STATE OF MADHYA PRADESH v. CHITREKHA — 1998 DIGILAW 292 (MP)

S. K. DUBEY, J. ( 1 ) THIS order will also govern the disposal of M. A. No. 663 of 1996 (Chitrekha v. Lakhi Singh ). The State and its Executive Engineer have filed this appeal under section 30 of the Workmen's Compensation Act, 1923 (for short 'the WC Act') against the order dated 13. 2. 1996 passed in Case No. 85/ w. C. A. /88/f by the Commissioner for workmen's Compensation (Labour Court), bilaspur (for short 'the Commissioner' ). ( 2 ) FACTS giving rise to appeal are thus: the appellants awarded a works contract of different works of Chapi Nallah Bandh to respondent No. 8 in accordance with the terms and conditions of the contract no. 1/dl/88-89. To execute the contract the respondent No. 8 engaged several labourers, one of them was the deceased shyamji alias Raju, who on ill-fated day of 18. 4. 1988 at about 9 a. m. while was loading the earth in truck No. MPM 4881 owned by respondent No. 8, heap of earth fell down from the truck on the deceased shyamji. He was taken to the hospital, but he succumbed to the injuries. The subengineer lodged the first information report at Police Station Ratanpur on 24. 4. 1988. As the deceased died due to the injuries received in accident arising out of and during the course of employment and that the compensation calculated in accordance with section 4 of the WC Act, was not deposited within one month for disbursement, the respondent Nos. 1 to 6 who are the dependants of the deceased filed an application under section 3 of the WC Act against the appellants, the owner of the truck, respondent No. 7 and the contractor, respondent No. 8, before the Commissioner. The respondent No. 7 after notice did not appear and was proceeded ex pane, while the appellants and the respondent no. 8 contested the application for compensation. The Commissioner on the evidence adduced by the parties held that the deceased died due to the injuries received by accident arising out of and during the course of employment of the contractor and the principal. The deceased aged 22 years was getting Rs. 40 per day, monthly rs. 1,200, therefore, as provided by section 4 of the WC Act, calculated the compensation of Rs. 1,06,257. 60. The deceased aged 22 years was getting Rs. 40 per day, monthly rs. 1,200, therefore, as provided by section 4 of the WC Act, calculated the compensation of Rs. 1,06,257. 60. The Commissioner also directed the payment of compound interest at the rate of 6 per cent per annum on the amount of arrears from the date of accident and also recovery of Rs. 30,000 as penalty, as the respondent No. 8 and appellants failed to justify the delay in depositing the amount of compensation. ( 3 ) MR. Agrawal, learned Government advocate, contended that the Commissioner illegally directed payment of compensation, interest and penalty by the appellant State who is not the employer, but the principal. The compensation was to be paid by the employer, the respondent no. 8, who did not deposit the amount of compensation due in accordance with chapter II of the Act. The Commissioner was not right in directing recovery of penalty amount of Rs. 30,000 and interest on the arrears under section 4-A (3) of the wc Act, as under section 12 the principal is only liable to pay compensation and not the penalty and interest. A decision of bombay High Court in Sarjerao Unkar jadhav v. Gurindar Singh, 1990 ACJ 719 (Bombay), was placed reliance. ( 4 ) MR. Umesh Trivedi, learned counsel for the respondent No. 8 submitted that the Commissioner illegally assessed the wages of the deceased at Rs. 40 per day, monthly Rs. 1,200 without any evidence on record. Counsel further submitted that the accident was caused when the truck was loading the earth, therefore, besides the owner of the truck, its driver and insurer ought to have been impleaded as parties. The Commissioner erred in not holding the truck owner liable to pay the compensation. The award of compound interest at the rate of 6 per cent per annum on the arrears due was against section 4-A (3) of the WC Act which provides simple interest and not compound interest. The direction of exorbitant penalty is illegal in the circumstances of the case. ( 5 ) MR. Sanjay K. Agrawal, learned counsel for the respondent Nos. The direction of exorbitant penalty is illegal in the circumstances of the case. ( 5 ) MR. Sanjay K. Agrawal, learned counsel for the respondent Nos. 1 to 6 while supporting the order of payment of compensation and penalty submitted that interest ought to have been awarded at the rate of 12 per cent per annum as is provided in the amended provisions of section 4-A (3) by the Workmen's compensation (Amendment) Act, 1995 (Act no. 30 of 1995) and that dependants have filed M. A. No. 663 of 1996, to claim interest. Reliance was placed on decisions of kerala and Bombay High Courts in Oriental Insurance Co. Ltd. v. Ashokan, 1998 acj 33 (Kerala) and Executive