Principal Employer Can't Escape Liability Under EC Act By Claiming Workers Were Through Contractor: Bombay HC

Bombay High Court: A Single Judge Bench of Justice Sharmila U. Deshmukh dismissed Air India Charters Ltd.'s appeal against compensation awarded to a deceased pilot's dependents. The Court held that under Section 12 of the Employees' Compensation Act, 1923, the principal employer bears primary liability for compensation even when workers are engaged through contractors. The Court affirmed that the compensation should be calculated based on the higher salary amount of $11,000 previously acknowledged by AICL, and upheld both the 50% penalty and 12% interest for delayed payment. Additionally, the Court maintained that the exchange rate applicable on the judgment date, not the deposit date, should determine the final compensation amount. Background Captain Zlatko Glusica, employed as a pilot with AICL through a contract with Sigmar Aviation Ltd., died in an air crash at Mangalore Airport on May 22, 2010. His dependents filed a compensation claim, leading the Commissioner of Employees' Compensation to direct AICL to pay $745,580 in compensation, alongside a 50% penalty and 12% annual interest due to delayed payment since the accident. AICL appealed, arguing it had paid Sigmar Aviation Ltd. $11,000 monthly for Captain Glusica's salary, whereas his actual monthly salary was $9,170 under his contract with Sigmar. Arguments AICL asserted that the salary deposited should reflect Captain Glusica's contracted salary of $9,170, not the amount paid to Sigmar, and contested the penalty and interest on the grounds of a supposed bona fide dispute over the exact salary amount. AICL further argued that as Sigmar, and not AICL, was the direct employer, it should not bear the liability. Additionally, AICL claimed the exchange rate applied to calculate the compensation should reflect the deposit date rather than the judgment date. Conversely, the respondents maintained that since AICL had deposited compensation based on $11,000 monthly, it had accepted that amount as Captain Glusica's salary. They argued that interest and penalties under the EC Act were justified due to the delay. Relying on past judgments, they asserted that the exchange rate on the judgment date should apply. Court's Reasoning The court noted AICL's liability under Section 12 of the EC Act, which specifies that when a contractor provides services on a principal's premises, the principal employer bears the primary obligation to compensate workers in case of injury or death. Here, the court emphasized that Captain Glusica's work for AICL, despite the contractor agreement, implicated AICL as the de facto employer for compensation purposes. The fact that AICL engaged the deceased pilot through Sigmar Aviation Ltd. did not mitigate its liability, as his work was directly tied to AICL's operations, not merely to the contractor. The court found no merit in AICL's assertion that the compensation amount should be based on Captain Glusica's salary as stipulated by Sigmar, since AICL had already deposited compensation calculated on the higher $11,000 figure. AICL's acceptance of this salary basis, documented by the Commissioner's reliance on Form A filed by AICL itself, constituted an implicit acknowledgment of the higher amount, making AICL accountable for any discrepancy. Justice Deshmukh noted that allowing AICL to change the basis for salary calculation would undermine the dependents' rights under the EC Act and violate the principle of fair treatment in employer-employee relationships, particularly in life-threatening work scenarios. On the issue of exchange rate, the court dismissed AICL's plea for application of the rate at the deposit date. The court emphasized consistency with precedent, holding that compensation should reflect the judgment date exchange rate to preserve the intended value of compensation, not penalizing the dependents due to procedural delays. Furthermore, the court found no justifiable basis for AICL's claim that interest and penalty should be waived. Section 4A(3)(b) of the EC Act mandates interest and penalty on delayed payments as protective measures to prevent hardship for dependents in cases of employer delay. Justice Deshmukh reasoned that AICL's failure to address or provide interim payments in a timely manner exacerbated the family's financial hardship, which the law aims to guard against. The delay, in this case, was not excusable, as AICL had been aware of its liability immediately following the accident and the compensation deposit. The court dismissed AICL's appeal. Citation: 2024:BHC-AS:42319 Date: 23 October 2024 Counsel for the Appellant: Mr. Firoz Bharucha, Mr. Jehan Lalkaka, Mr. Faiyaz Khan Counsel for the Respondent: Mr. Rishi Ashok, Ms. Arya Krishnan Click Here To Read/Download The Order

Principal Employer Can't Escape Liability Under EC Act By Claiming Workers Were Through Contractor: Bombay HC

Pranav Kumar

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