Monthly Wages under Employees’ Compensation Act, 1923 — A conundrum

Employees’ Compensation Act, 1923 (ECA) stipulates that an employer is required to compensate an employee (other than one covered under Employees’ State Insurance Act, 1948) if such employee (i) suffers personal injury due to an accident arising out of and in the course of employment; or (ii) contracts any disease peculiar to the employment.

One of the ingredients for ascertaining amount of compensation payable to such an employee is “monthly wages”. Section 5 of ECA defines term “monthly wages” to mean an amount of wages deemed to be payable for a month’s service. Section 4 provides for manner in which compensation amount is discovered as under:

Injury resulting in Compensation basis monthly wages
Death Higher of —

50% of deceased employee’s “monthly wages” multiplied by relevant factor;

OR

INR 1,20,000 i.e. rate of compensation.

Permanent total disablement Higher of —

60% of such employee’s “monthly wages” multiplied by relevant factor;

OR

INR 1,40,000 i.e. rate of compensation.

Total or partial temporary disablement  Half-monthly payment of the sum equivalent to 25% of “monthly wages”.

Thus, it is apparent that the amount of compensation payable to an employee is directly influenced by the quantum of monthly wages paid to an employee.

The Central Government by 2020 Notification[1] almost doubled the “monthly wages” to INR 15,000 from INR 8000 that was notified under 2010 Notification[2] but did not resolve the conundrum that is troubling employers, which is — 

Whether the notified monthly wage should be treated as “base amount” or “ceiling amount” for determining compensation under ECA?

Unfortunately, even the courts across India are divided on this question. The excerpts of differing judgments are reproduced below:

In New India Assurance Co. Ltd. v. Govindi Devi,[3] injury resulted in death of the employee. The claimants claimed that the employee was earning INR 5000 per month but failed to prove so. High Court of Himachal Pradesh at Shimla held:

19. … It is pertinent to mention here that prior to aforesaid amendment, the said wages were fixed at a sum of Rs 4000 and Explanation II specifically restricted the amount to be Rs 4000 only even if it exceeds. However, by virtue of Act 45 of 2009, the restriction as referred above came to be omitted and in its place, a sum of Rs 8000 has been substituted by way of notification taken note hereinabove. It is not in dispute that while amending the said clause, no restriction has been attached or specified that if the monthly wages of the deceased employee exceeds Rs 8000 whether it should be considered at Rs 8000 only and, as such, there appears to be considerable force in the arguments of learned counsel appearing for the claimants that since no restriction is imposed in case the monthly wages of the deceased employee exceeds to Rs 8000 liberal interpretation has to be made especially when the Act itself is a beneficial legislation.

***

26. It is quiet apparent from the aforesaid exposition of law that where the “language” is clear, the intention of the legislature is to be gathered from the language used. What is to be borne in mind is as to what has been said in the statute as also what has not been said. Having regard to the above, this Court is unable to accept the contention of Shri Praneet Gupta, learned counsel appearing for the Insurance Company, that the Court below ought not to have taken into consideration a sum of Rs 8000, which has otherwise been prescribed as minimum wages for the purpose of determining the compensation, especially when claimants themselves claimed that monthly wages of deceased were Rs 5000 per month including diet money. Accordingly, this Court is of the view that the monthly wages specified by the statute by way of amendment at Rs 8000 is appropriate for consideration for the purpose of computing the compensation and as such, the learned court below has rightly calculated the compensation by considering the wages of the deceased workman at Rs 8000, which in no manner requires any interference.                                                                                                                                                                (emphasis supplied)

High Court of Himachal Pradesh at Shimla once again toed on similar lines while adjudicating upon a compensation claim in Rajender Kumar v. Shyam Lal[4] by holding that the notified monthly wages is the base amount i.e. minimum wage amount for ascertaining compensation. In this case, the claimant claimed that he was earning INR 7500 per month but failed to prove income as claimed by him. High Court placed reliance on 2010 Notification and held:

23. Bare perusal of aforesaid “Statement of Objects and Reasons” suggests that the amendment came into force while empowering the Central Government to enhance the minimum rates of the said compensation from time to time as well as to specify the monthly wages in relation to an employee for the purpose of the aforesaid compensation, meaning thereby fixing the minimum wages by way of amendment at Rs 8000 is only for the purpose of determining the compensation under the Workmen’s Compensation Act and there is scope of further enhancement from time to time … (emphasis supplied)

In United India Insurance Co. Ltd. v. Kakali Sarkar Guha [5], injury resulted in death of the employee and the claimants claimed that the deceased employee was earning INR 13,765 per month. While adjudicating over the matter, High Court of Sikkim at Gangtok relied on the Supreme Court’s judgment and considered entire monthly wages for ascertaining the compensation. The High Court held:

