” as the question of reimbursement would not arise.
The bench concluded that by virtue of the power under Section 19, the Commissioner can make the insurer jointly and severally liable with the employer.
The court expressed its “anguish at the practice of Insurance Companies unnecessarily filing appeals by raising technical pleas more so when they do not deny their ultimate liability under the contract of insurance.” It also observed that the High Court had “adopted a hyper technical approach” and overlooked Section 19 of the Act.
Final Order
The Supreme Court allowed the appeal, setting aside the order of the High Court and restoring the award of the Commissioner. It directed that the amount deposited by the insurance company be released to the workman along with any accrued interest within one month. Furthermore, the court imposed costs of Rs. 50,000 on the insurance company, to be paid to the workman for the delay caused by the unnecessary appeal.
