Industrial Relations and

Labor Law Project

Act 1 -Payment of Bonus Act,1965

The Bonus implies something paid as a gesture of goodwill. It is considered desirable and
perhaps implied, though not required by the contract of employment. It is usually intended as a
stimulus but may also express desire on the part of the employer to share with the employees the
fruit of their joint enterprise. It is not the ex- gratia payment but the statutory right of the
employee. The Bonus Act is the outcome of the recommendations made by the tripartite
commission which was set up by the Government of India way back in 1961. The main
Objectives of the Payment of Bonus Act are-
1.To impose statutory obligation on the employer of every establishment defined in Act to pay
bonus to all eligible employees working in the establishments.
2.To outline the principles of payment of bonus according to prescribed formula.
3. To provide for payment of minimum and maximum bonus and linking the payment of Bonus
with the scheme of “set off” and “set on” and
4. To provide machinery of enforcement of Bonus.

Applicability of Act (Sec 1)

Every factory wherein 10 or more persons are employed with the aid of power or An
establishment in which 20 or more persons are employed without the aid of power on any day
during an accounting year.

Establishment : Establishment includes departments, undertakings and branches, etc.

Computation of available surplus (Sec.5) : The following sums shall be deducted from the
gross profits as prior charges, namely:-

(a)  Any amount by way of depreciation admissible in accordance with the provisions of sub-
section (1) of section 32 of the Income-tax Act, or in accordance with the provisions of the
agricultural income-tax law, as the case may be:
Provided that where an employer has been paying bonus to his employees under a settlement or
an award or agreement made before the 29th May, 1965, and subsisting on that date after
deducting from the gross profits notional normal depreciation, then, the amount of depreciation
to be deducted under this clause shall, at the option of such employer (such option to be
exercised once and within one year from that date) continue to be such notional normal
depreciation;

(b) Any amount by way of [development rebate or investment allowance

or development allowance] which the employer is entitled to deduct from his income under the
income-tax Act;

(c)  subject to the provision of section 7, any direct tax which the employer is liable to pay for
the accounting year in respect of his income, profit and gain during that year;

Components of Bonus :- Sec. 2(21) : Salary or wages includes dearness allowance but no other
allowances e.g. over-time, house rent, incentive or commission.
Separate establishment (Sec. 3) : I profit loss accounts are prepared and mainland in respect of
any such department or undertaking or branch, then such department or undertaking or branch is
treated as a separate establishment.

Disqualification and Deduction of Bonus: Sec 1 :

• On dismissal of an employee for fraud; or

• riotous or violent behavior while on the premises of the establishment; or
• theft, misappropriation or sabotage of any property of the establishment; or
• Misconduct of causing financial loss to the employer to the extent that bonus can be deducted
for that year.

Computation of gross profit : For banking company, as per First Schedule. Others, as per
Second  Schedule.
Eligibility of Bonus: An employee will be entitled only when he has worked for 30 working
days in that year. Sec. 8

Payment of Minimum Bonus: 8.33% of the salary or Rs.100 (on completion of 5 years after
1st Accounting year even if there is no profit). Sec. 10

Eligible Employees: – Employees drawing wages upto Rs.10000/-  per month or less. For

calculation purposes Rs.3500 per month maximum will be taken even if an employee is drawing
upto Rs.3500 per month. (Sec. 12)

Time Limit for Payment of Bonus : All amount to be payable to an employee by way of bonus
under this Act shall be paid in cash by his employer-

(a) where there is a dispute regarding payment of bonus pending before any authority under
section 22, within a
month from the date on which the award becomes enforceable or the settlement comes into
operation, in respect of such dispute;

(b) in any other case, within a period of eight months from the close of the accounting year:
Provided that the appropriate Government or such authority as the appropriate Government may
specify in this behalf may, upon an application made to it by the employer and for sufficient
reasons, by order, extend the said period of eight months to such further period or periods as it
thinks fit; so, however, that the total period so extended shall not in any case exceed two years.

Set-off and Set-on : As per Schedule IV. Sec. 15- Where in any accounting year any amount has
been carried forward and set on or set off under this section, then, in calculating bonus for the
succeeding accounting year, the amount of set on or set off carried forward from the earliest
accounting year shall first be taken into account.

Example-
Suppose we don’t have sufficient profit and you still have to pay bonus, then this amount is set
off in future to pay Bonus against future profits (carried forward)

After making all the adjustments we can make the payment of bonus( minimum bonus is 8.33%
and maximum bonus is 20% of the salary/ wages), if we have surplus profit left, we can keep it
for future, this is called set on, it can be used for next 4 years

Let the Gross Profit be 200 and the permissible exp. be Rs.40, Depreciation R20, Income tax
20% and payment to workers 10%

Taxable Amount = (200-40-20)

= Rs. 140
Less tax@20% = Rs. 140-28
= Rs.112

60% is allocable surplus i.e Rs 67

Bonus to be given= 20% of 10
=2
Amount left = Rs. 67-2
= Rs. 65
The firm can set on for four years Rs 8(Answer)

Other provisions
Sec 17- Employers can deduct custom Bonus( like Diwali) from Bonus payable under the Act
Sec 18- Deductions from penalty on workers are permitted from the Bonus.
Sec 19- Time limit to pay Bonus is 8 months
Sec 21- Employee can claim Bonus, in 1 year from due date.