16. … A similar situation arose before the Supreme Court in Jaya Biswal v. Iffco Tokio General Insurance Co. Ltd. [6] In the said case the learned Commissioner had taken Rs 8000 as the limited wage to calculate the compensation. Since neither of the parties produced any document on record to prove the exact amount of wages being earned by the deceased the wage of the deceased was accepted as Rs 4000 per month  + daily bhatta of Rs 6000 per month, which amounts to a total of Rs 10,000 at the time of the accident. In the present case, it has been proved that the monthly wages of the deceased was Rs 13,765. The learned Commissioner was thus required to calculate the employer’s liability for compensation in the following manner: 

Rs 13,765 (monthly wages) x 50% x 194.64 (the relevant factor) = Rs 13,39,609.8.  (emphasis supplied)

Unlike the High Court of Himachal Pradesh and Sikkim, in United India Insurance Co. Ltd. v. Seethammal, [7] the High Court of Madras held:

15. Therefore, according to the learned counsel for the petitioner, since the statute is a beneficial legislation, it has to be construed by interpreting liberally and in view of omission of Explanation II and the notification issued by the Central Government (Ministry of Labour and Employment) dated 31-5-2010, though a sum Rs 8000 has been mentioned as monthly wages, it should be construed as minimum and not as maximum and therefore, when evidence establishes that the workman was earning Rs 12,000 per month, the same has to be considered for arriving at just compensation.

***

21. … Therefore, in this context, the learned counsel appearing for the claimants would vehemently contend that since no restriction is imposed in case the monthly wages of the deceased employee exceeds Rs 8000 since the Act itself is a beneficial legislation, liberal interpretation has to be made which would be beneficial to the claimants.

22. Though the contention of the learned counsel for the claimants is logically sound and acceptable, but I am unable to countenance the same.

***

24. …  In my considered view, when the intent of the legislature is clear while amending the Act to enhance the minimum rates of the compensation from time to time as well as to specify the monthly wages in relation to an employee for the purpose of the said compensation, liberal interpretation beyond the prescription made in the Act, is not at all required. Further, it is pertinent to note that while amending the Act, the legislature has consciously in its wisdom, omitted the Explanation II of Section 4-A of the Act only in order to enhance the minimum rates of compensation….

***

26. … Having regard to the above, I am unable to give accept the contention of the learned counsel for the claimants. Accordingly, I am of the view that the monthly wages specified by the statute by way of amendment at Rs 8000 is appropriate for consideration for the purpose of computing the compensation and hence, the Deputy Commissioner has rightly calculated the compensation by considering the wages of the deceased workman at Rs 8000, which, in my opinion, requires no interference. (emphasis supplied)

Conclusion

It is stated with due respect, both the judgments of High Court of Himachal Pradesh in advancing the principle of “beneficial legislation” have ignored the fact that the quantum of compensation increases manifold as the “monthly wages” is multiplied by relevant factor set out in ECA. This not only overburdens the employer but also has a cascading effect on the earnings of other employees who are working for the employer.

Furthermore, High Court of Himachal Pradesh’s reading of “minimum rates of compensation” in the Statement of Objects and Reasons of Workmen’s Compensation Act, 1923 to mean “monthly wages” of INR 8000 stated in 2010 Notification as “minimum monthly wages” is against the cannons of construction especially the literal rule of interpretation. 

With due respect, High Court of Sikkim mechanically interpreted Supreme Court’s judgment in Jaya Biswal v. Iffco Tokio General Insurance Co. Ltd.[8] to determine compensation on full monthly wages of INR 13,765 in supersession of average monthly wage of INR 8000 as deduced by the Commissioner. In doing so, High Court failed to notice that even Supreme Court stopped short of considering entire monthly wages paid to the employee in the said judgment for deducing the compensation amount.

High Court of Madras, on the other hand, has endeavoured to balance conflicting interests of both the employer and employee. It has effectively deployed the tools of interpretation of statutes to gather intention of legislature by keeping in mind both what has been said in statute as well as what is not said. Thus the order, in our view, is a reasoned order and should be able to withstand the test of time. 

Other takeaways for employers: Aside the conundrum, the impact of 2020 Notification is that going forward, employers will have to pay higher compensation under ECA. Likewise, employers availing Workmen’s Compensation Policy from an Insurance Company may have to budget for premium hikes.


† Principal Associate, Vaish Associates Advocates

†† Associate, Vaish Associates Advocates

[1]Notification No. S.O. 71(E) dated 3-1-2020, source: <http://egazette.nic.in/WriteReadData/2020/215147.pdf>.

[2]Notification No. S.O. 1258(E) dated 31-5-2010, source: <http://egazette.nic.in/> (Notification available using the “search function” of the website).

[3] 2019 SCC OnLine HP 2529

[4] 2019 SCC OnLine HP 1709

[5] 2019 SCC OnLine Sikk 156

[6] (2016) 11 SCC 201

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