Engineer, public Works Department v. Bhimrao manikrao Unhale, 1997 ACJ 1141 (Bombay ). ( 6 ) IT may be stated here that the respondent No. 8, contractor, has not filed any appeal or cross-objection aggrieved of the order passed by the Commissioner. ( 7 ) THE calculation and determination of the compensation on the daily wages of Rs. 40 per day is in accordance with chapter II of the WC Act, is based on the evidence adduced by the parties. Therefore, the compensation so calculated does not call for any reduction. ( 8 ) AS to the direction of recovery of compound interest at the rate of 6 per cent per annum on the amount of arrears from the date of the accident and penalty of rs. 30,000 under section 4-A (3) of the wc Act and inter se liability of appellants as principal and of respondent No. 8 as contractor employer, it would be appropriate to refer to sections 2 (1) (c), 2 (1) (e) and relevant provisions applicable to this case of sections 3, 4-A and 12 of the wc Act, which are extracted thus:"2 (1) (c) 'compensation' means compensation as provided for by this Act. xxx xxx xxx 2 (1) (e) 'employer1 includes any body of persons whether incorporated or not and any managing agent of an employer and the legal representative of a deceased employer, and, when the services of a workman are temporarily lent or let on hire to another person by the person with whom the workman has entered into a contract of service or apprenticeship, means such other person while the workman is working for him; xxx xxx xxx 3. Employer's liability for compensation.- (1) If personal injury is caused to a workman by accident arising out of and in the course of his employment, his employer shall be liable to pay compensation in accordance with the provisions of this Chapter: xxx xxx xxx 4-A. Compensation to be paid when due and penalty for default. (1) Compensation under section 4 shall be paid as soon as it falls due. XXX XXX XXX (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 may direct that, in addition to the amount of the arrears, simple interest at the rate of six per cent per annum on the amount due together with, if in the opinion of the commissioner there is no justification for the delay, a further sum not exceeding fifty per cent of such amount, shall be recovered from the employer by way of penalty. xxx xxx xxx 12. Contracting. (I) Where any person (hereinafter in this section referred to as the principal) in the course of or for the purposes of his trade or business contracts with any other person (hereinafter in this section referred to as the contractor) for the execution by or under the contractor of the whole or any part of any work which is ordinarily part of the trade or business of the principal, the principal shall be liable to pay to any workman employed in the execution of the work any compensation which he would have been liable to pay if that workman had been immediately employed by him; and where compensation is claimed from the principal, this act shall apply as if references to the principal were substituted for references to the employer except that the amount of compensation shall be calculated with reference to the wages of the workman under the employer by whom he is immediately employed. (2) Where the principal is liable to pay compensation under this section, he shall be entitled to be indemnified by the contractor or any other person from whom the workman could have recovered compensation and where a contractor who is himself a principal is liable to pay compensation or to indemnify a principal under this section he shall be entitled to be indemnified by any person standing to him in the relation of a contractor from whom the workman could have recovered compensation and all questions as to the right to and the amount of any such indemnity shall, in default of agreement be settled by the commissioner. " ( 9 ) FIRST we shall deal with the question relating to interest and penalty directed to be paid in addition to the compensation under section 4-A (3) of the wc Act. A reading of sub-section (3) of section 4-A shows that it is a beneficial provision made for the benefit of the employee having regard to the scheme of the Act, the provisions for payment of interest and of penalty have been enacted with a view to deter the employer from taking false plea and avoiding payment of compensation which becomes payable. However, when the Commissioner awards interest, it has no power to award simple interest exceeding 6 per cent per annum on the amount of compensation due which remains unpaid for a period exceeding one month after it fell due. The Commissioner may further with interest direct recovery of penalty, if in the opinion of the Commissioner there is no justification for the delay, a further sum not exceeding fifty per cent of such amount. Therefore, in view of the statutory provision the compound interest and interest more than 6 per cent cannot be awarded. That is the view of this court in Divisional Forest Officer, gwalior v. Baijantibai, 1995 ACJ 1002 (MP ). True, by Workmen's Compensation (Amendment) Act, 1995 the rate of interest has been enhanced from 6 per cent to 12 per cent. The amended Act has come into force with effect from 19. 