Submission of Return : In Form D to the inspector within 30 days of the expiry of time limit
under Section 19. Rule 5

Maintenance of Registers and Records etc. Sec. 2(21) :

• A register showing the computation of the allocable surplus referred to In clause (4) of section
2, in Form A.
• A register showing the set-on and set-off of the allocable surplus, under section 15, in Form B.
• A register showing the details of the amount of bonus due to each of the employees, the
deductions under sections 17 and 18 and the amount actually disbursed, In Form C.

Non applicability of the Act: – Act not applicable to certain employees of LIC. General
Insurance, Dock Yards, Red Cross, Universities* Educational Institutions, Chambers of
Commerce, Social Welfare Institutions. etc. Sec.32

Penalty : For contravention of any provision of the Act or the Rules: Upto 6 months or with fine
upto Rs.1000.
 In 2007, the Cabinet has approved the Amendments to the payment of Bonus Act, 1965,
which are as follows:-

 Eligibility limit for payment of bonus to the employee earning salary or wage has been
enhanced from Rs. 3,500/- per month to Rs. 10,000/- per month.
 Ceiling for purpose of calculation of bonus to the employee earning salary or wage has
been enhanced from Rs. 2,500/- per month to Rs. 3,500/- per month.
 Employees employed through contractor on building operations will now be covered
under The Payment of Bonus Act, 1965

Act 2. Employee State Insurance Act,1948

The Promulgation of Employees' State Insurance Act. 1948 (ESI Act), by the parliament was
the first major legislation on Social Security for workers in independent India. It was a time
when the industry was still in a nascent stage and the country was heavily dependent on an
assortment of imported goods from the developed or fast developing countries. The deployment
of manpower in manufacturing processes was limited to a few select industries such as jute,
textile, chemicals etc. The legislation on creation and development of a fool proof multi-
dimensional Social Security system, when the country’s economy was in a very fledgling state
was obviously a remarkable gesture towards the socio economic ameiloration of a workforce
though limited in number and geographic distribution. India, notwithstanding other pressing
compulsions of self reliance and self sufficiency, thus, took the lead in providing organised
social protection to the working class through statutary.

 The ESl Act 1948, encompasses certain health related eventualities that the workers are
generally exposed to such sickness, maternity, temporary or permanent disablement,
occupational disease or death due to employment 'injury, resulting loss of wages or earning
capacity - total or partial. ' Social security provisions made in the Act to counterbalance or negate
the resulting physical or financial distress in such. contingencies are thus, aimed at upholding
human dignity in times of crises through protection from deprivation, destitution and social
degradation while enabling the society the retention and continuity of a socially useful and
productive manpower.

 The ESI Scheme is a based on the principal of 'pooling of risks and resources' in which
every contributor, at any given point time, emerges as a beneficiary of a benefactor and society at
large is the net gainer. Employees. employers, State Governments and the Corporation are the
major stake holders in the system of organized and coordinated effort providing social protection
to the benefactors. The role employers, in particular remains pivotal to the success of the scheme,
be it surveys for coverage, implementation, registration of factories/establishments, registration
of employees, regular payment of contribution, facilitating inspections and timely action to
ensure steady flow of benefits to the employees.

 COVERAGE: The ESI Act 1948 in the first instance, applies to non-seasonal factories using
power in the manugacturing process and employing 10 or more persons and non-power using
factories or establishments employing 20 or more persons for wages. The provision of the Act
are being implemented areawise by stages. The Act contains an enabling provision under which
the "Appropriate Government" is empowered to extend the provisions of the Act to other classes
of establishments - industrial, commercial, agricultural or otherwise. Under these provisions
most of the State Governments have extended the provisions of the ESI Act to the following
classes of establishments.

1. Shops, hotels, restaurant, cinemas including preview theatres, road motor transport
agencies and newspaper establishments, etc employing 20 or more employees.
 2. Power using Beedi manufacturing units in the implemented areas employing 10 or more
employees attract coverage under the Act. A few States have even extended the
provisions of the Act to non power using Beedi manufacturing units employing less than
ten persons.
3. Slate pencil manufacturing units employing one or more employees have also been
brought under the coverage of the Act in a few States. The Scheme has so far been
implemented in 26 states and union territories; the only exceptions being a few smaller .
states in the North-eastern region of the country. Employees of the aforesaid factories and
establishments in receipt of wages not exceeding Rs. 10,000/- PM. w.e.f. 1/10/2006 are
covered under the Act. By the end of December, 02, about 2,45,000 factories and
establishments at about 680 industrial centers had been brought under the coverage of the
ESI Act benefiting about 80 lakh insured persons and their dependant family members.

COVERAGE UNDER THE ESI ACT, 1948 The Act was originally applicable to non-
seasonal factories using power and employing 20 or more persons; but it is now applicable to
non-seasonal power using factories employing 10 or more persons and non-power using
factories employing 20 or more persons. Under Section 1(5) of the Act, the Scheme has been
extended to shops, hotels, restaurants, cinemas including preview theatre, road motor
transport undertakings and newspaper establishment employing 20 or more persons. The
existing wage-limit for coverage under the Act, is Rs.10,000/- per month (with effect from
1.10.2006).

