Karnataka High Court holds that ex-gratia amount paid not in accordance with the statutory provision, cannot be deducted from the compensation awarded under the Employees Compensation Act, 1923

The High Court of Karnataka, on June 25, 2020 in the case of Nusrat Jahan and others v. The Managing Director has held that, ex-gratia amount paid not in accordance with the statutory provision, cannot be deducted from the compensation awarded under the Employees Compensation Act, 1923 (“Employees’ Compensation Act”). Facts of the case Upon the death of a workman engaged as a lineman in the respondent organisation, the organisation had directly paid a sum of Rs. 5,00,000 (Rupees five lacs) as an ex-gratia amount to the legal heirs of the deceased. At the time of determination of the compensation payable under the Employees Compensation Act, whilst the learned Commissioner for employees compensation had awarded compensation of Rs. 5,19,950 (Rupees five lacs nineteen000 nine hundred and fifty), sought to deduct the ex-gratia payment of Rs. 5,00,000 (Rupees five lacs) ex-gratia amount and held, that the beneficiaries were entitled only for remaining compensation of Rs. 19,950/- (Rupees nineteen000 nine hundred and fifty) with interest at 12% per annum. An appeal was filed against the said adjudication. Issue The issue which arose before High Court of Karnataka was Whether the deduction of ex-gratia amount by the Commissioner for Employees compensation in the amount of compensation determined under the Employees Compensation Act is in accordance with the provisions of Employees Compensation Act? Decision by the Court The High Court observed that in view of Section 8, 28 and 29 of the said Employees Compensation Act, it was evident that no direct payment in nature made to the deceased workman/dependents including any payment in nature of ex-gratia compensation can be deducted except in accordance with procedure stated in the above referred sections, which inter-alia, required any such deposit to be made with the Commissioner directly. The High Court considered the relevant provisions of the Employees Compensation Act and interpreting the same in light of the statement of objects and reasons, noted that such provisions were designed to protect heirs and legal representatives of the deceased workman against any kind of exploitation or fraud likely to be practiced on them by or on behalf of employer or any third party. Specific reference was made to Section 8 of the statute, which laid down the mechanism of distribution of compensation payable by the employer when an employer meets with an accident and noted that any private payment would not discharge the statutory obligation. Finally, after referring to certain precedents, including a recent judgment of High court of Himachal Pradesh in the case of State of Himachal Pradesh v. Guddi Devi (FAO 201 of 2009, decision dated August 6, 2019), the High Court concluded that, any payment made dehors the above mentioned sections cannot be deducted from the statutory compensation payable under Employees Compensation Act. This update has been contributed by Arka Majumdar (Partner) and Juhi Roy (Associate).