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Workmen cannot be driven from pillar to post for compensation owing to disputes between Insurance Company and employer: Madras High Court

"... in the event of employer or the Insurance Company shifting its responsibility, the Courts are expected to act swiftly and pay 'just compensation' immediately", the Court said.


The Madras High Court recently emphasised that workmen should not be driven from pillar to post for obtaining compensation under the Workmen’s Compensation Act, merely on account of disputes between the insurance company and the employer over who is liable to pay the amount.

The Court took note that litigation in such cases is already being prolonged at the instance of the employer or at the instance of the Insurance Company and the payment of compensation is made belatedly to the workmen.

A single-judge Bench of Justice SM Subramaniam opined that the courts must prioritise ensuring the expeditious receipt of compensation by the workmen. The insurance company and the employer may work out their differences over the liability to pay at a later stage, the Court said.

“… in the event of employer or the Insurance Company shifting its responsibility, the Courts are expected to act swiftly and pay ‘just compensation’ immediately and liberty may be granted to the Insurance Company concerned to initiate action against the employer for recovery in accordance with law,” the order said.

The Court further noted that there are cases where an employer may even collude with the insurance company to deprive workmen of compensation, which would entail a violation of social justice principles in the Constitution of India.

It is not as if the Insurance Company and the employer can shake their hands and deprive the right of the workmen from getting ‘just compensation’ based on the insurance policy,” the Court added.

The Court also said that insurance contracts that go against the objects of the Workmen’s Compensation Act ought to be viewed as invalid.

“… any such terms and conditions in the insurance policy, if agreed between the employer and the Insurance Company which is not fulfilling the requirements of the Workmen Compensation Act, are to be held as invalid, in view of the fact that such an agreement is depriving the workmen from getting’ just compensation’ under the provisions of the Act,” it stated.

In such cases, the Court ruled the the grant of compensation to a workman under the Workmen’s Compensation Act is not restricted by the contract between the employer and the insurance company.

The workman is the beneficiary. Therefore, the interest of the workmen is to be taken into account both by the employer as well as the Insurance company. The insurance companies are obligated to ensure that the employer is also following the rules and regulations correctly, the Court made it clear.

Before parting with the matter, the Court also urged the Insurance Regulatory and Development Authority (IRDA) to issue circulars, orders or instructions to ensure that insurance companies comply with applicable laws in issuing policies, particularly the Workmen’s Compensation Act.

The Judge noted that it would only lead to unnecessary disputes if insurance companies collect lesser or impractical premiums from employers. In turn, such disputes would delay the payment of compensation and deny workmen their rights, the Court observed.

Case before the Court

The case before the Court concerned an order passed by the Deputy Commissioner of Labour, whereby a only a part of the compensation for a workman’s death was made payable by the insurance company.

The insurance company had entered into a contract with the employer to provide insurance cover for the workmen on the basis of taking Rs. 9,000 as the salary payable for 20 employees. This was below the minimum wage payable under the Minimum Wages Act, the High Court noted.

Pertinently, the Labour Court passed a compensation award that was greater than the premium amount paid by the employer to the insurance company for the workmens’ insurance. As such, the Deputy Commissioner of Labour directed the employer to pay the remaining part of the compensation award.

Aggrieved, the claimants moved the High Court, raising concern that workmen were not in a position to recover the compensation amount from the employer.

In coming to the claimants’ aid, Justice Subramaniam ruled that courts should ensure that the compensation which is just, is to be disbursed as expeditiously as possible in order to save the victim.

Thereafter, “possible relief can be granted to the Insurance Company to sue the employer or to recover the money or to recover the premium or otherwise by following the procedures contemplated in law,” the Court said.

The Court rejected the Insurance company’s contention that they should not be made to pay the claimant an amount beyond what was agreed to in the contract between the insurance company and the employer. The insurance company had argued that the workmen is in no way connected to insurance company and that it is only the contract which bound the insurance company.

Justice Subramaniam observed that while that the insurance policy is not a statutory policy, it should be borne in mind that the policy is for the welfare of the workmen.

“…the benefits are connected with the workmen. Therefore, the relationship between the employer, Insurance Company and the workmen are inseparable,” the Court said.

The judge added that while the workmen may not be strictly connected for the purposes of the insurance contract, “for grant of compensation, the workmen is connected.”

The policy is to be considered as if it is not limited to the contractual obligation but attached with the provisions of the Workmen Compensation Act…Under these circumstances, straight jacket formula cannot be adopted by simply stating that the Insurance Company is no way connected with the workmen… the Insurance Company cannot shift its responsibility or state that they are no way connected with the Workmen Compensation Act or it is not a statutory contract,” the Court opined.

The Court also took critical note that the insurance company, in this case, ought to have known that the salary referred to in the insurance contract was below the minimum wages payable to the employees of a construction company under the law.

The Court emphasised that the insurance premiums must be calculated based on the minimum wages prescribed, and not at the whims and fancies of the insurance company. The Judge added that an insurance company cannot simply shift their liability by stating that they are bound only the terms and conditions of the contract.

Even in such a case, the Court noted that,

The Workmen cannot made to suffer or cannot be driven out from pillar to postThe workmen is not a party to the contract. Therefore, there is no reason to penalise him or deny compensation, which is otherwise assured under the provisions of the Act.

The case was ultimately decided by directing the insurance company to pay the entire compensation awarded by the labour court. However, the Court granted the insurance company liberty to recover the portion of the award which may be payable by the employer.

Via Bar & Bench
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