4. AREAS COVERED The ESI Scheme is being implemented area-wise by stages. The

Scheme has already been implemented in different areas in the following States/Union
Territories
5. STATES All the States except Nagaland, Manipur, Tripura, Sikkim, Arunachal Pradesh
and Mizoram.
6. UNION TERRITORIES Delhi, Chandigarh and Pondicherry
7. COVERAGE :
 

 Coverage (As on 31st  March, 2006)

No. of Insured Person family units 91,48,605
No. of Employees 84,00,526
Total No. of Beneficiaries 3,54,96,589
No. of Insured women 15,43,250
No. of Employers, etc 3,00,718
   

Benefits - The insured employees and their dependants are entitled to the following benefits: 

1. Medical benefit
 Full medical facilities for self and dependants are admissible from day one of joining
insurable employment. Whereas, the primary, out patient, in patient and specialist
services are provided through a network of panel clinics, ESI dispensaries and hospitals,
super specialty services are provided through a large number of advanced empanelled
medical institutions on referral basis.

2. Sickness benefit [cash]

Sickness benefit is payable to an insured person in cash, in the event of sickness resulting
in absence from work and duly certified by an authorised insurable medical officer/
practitioner.

3. Extended sickness benefit [cash]

Extended sickness benefit is payable to insured persons for the period of certified
sickness in case of the 34 long-term diseases specified in the Act which need prolonged
treatment and absence from work on medical advice.

4. Enhanced sickness benefit [cash]

This cash benefit is payable to insured persons in the productive age group for under
going sterilisation operation, viz., vasectomy/ tubectomy.
5. Maternity benefit [cash]

Maternity benefit is payable to insured women in case of confinement or miscarriage or

sickness related thereto. 

6. Disablement benefit [cash]

Disablement benefit is payable to insured employees suffering from physical disablement

due to employment injury or occupation disease.

7. Dependents benefits [cash]

Dependents benefit [family pension] is payable to dependents of a deceased insured

person where death occurs due to employment or occupational disease.

8. Other benefits

 Funeral expenses - On the death of an insured person subject to a maximum of a Rs.2,500 payable
at the local office.
 Vocational rehabilitation - In case of disabled insured persons under 45 years of age with 40% or
more disablement.
 Free supply of physical aids and appliances such as crutches, wheelchairs, spectacles and other
such physical aids.
 Preventive health care services such as immunization, family welfare services, HIV/AIDS
detection, treatment etc.
 Medical bonus Rs.250 is paid to an insured woman or in respect of the wife of an insured person
in case she does not avail hospital facilities of the scheme for child delivery.
 

 ORGANIZATION : At the national level, the ES1 Scheme is administered by a statutory
body called the "Employees State Insurance Corporation" set-up under Employees' State
Insurance Act, 1948. The Corporation comprises representatives of employees, employers, the
Central Government, State Governments, medical profession and the Parliament. A Standing
Committee, constituted from amongst the members of the Corporation acts as the executive
body. The Medical Benefit Council, a statutory body, advises the Corporation on matters related
to the provision of medical care to the beneficiaries of the Scheme. The Director General, is the
chief executive of the Corporation and is also an ex-officio member of the Corporation and the
Standing Committee. At the State level, Regional Boards have been constituted in each State and
at the grass-root level, Local Committees have been formed as advisory bodies for smooth
functioning of the Scheme. The Regional Boards and the Local Committees have representation,
both hem employers and employees. For day-to-day administration, the Corporation has its
Central Headquarters at New Delhi, besides Regional Offices and Sub-Regional Offices in the
States and over 800 Local Offices etc. at industrial centres throughout the country.

 FINANCES: The scheme is primarily funded by contributions raised from insured employees

and their employers in the implemented areas as a small but specified percentage of wages
payable to such employees. The rate of contribution was last revised by the Corporation from 1st
January 1997 and are still in vogue. These rates of contributions are:

1. Employees Contribution - 1.75 percent of the wages.

2. Employers Contribution - 4.75 percent of the wages.

     Total - 6.50 percent of the wages.

Employees in receipt of an average daily wage of Rs. 40/- or less, are exempted from payment of
their share of contribution (w.e.f. 8.4.2000) but are entitled to all social security benefits under
the Scheme.
The State Governments, as per provisions of the Act contribute 12.5 percent of expenditure on
medical care or ESI beneficiaries in their respective States within the per capita ceiling. Any
expenditure over and above this ceiling is borne entirely by the State Governments

The contributions paid by employees and employers are deposited in a common pool known as
the ESI Fund that is utilized for payment of cash benefits to the insured persons and their
dependants, as well as, for providing medical facilities to the beneficiaries. The administrative
and other expenses of Corporation are also met from this fund.

ADVANTAGES TO EMPLOYERS: Employers who come under the purview of the ESI Act -
1948, derive the following benefits from the Scheme:-
 1. Employers are absolved of all their liabilities of providing medical facilities to employees
and their dependants in kind or in the form of fixed cash allowance, reimbursement of
actual expenses, lump sum grant or opting for any other medical insurance policy of
limited scope unless it is a contractual obligation of the employer.

2. Employers are exempted from the applicability of the: Maternity benefit Act

As per the Latest Amendment in the ESI Act the ESI Corporation has

approved to enhance wage ceiling from Rs 10,000 per month to Rs15,000 per month for
coverage of employees under the ESI Scheme.

Act 3. Payment of Gratuity Act

The Payment of Gratuity Act 1972 is a social security enactment. It is derived from the word
‘gratuitous’, which means ‘gift’ or ‘present’. However, having being enacted as a social security
form, it ceases to retain the concept of a gift but it has to be seen as a social obligation by an
employer towards his employee.

