Verdict

In the Supreme Court, Civil Appellate
Civil Appeal No. 6986 0f 2015
[Special Leave Petition (C) No. 16573 of 2012]

Daivashala & Others .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  Appellant(s
Versus
Oriental Insurance Co. Ltd & Another .  .  .  .  .  .  .  Respondent(s)

In July 2025, the Hon’ble Supreme Court pronounced a landmark judgment with far reaching implications on applicability of Employees’ Compensation Act, 1923 [‘EC Act’] if employee is outside employer’s premises. A look at the facts, analysis and judgment of the Apex Court. 

 The following points will enable an easier understanding of the Judgment:

1. EC Act (earlier Workmen’s Compensation Act, 1923), ensures compensation from employer to an employee for injury or death in an accident ‘arising out of’ or ‘in the course of’ the employment in any kind of workplace where the number of employees exceeds 10 on any day in a year. 
2. ESI Act (Employees State Insurance Act, 1948) is a self-financing insurance cover for employees,  where employer (0.75%), employer (3.25%) and the State contribute to the centralised Employees State Insurance Corporation fund from which employee is covered not only for injury and death but for illness, maternity and other such healthcare besides disablement and loss of employment, as long as his monthly fixed salary does not exceed Rs. 21,000.
3. An employee can be covered either by ESI Act or by EC Act (where ESI Act does not exist due to administrative or logistical reasons), but not by both Acts. 
4. Section 51C was introduced in the ESI Act effective 28th January 1968, which related to occurrence of accident(s) while travelling in employer’s transport.  
5. Section 51E was introduced in the ESI Act effective 1st June 2010, which related to occurrence of accidents while commuting to the place of work and vice versa.  

Background and Facts  

• Shahu Sampatrao Jadhavar was employed as a watchman in a sugar factory in Osmanabad, Maharashtra owned by Respondent No.2.
• In the early morning of 22nd April 2003, the watchman died in a road accident that occurred 5 km away from the factory when he left home to reach his workplace for an early morning shift ( 3 am to 11 am shift).
• His family claimed compensation under the EC Act with the employer and Insurance company. Both rejected the claim on the ground that the accident occurred outside the factory for which they were not liable.
• In response to the family’s appeal, the Commissioner for Workmen’s Compensation and Civil Judge, Senior Division, Osmanabad awarded a sum of Rs 3,26,140/- to the family, from the Insurance company, in June 2009. Simultaneously, the employer was ordered to pay 50% of this amount to the family as penalty.
• In 2011, the Insurance company appealed to Maharashtra High Court challenging the Commissioner’s and lower court’s order. The High Court set aside the Commissioner’s order.
• Aggrieved by the HC order, in 2015, the watchman’s family appealed to Supreme Court by way of Special Leave Petition.

Issues for consideration 

• Whether the road accident that caused the watchman’s death can be deemed to have ‘arisen out of’ and occurred ‘in the course of’ his employment? 
• Whether Section 51E of the ESI Act can be applied retrospectively to old cases?
• Whether Section 51E of the ESI Act is applicable to the present case that is filed under the EC Act?

The Supreme Court referred to the verdicts in the following cases, while adjudicating on this case:

• Bombay Anand Bhavan Restaurant v/s Deputy Director, E.S.I. Corporation & Another (2009) 9 SCC 61
• Jaya Biswal & Others v/s Br Mgr IFFCO Tokio General Insurance Co Ltd & Another (2016) 11 SCC 201
• Income Tax Commissioner, Bombay & Others v/s Podar Cement P. Ltd. and Others (1997) 5 SCC 482 
• State Bank of India v/s V. Ramakrishnan & Another (2018) 17 SCC 394
• Saurashtra Salt Mfg. Co. v/s Bai Valu Raja & Others 1958 SCC OnLine SC 131
• Mackinnon Mackenzie and Co. (P) Ltd. v/s Ibrahim Mahommed Issak (1969) 2 SCC 607
• Hira H. Advani v/s State of Maharashtra (1969) 2 SCC 662
• State of Madras v/s A. Vaidyanatha Iyer 1958 SCR 580
• State of Assam & Another v/s Deva Prasad Barua & Another (1969) 1 S.C.R. 698

Other High Courts’ verdicts:

Analysis & Judgment

• The provision relating to whether the accident has arisen out of or has occurred in the course of the employment a clause which is clearly provided in both ESI Act and EC Act.  
• The cases on which Maharashtra High Court relied on while rejecting compensation were those that were concluded prior to introduction of Section 51E of ESI Act. In all these cases, the accidents had occurred while the employees were commuting from home to workplace or back to home from workplace; such accidents could not be deemed to have arisen out of or in the course of employment at the workplace.
• The Maharashtra High Court pronounced its verdict in 2011, after introduction of Section 51E in 2010, but the case was related to the order issued by the Compensation Commissioner and Osmanabad court in 2009, prior to introduction of Section 51E.
• The Supreme Court, while taking due cognisance of Section 51E, emphasised that there necessarily should be a nexus between the circumstances, place and time in the context of the accident that causes injury or death to the employee. 
• In the present case, the Apex Court observed that a clear nexus existed between the time and place of the accident and the employment: the watchman was travelling for the specific purpose of reaching his workplace in time.
• The Supreme Court applied the Theory of Notional Extension, under which the circumstances, area and time frame of the accident can be included, though on case to case basis, to the present case.
• Regarding the issue of whether a provision or section can be applied retrospectively, the Hon’ble Supreme Court observed that it entirely depends on whether it is by nature declaratory or clarificatory. 

A declaratory section is that which establishes a new rule, right or principle in an existing statute which was not clear or which was ambiguous earlier. A clarificatory section does not create any new right but only provides clarity in the interpretation of an existing statute or simplifies it.

• Declaratory acts are generally prospective, while clarificatory acts can be applied retrospectively.
• Section 51E was found by Supreme Court to be both declaratory as well as clarificatory, hence applied it retrospectively to the present case of the deceased watchman.

On the issue of whether Section 51E of ESI Act can be applied to present case filed under EC Act:

• Both ESI Act and EC Act are created out of the same legislative intent which is to provide social security and financial benefits to employees who need them in situations of injury, death, sickness, disablement, etc. As such, the interpretation of these Acts should be liberal and advantageous to the beneficiary who in this case is the employee.
• Both ESI Act and EC Act have used the same phrase ‘personal injury to an employee caused by accident arising out of and in the course of his employment’ in their Sections 2(8) and 3 respectively, while elaborating on the employer’s liability in the event of injury to the employee. The only difference is that ESI Act is applicable to factories and notified establishments (private and govt owned) whereas EC Act is applicable to all other conceivable types of ‘employers’.
• There are several precedents of high courts giving relief to employees under Section 51E of ESI Act against appeals made for compensation under EC Act. The concept of “statutes in pari materia” has been adopted while adjudicating in such cases. 
• Two Acts are said to be in pari materia if, taking all their circumstances into account, it is natural to construe them as if they formed part of a single code on a particular matter.
• Supreme Court found the ESI and EC Acts to be in pari materia in the context of the clause ‘personal injury to an employee caused by accident arising out of and in the course of his employment’ described in both these Acts.

Based on the above, the Supreme Court has set aside Maharashtra High Court’s judgement and has upheld the order of Commissioner for Workmen’s Compensation and Civil Judge, Osmanabad granting the compensation to the deceased watchman.

For full text of the judgement:
https://api.sci.gov.in/supremecourt/2012/11949/11949_2012_5_1501_62795_Judgement_29-Jul-2025.pdf