Sole Proprietor Who Personally Executes Work Covered Under Employees' Compensation Act: Karnataka High Court Holds Insurer Liable

The Division Bench of Justice Suraj Govindaraj and Dr. Justice Chillakur Sumalatha, while setting aside the Raichur Workmen's Compensation Commissioner's order, noted that the principal employer and the insurer is jointly and severally liable to pay Rs 7,07,760/-as compensation [ for loss of dependency, estate and funeral expenses] to the dependents along with 12 per cent interest.

“…. In India, a substantial proportion of commercial and industrial activity is carried on through sole proprietary concerns. Unlike large corporate organisations... the proprietor of a small proprietary concern often constitutes the principal technician, mechanic, operator, supervisor, manager and administrator rolled into one. He secures the contract, arranges the resources, supervises the work and very often personally executes the work itself”, Justice Suraj Govindaraj noted in his supplementary opinion in the judgment authored by Justice C. Sumalatha.

The tragic incident occurred due to a boiler blast while the deceased owner of M/s. Dinesh Contracts-a firm that undertook specialized work of repairing boilers-was personally looking into a leakage as per the instructions of BBM Ispat who was the principal employer company [R1].

Along with the principal company BBM Ispat [R1] and its officers, the Employees' Compensation Insurer of M/S Dinesh Contracts was also arraigned in the claim petition before the Commissioner. The Commissioner dismissed the claim, holding that the deceased was not a 'workman' within the meaning of Section 2(n) of the Act. The Commissioner also made a finding that BBM Ispat cannot be termed as the employer of the Dinesh Contract's proprietor under Section 2(e), negating any employer-employee relationship between them.

“…Where the proprietor personally undertakes and executes the work forming the subject matter of the business, contributes his own labour, skill and physical effort, exposes himself to the same occupational hazards as any other worker and suffers injury or death in the course thereof, there exists no rational basis for denying him the character of a workman for the purposes of the Act”, Justice Suraj Govindaraj further noted in the order, rejecting the Commissioner's justifications.

Justice Govindaraj also opined that the Workmen Compensation Commissioner had erred by examining the claim solely through the definitions of employer and workmen under Section 2 of the Act, while overlooking the scope of Section 12 of the Act.

“…The Commissioner proceeded on the premise that unless a direct employer-employee relationship was established between the deceased and respondent No.1, no liability could be fastened upon respondent No.1. Such an approach overlooks the statutory framework specifically enacted by Parliament to govern situations where work is executed through contractors…”, the court said.

Section 12 of the Act deals with the liability of a principal employer when a worker who functions as an employee of the contractor gets injured while carrying out the job prescribed by the principal employer.

“…Section 12 introduces a statutory fiction. The provision treats a workman engaged through a contractor, for the limited purpose of compensation under the Act, as if he had been immediately employed by the principal employer. The liability thereby created is neither contractual in origin nor dependent upon proof of negligence. It is a statutory liability”, the court further clarified.

The court noted that all the necessary ingredients of Section 12 were met since there was a contractual arrangement between the principal employer and the contractor, and the accident occurred during the course of business. Moreover, the deceased proprietor himself was repairing the boiler which was ordinarily connected to the functioning of the principal employer's establishment, and the work was undertaken at the principal employer's premises itself. Hence the court pointed out the all the ingredients under Section 12 have been met.

“…The Act does not predicate compensation upon proof of negligence. Unlike an action for damages founded in tort, liability under the Act arises once the statutory ingredients are satisfied and the accident is shown to have arisen out of and in the course of employment…”, the court said.

The Court also held that Insurance Company[R5] was liable to compensate the proprietor who has been deemed to be a workman under the act as the sole proprietor who undertook the work assigned by the principal employer.

“…The hazard arises from the nature of the work performed and not from the legal form of the entity undertaking it. The source of the risk is the work itself. A person who physically performs that work and is exposed to its hazards cannot be denied protection merely because he also happens to own the business through which the work is carried on…”, the court opined.

The court highlighted that the compensation policy was issued to cover liabilities under the Employees' Compensation Act. There is no express exclusion clause excluding the proprietor from the operation of the insurance policy, the court further said.

“...It is a settled principle of insurance law that exclusions must be clear, express and unambiguous. An insurer seeking to avoid liability on the basis of an exclusion bears the burden of demonstrating that the case falls squarely within the exclusion relied upon. In the absence of such an exclusion, the policy must be interpreted in a manner consistent with its purpose…To permit respondent No.5 to avoid liability merely because the workman happened also to be the proprietor of the concern would defeat both the object of Section 12 and the purpose for which the policy was issued. Such an interpretation would enable insurers to collect premium for occupational risks while avoiding liability when those very risks materialise….”, Justice Suraj Govindaraj said.

Hence the court allowed the writ appeal in part and set aside the order of Raichur Commissioner, holding the principal employer and insurer jointly and severally liable for the compensation amount. The principal employer will be at liberty to recover the amount from R5 insurer. As regards the compensation, the wife, one of the dependents, will be able to withdraw her share of compensation whereas the share of the two minor children will be disbursed only upon them attaining majority.

“…By applying too technical approach, Insurance Companies, Principal Employers and Employers should not add insult to the injury of Workmen/Dependents”, Justice Chillakur Sumalatha said.

Case Title: Radha & Ors. v. BBM Ispat Limited & Ors.

Case No: MFA No. 200447 of 2020

Citation: 2026 LiveLaw (Kar) 225