Calculation of Gratuity

Gratuity is calculated at 15 days wages last drawn by the employee for each completed
year of service. The monthly wage is divided by 26 and multiplied by 15. In computing a
Completed year of service the period in excess of six months shall be taken as a full year.

Gratuity = (Monthly salary/26) x 15 days x No. of years of service

Application

The Payment of Gratuity Act 1972 applies to the whole of India and so far as it relates to
ports and plantations it does not apply to the State of Jammu and Kashmir. It applies to:

(a) every factory, mine, oilfield, plantation, port and railway company.
(b) Every shop or establishment within the meaning of any law for the time being in force
in relation to shops and establishment in a State, in which 10 or more persons are or were
employed on any day in the preceding 12 months.
(c) Such other establishments or class of establishment, in which 10 or more employees
are or were employed on any day in the preceding 12 months, as the Central Government
may notify in this behalf.
Any shop or establishment shall continue to be governed by the Act even if the no. of its
employees comes below 10 persons at any time in the future.

Applicability to NGOs

Public charitable and religious trusts are also covered by this Act, provided that they are
shops or establishments within the meaning of the Shops and Establishment Act
applicable to their area of operation and that 10 or persons have been employed by them
on any day in the preceding 12 months.

Payment of Gratuity

Gratuity shall be paid to an employee on the termination of his employment after s/he has
rendered continuous service of not less than 5 years i.e. on superannuation, retirement,
resignation, death or disablement due to accident or disease (Sec 4).
The period of 5 years is not necessary if the termination of the employee is because of
death or disablement. In the case of death the amount is paid to the legal heirs “Continuous
Service” means uninterrupted service which may be interrupted on account of sickness, accident,
leave, absence from duty without (not being treated as break in service), lay-off, strike, lock-out
or cessation of work not due to the fault of the employee. (Sec 2A).

Calculation of Gratuity
Gratuity is calculated at 15 days wages last drawn by the employee for each completed
year of service. The monthly wage is divided by 26 and multiplied by 15. In computing a
completed year of service the period in excess of six months shall be taken as a full year.

Gratuity = (Monthly salary/26) x 15 days x No. of years of service

Maximum amount of Gratuity payable-The maximum amount of gratuity payable under the
Act is Rs. 3,50,000.00.

Forfeiture of Gratuity- Gratuity can be forfeited {Sec 4(6)} where an employee has been
terminated:

(i) for any act, willful omission or negligence causing any damage or loss to or
destruction of any property belonging to the employer, to the extent of such loss or
damage.
(ii) for riotous or disorderly conduct or any act of violence on his part.
(iii) For any act which constitutes an offence involving moral turpitude, provided the
Offence has been committed by him in the course of his employment.

Compulsory Insurance

The Payment of Gratuity (Amendment) Act, 1987 has prescribed provisions for compulsory
insurance for employer’s liability for payment towards the gratuity under the Act from the Life
Insurance Corporation of India establishment under the Life Insurance Corporation of India
Act,1956 or any other prescribed Insurer. However, employer of an establishment belonging to
or under the control of the Central Government or the State Government are exempted from
operations of these provisions. (Section 4A)

Nomination (Sec 6)
Each employee who has completed one year of service is required to make a nomination
for the purposes of gratuity in case of his death. There can be more than one nominee.
(Form F).
Nominees may be changed at any time by the employee, by giving a written notice to the
employer. (Form H).

If no nomination has been made, it shall be paid to the legal heirs of the deceased employee or if
the heirs are minor, the share of such minor shall be deposited by thecontrolling authority with a
bank till he attains majority.

Protection of Gratuity

No gratuity payable under the Act shall be liable to attachment in execution of any decree
or order of any civil, revenue or criminal court. However if the employee had agreed to a
deduction from the amount due as gratuity then that amount can be recovered. (Jaganatha Dasik
v Bina Khadi & Village Industries Board 1995 Lab. IC 923. (Sec. 13) Notice of Opening,
change, closing of Establishment (Rule 3)
 Once the Payment of Gratuity Act becomes applicable to the establishment, a notice in
Form ‘A’ has to be given by the employer to the controlling authority within 30 days.
 Notice in Form ‘B’ is to be given to the controlling authority within 30 days of any
change in name, address, employer or nature of business.
 Where an employer proposes to close down the business he shall submit a notice in Form
‘C’ to the Controlling Authority at least 60 days before the intended closure.

Penalties

Failure to comply with the Payment of Gratuity Act 1972 entails certain penalties (Sec.
9), which are the following:

Details of Violation Penalty

For avoiding any payment knowingly
makes any false statement or
representation
Failure to comply with any provision of
the Act or Rules
Any offence relating to non-payment of
gratuity under the Act
Shall be punishable with
imprisonment up to 6 months or fine
up to Rs. 10,000.00 or both.
Shall be punishable with
imprisonment up to 1 year but will
not be less than 3 months or with
fine, which will not be less than Rs.
10,000.00 but may extend up to Rs.
20,000.00 or with both.
Employer shall be punishable with
imprisonment for a term which shall not
be less than 6 months but
may extend to 2 years, unless the
court for reasons recorded decides
for a lesser term of imprisonment or
a fine, which would meet

Ques. What does an employees do if his employer does not make his full and final
settlement of Account, once the employee leave or is forced to leave the service in the
private sector. How soon and with what documents the employees should fight the case?