8. 1995. It has no retrospective applicability. Therefore, we respectfully cannot agree with the view taken by Kerala High Court in Oriental insurance Co. Ltd. , 1998 ACJ 33 (Kerala)and Bombay High Court in Executive engineer, Public Works Department, 1997 acj 1141 (Bombay ). The amended Act has come into force with effect from 19. 8. 1995. It has no retrospective applicability. Therefore, we respectfully cannot agree with the view taken by Kerala High Court in Oriental insurance Co. Ltd. , 1998 ACJ 33 (Kerala)and Bombay High Court in Executive engineer, Public Works Department, 1997 acj 1141 (Bombay ). ( 10 ) HOWEVER, the direction of payment of penalty of Rs. 30,000 in the circumstances is legal and proper as the Commissioner has recorded a finding that the appellants and respondent No. 8 took a false stand and could not justify the delay in not depositing the compensation within one month from the date it fell due. ( 11 ) QUESTION regarding inter se liability of the principal and contractor to pay the compensation: The 'employer' is defined in section 2 (1) (e) of the WC Act which does not speak of the principal or the contractor. It is only section 12 which deals with 'contracting' where two types of employer appear in sub-section (1) and in sub-section (2) of section 12. From a reading of section 12 of the WC Act, the object is apparent, that is, to protect the workman and secure compensation for him from persons in a better position to pay, who then are to be indemnified by the contractor, for which the provision is made in sub-section (2) of section 12. ( 12 ) AS section 12 speaks of payment of compensation by the principal, whether the principal would also be liable to pay interest and penalty along with compensation. The compensation has been defined in section 2 (1) (c) of the WC Act, means as provided by the Act. Section 3 deals with employer's liability for compensation to be calculated in accordance with the provisions of Chapter II of which section 4 deals with the calculation of compensation, therefore, evidently the compensation does not include interest and penalty as said by the Bombay High Court in case of Sarjerao Unkar Jadhav, 1990 ACJ 719 (Bombay ). ( 13 ) HOWEVER, in our opinion, the interest would be payable along with the compensation and not the penalty. ( 13 ) HOWEVER, in our opinion, the interest would be payable along with the compensation and not the penalty. This we say in view of the recent pronouncement of the Supreme Court in Ved Prakash garg v. Premi Devi, 1998 ACJ 1 (SC), wherein the Supreme Court considered the question of the extent of liability of the insurance company to pay compensation, penalty and interest in terms of the policy and statutory provisions, i. e. , sections 147, 167 of the Motor Vehicles Act, 1988 and sections 3,4-A and 19 (1) of the amended act as amended by the Act No. 30 of 1995, position is similar under sub-section (3) of section 4-A as it stood prior to amendment of 1995, observed that once compensation falls due and within one month it is not paid by the employer then as per section 4-A (3) (a) interest at the permissible rate gets added to the said principal amount of compensation as the claimants would stand deprived of their legally due compensation for a period beyond one month which is statutorily granted against the employer concerned to make good his liability for the benefit of the claimants whose breadwinner might have either been seriously injured or might have lost his life. Thus so far as interest is concerned it is almost automatic once the default, on the part of the employer in paying the compensation due, takes place beyond the permissible limit of one month. No element of penalty is involved therein. It is a statutory elongation of the liability of the employer to make good the principal amount of compensation within the permissible time-limit during which interest may not run but otherwise liability of paying interest on delayed compensation will ipso facto follow. Even though the Commissioner under these circumstances can impose a further liability on the employer under circumstances and within limits contemplated by section 4-A (3) (a) still the liability to pay interest on the principal amount under the said provision remains a part and parcel of the statutory liability which is legally liable to be discharged by the insured employer. Consequently, such imposition of interest on the principal amount would certainly partake the character of the legal liability of the insured employer to pay the compensation amount with due interest as imposed upon him under the Act. Consequently, such imposition of interest on the principal