Ans. If the employee fails to receive the payment from the employer after having entered into
full and final settlement of the account, the employee can file a civil suit for recovery of office
dues. In case gratuity has not been paid then the employee can proceed under the provisions of
Payment of Gratuity Act and then in case Provident Fund has not been released after the
employee leaving, then he can proceed under the provisions of the Provident Fund Act
Payment of Gratuity Act - Amendments 2010
Every salaried person, who has completed five years of government or private sector service, is
eligible for half a month's salary as gratuity for every completed year of service. But the gratuity
pay of those with higher salaries is now limited at Rs 3.5 lakh. The proposed amendment raises
this to Rs 10 lakh. Every employer with more than ten salaried workers is mandated to provide
gratuity to the eligible employees. Many companies, however, do not keep the gratuity liability
adequately funded. That is, they make provisions for future payment, but do not set aside funds
towards the future payment. Listed companies are expected to disclose their gratuity liability.

Act 4. Workmen’s Compensation Act

The Workmen’s Compensation Act, aims to provide workmen and/or their dependents some relief in case
of accidents arising out of and in the course of employment and causing either death or disablement of
workmen.
To which establishments does the Act apply?

All establishments hiring 20 workers and above must compulsorily register themselves under the
Employees’ State Insurance Act (ESI Act). It is only those establishments, which employ a lesser
number of workers, and therefore to do not come within the purview of the ESI Act that the
Workmen’s Compensation Act applies to. Also if employers fail to register themselves under
the ESI Act, then they will be responsible to pay compensation under the Workmen’s
Compensation Act.
However, the Workmen’s compensation Act will only apply to those persons considered
“workers” and those Employers considered ‘Employers’, as defined under the Act.

Who is eligible to receive the benefits provided by this law?

(s. 2 (1)(n) read with Schedule II)

The Act will apply only to persons recognized as a “workmen” under the Act. The following
criteria have to be satisfied: With the amendment of the Workmen’s Compensation Act
in 2000 now it is not necessary that the worker in question is engaged in the employer’s trade or
business. Further with the Amendment of 2000 now even casual workers1 are covered
by this law. The only requirement is:

The worker should be employed in an activity, which has to be either listed in schedule II of
the Act OR any duty having connection with the specified activity mentioned in the
schedule. In addition, schedule III to the Act contains a list of diseases and persons in
occupations where infection is possible can claim compensation under this Act. They are
‘workmen’ for the purposes of this Act In addition to persons employed in the capacity
mentioned in Schedule II, a driver, a mechanic, cleaner, or person employed in any other
capacity in connection with a motor vehicle are also considered ‘workers’ under this Act.

Are Contract Labor eligible to receive benefits? (Section 12)

In case part of the work of an establishment is contracted out to a contractor and a worker
employed by the contractor for this purpose, is injured then, the principle employer and not the
contractor (who is the worker’s immediate employer), is responsible to pay compensation as
though the worker was directly employed by him.
However, this principal employer holds the right to be indemnified by the person who
would normally pay for the compensation of an injured/deceased worker, i.e. the contractor.
However, nothing shall prevent the worker from claiming his compensation from the
principal employer.

When is an employer liable to pay compensation?

As per Section 3 of the Act, the employer is liable to pay compensation if the worker is injured
by accident that:
1. Arises out of (i.e. while engaged in work), and;
2. In the course of his employment (i.e. during work hours),and
3. Such an injury results in disablement of the worker.
 If three conditions are met, the employer of an establishment covered by the Act, is bound to
pay compensation. While the second condition, i.e. during work hours is easy to prove, the first
condition (i.e., the accident occurred while engaged in work) has been difficult
to establish in certain cases.

Example: A bus was on its last trip for the day. Some assailants entered the bus, sprayed chilli
powder on the passengers and shot the conductor dead. It occurred during work hours, but could
such an act be termed as an injury ‘arising out of the course of work’? In this particular case, it
was argued – successfully - that such an incident is a contingency that can arise during the course
of duty. He was exposed to that particular risk by reason of his employment.4

Definition of ‘Disablement’

The definition of ‘disablement’ is very important in this Act, as it determines the extent of
compensation that can be claimed by the worker injured in the course of his employment. Under
the Act, there are four types of eventualities, which can be compensated, namely:

1. Death
2. Permanent Total Disablement: disablement that incapacitates a worker from all kinds of
work.
3. Permanent partial disablement: disablement that reduces the capacity to work in any
employment similar to that the worker was performing at the time of the accident.

However the employer shall not be liable -

a) in respect of any injury which does not result in the total or partial disablement of the
workmen for a period exceeding three days;

b) in respect of any injury not resulting in death, caused by an accident which is directly
attributable to -
 the workmen having been at the time thereof under the influence or drugs, or
 the wilful disobedience of the workman to an order expressly given, or to a rule expressly
framed, for the purpose of securing the safety of workmen, or
 the wilful removal or disregard by the workmen of any safeguard or other device which
he knew to have been provided for the purpose of securing the safety of workmen.

The burden of proving intentional disobedience on the part of the employee shall lie upon the
employer.

 when the employee has contacted a disease which is not directly attributable to a specific
injury caused by the accident or to the occupation; or
  when the employee has filed a suit for damages against the employer or any other person,
in a Civil Court.

 Any contract or agreement which makes the workman give up or reduce his right to
compensation from the employer is null and void insofar as it aims at reducing or removing the
liability of the employer to pay compensation under the Act.

Theory of notional extension- As a rule, the employment of a workman does not commence
until he has reached the place of employment and does not continue when he has left the place of
employment, the journey to and from the place of employment being excluded. It is now well-
settled, however, that this is subject to the theory of notional extension of the employer's
premises so as to include an area which the workman passes and repasses in going to and in
leaving the actual place of work. There may be some reasonable extension in both time and place
and a workman may be regarded as in the course of his employment even though he had not
reached or had left his employer's premises. The facts and circumstances of each case will have
to be examined very carefully in order to determine whether the accident arose out of and in the
course of the employment of a workman, keeping in view at all times this theory of notional
extension.

It is well settled that when a workman is on a public road or a public place or on a public
transport he is there as any other member of the public and is not there in the course of his
employment unless the very nature of his employment makes it necessary for him to be there. A
workman is not in the course of his employment from the moment he leaves his home and is on
his way to his work. He certainly is in the course of his employment if he reaches the place of
work or a point or an area which comes within the theory of notional extension, outside of which
the employer is not liable to pay compensation for any accident happening to him.

Q: If after the injury, the workman does not lose his old post and receives the same
salary,does the employer still have to pay compensation?

A: Yes. This was held in a Madras High Court judgement (1989 II LLJ 38) where the employee
suffered from injury on the right side of the neck, shoulder and head and there was 100% hearing
loss in the right ear and partial loss of hearing in the left ear. The court held the fact that he was
holding the old post and getting the old wage would not dis-entitle him from compensation under
the Act. This is because, the injury suffered would affect him getting another job of a similar
nature, with a different employer.
Amount of Compensation Payable

(1) The amount of compensation payable by the employer shall be calculated as follows:

(a) In case of death. - 50% of the monthly wages X Relevant Factor or Rs.80,000,
whichever is more. and Rs.1000 for funeral expenses.

(b) In case of total permanent disablement Specified under Schedule I - 60% of the
monthly wages X Relevant Factor or Rs.90,000, whichever is more.

(c) In case of partial permanent disablement specified under Schedule I - Such

percentage of the compensation payable in case (b) above as is the percentage of the loss
in earning capacity (specified in Schedule I)

(d) In case of partial permanent disablement not specified under Schedule I -Such
percentage of the compensation payable in case (b) above, as is proportionate to the loss
of earning Capacity (as assessed by a qualified medical practitioner).

(e) In case of temporary disablement (whether total or partial) - A half-monthly

installment equal to 25% of the monthly wages, for the period of disablement or 5 years,
whichever is shorter.

Explanation I: For the purposes of clause (a) and clause (b), “relevant factor”, in relation
to a workman means the factor specified in the second column of Schedule IV against the
entry in the first column of that Schedule specifying the number of years which are the
same as the completed years of the age of the workman on his last birthday immediately
preceding the date on which the compensation fell due.
Explanation II: Where the monthly wages of a workman exceed four thousand rupees, his
monthly wages for the purposes of clause (a) and clause (b) shall be deemed to be four
thousand rupees only;

(2) For fixing the amount of compensation payable to a workman in respect of an accident
occurred outside India, the Commissioner shall take into account the amount of
compensation, if any, awarded to such workman in accordance with the law of the
country in which the accident occurred and shall reduce the amount fixed by him by the
amount of compensation awarded to the workman in accordance with the law of that
country.

Who is a Dependant?
A ‘dependant’ is defined under the Act in section 2(d). This definition is of vital value, as it
determines who will be eligible to receive the compensation, in case the worker dies in course of
his employment.

(a) A widow,
(b) A minor legitimate/ adopted son,
(c ) An unmarried legitimate/ adopted daughter and;
(d) A widowed mother.

All the above people come under one category as being

dependants of the deceased worker.

(ii) If wholly dependent on the earnings of the worker, then in

addition:
(a) a son or
(b) a daughter who has reached the age of 18 but is infirm or sick.
(This was held by the Karnataka High Court in the case of Bharat Gold
Mines Ltd., v. Hanuman (1992))

(iii) If wholly or partly dependant on the worker, then the following can also be termed as
dependants of the deceased worker: a widower; a parent other than a widowed mother ;a minor
illegitimate son; an unmarried or widowed, adopted, legitimate or illegitimate daughter; a minor
brother; an unmarried sister , a widowed sister, if minor; a widowed daughter-in-law; a minor
child of a deceased son ;an orphaned grand child; a paternal grandparent if the parents of the
deceased worker are also dead.

Comment: The definition of the term “Dependant” shows that it is not intended to benefit all the
legal heirs of a deceased worker but only those relations who to some extent depend upon the
worker’s earnings for their daily necessities. However, all persons mentioned in (i) above are
beneficiaries who only have to prove their relationship with the deceased worker and do not have
to prove that they were dependent on earnings of the worker.

Duties of employers

 To pay compensation for an accident suffered by an employee, in accordance with the

Act.
 To submit a statement to the Commissioner (within 30 days of receiving the notice) in the
prescribed form, giving the circumstances attending the death of a workman as result of
an accident and indicating whether he is liable to deposit any compensation for the same.
 To submit accident report to the Commissioner in the prescribed form within 7 days of
the accident, which results in death of a workman or a serious bodily injury to a
workman.
 To maintain a notice book in the prescribed from at a place where it is readily accessible
to the workman.
 To submit an annual return of accidents specifying the number of injuries for which
compensation has been paid during the year, the amount of such compensation and other
prescribed particulars.