amount would certainly partake the character of the legal liability of the insured employer to pay the compensation amount with due interest as imposed upon him under the Act. Thus the principal amount as well as the interest made payable thereon would remain part and parcel of the legal liability of the insured to be discharged under the Act and not dehors it. It, therefore, cannot be said by the insurance company that when it is statutorily and even contractually liable to reimburse the employer qua his statutory liability to pay compensation to the claimants in case of such motor accident to his workman, the interest on the principal amount which almost automatically gets foisted upon him once the compensation amount is not paid within one month from the date it fell due. ( 14 ) HOWEVER, in respect of penalty the Supreme Court observed that similar consequence will not follow in case where additional amount is added to the principal amount of compensation by way of penalty to be levied on the employer under circumstances contemplated by section 4-A (3) of the Act, as when the Commissioner is of the view that there is no justification for such delay on the part of the employer and because of his unjustified delay and due to his own personal fault he is held responsible for the delay, then the penalty would get imposed on him. That would add a further sum up to 50 per cent on the principal amount by way of penalty to be made good by the defaulting employer. So far as this penalty amount is concerned it cannot be said that it automatically flows from the main liability incurred by the insured employer under the act. To that extent such penalty amount as imposed upon the insured employer would get out of the sweep of the term 'liability incurred' by the insured employer as contemplated by the proviso to section 147 (1) (b) of the Motor Vehicles Act as well as by the terms of the insurance policy. To that extent such penalty amount as imposed upon the insured employer would get out of the sweep of the term 'liability incurred' by the insured employer as contemplated by the proviso to section 147 (1) (b) of the Motor Vehicles Act as well as by the terms of the insurance policy. Applying the ratio of the said decision in section 12, which only speaksof compensation and not of interest and penalty under section 4-A (3), but, as said by the supreme Court the interest is automatic once default, on the part of the employer in paying the compensation due, takes place beyond the permissible limit of one month. It becomes part and parcel of the statutory liability which is legally liable to be discharged. However, the penalty is not, as it does not automatically flow from the main liability incurred by the employer. It is only if the Commissioner does not find justifiable reason for the delay on the part of the employer and such unjustified delay is due to his own personal fault and he is held responsible for the delay, then only the penalty would get imposed on him. Therefore, agreeing with the view taken by the Bombay High Court in Sarjerao Unkar Jadhav's case, 1990 ACJ 719 (Bombay), that the compensation does not include penalty, we hold that the principal, i. e. , the appellants are liable to pay the compensation and interest under section 12 (1) of the WC Act and not the penalty. ( 15 ) AS an upshot, the order of the commissioner deserves to be modified with a direction to the appellants to pay compensation and its simple interest at the rate of 6 per cent per annum from the date of accident till the date of deposit of the compensation, i. e. , 27. 3. 1996. The appellants would not be liable to deposit the amount of Rs. 30,000 as directed to be paid as penalty in addition to the amount of compensation under section 4-A (3) of the WC Act, that would be the liability of the respondent No. 8, the contractor. The appellants as principal shall be entitled to be indemnified by the respondent No. 8 in view of section 12 (2) of the WC Act as directed by the Commissioner. The appellants as principal shall be entitled to be indemnified by the respondent No. 8 in view of section 12 (2) of the WC Act as directed by the Commissioner. Consequently, the appellants shall be entitled to recover the amount of compensation and its interest from the respondent No. 8, if he fails to indemnify the appellant/state by payment of amount of compensation and its interest. ( 16 ) IN the result, the appeal M. A. No. 534 of 1996 filed by the appellant State is partly allowed, the order of Commissioner shall stand modified as indicated hereinabove. Consequently, the appeal M. A. No. 663 of 1996 filed by the respondent Nos. 1 to 6 shall stand dismissed. However, in the circumstances, the appellants shall bear their own costs, while the respondent Nos. 1 to 6 shall be entitled to costs which shall be borne by respondent No. 8. Counsel's fee Rs. 1,000, if pre-certified. C. C. as per rules. Appeal partly allowed. .