Duties Of Employees

 To send a notice of the accident in the prescribed form, to the Commissioner and the
employer, within such time as soon as it is practicable for him. The notice is precondition
for the admission of the claim for compensation.

 To present himself for medical examination, if required by the employer.

Manner of payment of Compensation

The amount of compensation is not payable to the workman directly. It is generally deposited
along with the prescribed statement, with the Commissioner who will then pay it to the
workman. Any payment made to the workman or his dependents, directly, in the following cases
will not be deemed to be a payment of compensation:

 in case of death of the employee;

 in case of lump sum compensation payable to a woman or a minor or a person of unsound

mind or whose entitlement to the compensation is in dispute or a person under a legal
disability.

Besides, compensation of Rs.10 or more may be deposited with the Commissioner on behalf of
the person entitled thereto.

The receipt of deposit with the Commissioner shall be a sufficient proof of discharge of the
employer’s liability.

Compensation to be paid when due and penalty for default.

(1) Compensation referred shall be paid as soon as it falls due.

(2) In cases where the employer does not accept the liability for compensation to the extent
claimed, he shall be bound to make provisional payment based on the extent of liability
which he accepts, and, such payment shall be deposited with the Commissioner or made
to the workman, as the case may be, without prejudice to the right of the workman to
make any further claim.

(3) Where any employer is in default in paying the compensation due under this Act within
one month from the date it fell due, the Commissioner shall—

(a) direct that the employer shall, in addition to the amount of the arrears, pay simple
interest thereon at the rate of twelve per cent per annum or at such higher rate not
exceeding the maximum of the lending rates of any scheduled bank as may be specified
by the Central Government, by notification in the Official Gazette, on the amount due;
and

(b) if, in his opinion, there is no justification for the delay, direct that the employer
shall, in addition to the amount of the arrears and interest thereon, pay a further sum not
exceeding fifty per cent of such amount by way of penalty :

Provided that an order for the payment of penalty shall not be passed under clause (b)
without giving a reasonable opportunity to the employer to show cause why it should not
be passed.

(4) The interest and the penalty payable under sub-section (3) shall be paid to the workman
or his dependant, as the case may be.
Registration Of Agreements Of Compensation

1. Where the amount payable as compensation has been settled by agreement a

memorandum thereof shall be sent by the employer to the Commissioner, who shall, on
being satisfied about its genuineness, record the memorandum in a registered manner.

2. However where it appears to the Commissioner that the agreement ought not to be
registered by reason of the inadequacy of the sum or amount, or by reason that the
agreement has been obtained by fraud or undue influence or other improper means he
 may refuse to record the agreement and may make such order including an order as to
any sum already paid under the agreement as he thinks just in the circumstances.

3. An agreement for payment of compensation, which has been registered shall be

enforceable under this act notwithstanding anything contained in the Indian Contract Act,
or any other law for the time being in force.

Effect Of Failure To Register Agreement

When a memorandum of any agreement is not sent to the Commissioner for registration, the employer
shall be liable to pay the full amount of compensation, which he is liable to pay under the provisions of
this Act.

Appeal / Bar To Civil Remedy

An appeal against and order of the Commissioner lies to the High Court, within 60 days of the order. The
employer is required to deposit the compensation before filing the appeal.

No right to compensation in respect of any injury shall exist under this act if he has instituted in Civil
Court a suit for damages in respect of the injury against the employer or any other person; and no suit for
damages shall be maintainable by a workmen in any Court of law in respect of any injury -

 if he has instituted a claim to compensation respect of the injury before a Commissioner; or

 if an agreement has come to between the workman and his employer providing for the payment of
compensation in respect of the injury in accordance with the provisions of his Act.

May 24’2010 Workmen's Compensation Act, 1923 becomes Employees with enhanced
compensation limits, full medical expenses reimbursement, case disposal within 3 months,
etc..& also applicable to casual & clericals
Workmen’s Compensation Act is now Employees Compensation Act, 1923 and the definition
of employee includes clerical employees & casual employees also.  Further,

 the minimum compensation limits on no-fault basis are increased to Rs.1,20,000 &
1,40,000 (erstwhile limits being Rs. 80,000 & 90,000).
 under the maximum compensation limit, the monthly wage limit of Rs.4,000/ is removed.
hence, the maximum compensation can go UPTO 50% of Total Monthly Wages now,
irrespective of limits [now a new ceiling of Rs.8000/- is introduced].
 Funeral expenses limit extended to Rs.5000 (from Rs.2,500)
 The employee shall be reimbursed the actual (full) medical expenditure incurred by him
for treatment of injuries caused during the course of employment.
 Time limit for disposal of cases relating to compensation introduced- The
Commissioner shall dispose of the matter relating to compensation within 3 months of
reference.

Old definition:  "workman" means any person (other than a person whose employment is of a
casual nature and who is employed otherwise than for the purposes of the employer's trade or
business) who is….

New definition: Section 2

“(dd)  “employee” means a person, who is—

(i) a railway servant as defined in clause (34) of section 2 of the Railways Act, 1989 (24 of
1989), not permanently employed in any administrative district or sub-divisional office of a
railway and not employed in any such capacity as is specified in Schedule II; or

(ii) (a) a master, seaman or other members of the crew of a ship,

(b) a captain or other member of the crew of an aircraft,

(c) a person recruited as driver, helper, mechanic, cleaner or in any other capacity in connection
with a motor vehicle.

(d) a person recruited for work abroad by a company,

and who is employed outside India in any such capacity as is specified in Schedule II and the
ship, aircraft or motor vehicle, or company, as the case may be, is registered in India; or

(iii)  employed in any such capacity as is specified in Schedule II, whether the contract of
employment was made before or after the passing of this Act and whether such contract is
expressed or implied, oral or in writing; but does not include any person working in the capacity
of a member of the Armed Forces of the Union; and any reference to any employee who has
been” injured shall, where the employee is dead, include a reference to his dependants or any of
them.

Case Study on Trade Union Act ,1926

To, 20th June, 2010.

Mr. Dushyant.

Director,

Human Resources Department.

Shree XYZ Sugars Ltd.

Sir,

Sub: Registration of a new Trade Union.

As you are aware we have started a new green field integrated manufacturing company with
strategic focus on Sugar and its allied products in Power and Ethanol at Harihar.

You are also aware that the Government of Karnataka were pleased to lease the Davangere Sugar
Kharkhana (hereinafter referred to as the DSK) to us for a period of thirty years on LROT basis
to facilitate the revival of the said DSK, and you will also appreciate that the Commissioner for
Cane Development and Director for Sugar in Karnataka after several rounds of discussions
impressed upon the existing Trade Union represented by its office holders to enter into the terms
of settlement with the Kharkhana, so that it not only would benefit the stake holders but also
would enhance the development of the area. The terms of settlement interalia provided that the
union and the employees agree to co-operate with the prospective lessee and would not obstruct
the function/working of the factory in any manner.

Thus when things stood thus and when the workmen of the Kharkhana had entered into a
Memorandum of Settlement to co-operate with us, and when we have invested crores of rupees
for rehabilitation of the said Karkhana and are working in the furtherance of the interests of the
employees and all workmen, some of the workmen of the Kharkhana, in contravention of the
provisions of the Trade Union Act, have got a trade union registered in the name and style of
Shri. Kamadhenu Raya Sugar Employees Union on 18.12.2009, and further that the members of
the newly formed Trade Union are acting in contravention of the terms of settlement mentioned
above, and are acting in a manner which is most detrimental to our interests and investments, by
making illegal demands and coercing us to concede to the said demands. Since the said
certificate of registration has been obtained by the said Trade Union by fraud, misrepresentation
and in contravention of the provisions of the Trade Union Act, I have addressed several
representations to the Competent Authority, Government of Karnataka, to take appropriate action
as contemplated under Sec. 10 of the Trade Union Act and further to cancel the registration of
the newly formed trade union. However the said authority has neither responded to the said
representations made by us nor has exercised his powers as contemplated under the Trade
Unions Act thereby has abdicated his powers.

The resultant equation is that the members of the newly formed trade union have made a charter
of illegal and unwarranted demands and have further commenced the agitations and are also
threatening the other workmen from attending to the work, and for the said reasons, the crushing
has come to a stand still.

In this regard I have had a preliminary discussion with the Chair Person, who is presently on an
official visit to Brazil, and she has directed me to refer this matter to you for your appropriate
action.

I hope you shall take steps to either hold a meeting with the errant members of the newly formed
trade union and amicably resolve the matter or take coercive legal steps to make the said
members start the crushing, forthwith.

Kindly treat this matter as “Top Priority Matter” and do the needful at the earliest.

With regards,

Prashant Bhagwan.

(Manager- Floor & Operations).

** Copy to

The Director- Operations.

The Secretary (Home) to the Hon’ble Chairperson.

The Secretary (Office) to the Hon’ble Chairperson.

The Director- Finance.

Solution of the Case Study

To,

Mr.Prashant Bhagwan.

(Manager- Floor & Operations).

Davangere Sugar Kharkhana.

Sir,

Subject: Possible solution to the problems arising due to registration of new Trade
Union.

The problem is that the newly registered Trade Union has put forth the illegal and unwarranted
demands and it is also coercing the management to concede to the such demands.

In this scenario, our top priority is to keep the work in the karkhana going. First the attempts
should be made to solve the issue amicably. As a result, the demands of the trade union should
be taken under consideration, and a possible solution, which is in the best interests of both, the
employer and the employee should be come up with. These solutions should be put forth in front
of the workers, in case the workers accept them, well and good.

If the contrary to this happens then we will have to resort to coercive legal steps . Since the
certificate of registration of the newly formed Trade Union has been obtained by fraud ,
misrepresentation and in contravention of the provisions of the Trade Union Act. Apart from
this, the other illegalities are

The illegalities are:

1. 18 members hold membership in both the trade unions.

2. 38 members have written to us that they were coerced to sign and hence they have not
voluntarily subscribed to the 2nd Union.

3. The Registrar of Trade Unions has not held a personal verification as required.

The new policies which the company comes up with should be clearly communicated to the
workers first and in case of their non- compliance strict action should be initiated.

I’m hopeful that the difficulties that the karkhana is facing will be resolved soon.

With Regards

Mr. Dushyant.

Director,

Human Resources Department.

Shree XYZ Sugars Ltd.