Courts Can Deviate From Schedule Of Employees Compensation Act To Determine Functional Disability : Supreme Court

The Supreme Court recently held that in computing the compensation for functional disability, Courts don't need to confine themselves to the schedule under the Employees' Compensation Act 1923. 

The bench of Justice Sudhanshu Dhulia and Justice K Vinod Chandran was hearing an appeal against the order of the Bombay High Court, which reduced the disability percentage of 100% to 34% for calculating the compensation of an employee who lost four fingers of his right hand. 

As per the facts, the appellant, employed to operate a forging machine in 2002, was being paid Rs. 2,500 per month. In 2004, he suffered from an accident where, late at night, while operating the machine, a part of it fell on the appellant's hand. 

Having undergone surgery, the appellant lost one phalanx of the little finger, two phalanges of the ring finger, three phalanges of the middle finger and two and a half phalanges of the index finger. 

The Commissioner allowed 100% disability and adopted the factor of 213.57, thus determining the total compensation to be ₹ 3,20,355/-. The Commissioner also awarded 12% interest from the date of the accident and a 50% penalty of 1,60,178/- for the reason that the employer had not paid the compensation within one month from the accident. 

Against this order, the employer appealed before the High Court. The High Court in the impugned order reduced the disability percentage to 34%. The impugned order relied on the fact that the loss of disability was specified as under Part II of Schedule I of the Employees' Compensation Act, 1923. 

The High Court also made a distinction of the present case with instances of functional disability that occur in cases of motor accident claims. Here, the Court determined that the loss is statutorily described. it also noted that no disability certificate was issued by the doctor or medical board. 

The Supreme Court disagreed with the view taken by the High Court and referred to the decision in Oriental Insurance Co. Ltd. v. Mohd. Nasir, where the Court held "that both the Workmen's Compensation Act, 1923 and the Motor Vehicles Act, 1988 are beneficial legislations aimed at providing expeditious relief to the victims of accidents." 

The precedent also held that the Statute required a liberal interpretation by the Courts.

The bench observed that in Oriental Insurance, the Court noted that the Motor Vehicles Act allows the use of Schedule I of the 1923 Act, which in some cases links permanent disability with functional disability, even though this connection is a legal assumption rather than a factual one.

"The Motor Vehicles Act created a legal fiction insofar as permitting reference to Schedule I of the Workmen's Compensation Act, 1923 (as it was named then) which correlates the permanent disability, at least in certain cases, with the functional disability." 

Notably, functional disability is the type of disability that would interfere with the victim's ability to carry out day-to-day activities and affect their capacity to earn a livelihood. 

The bench went on to observe that the Court in Oriental Insurance held that the Court or Tribunal needs to necessarily provide reasons for determining the loss of earning capacity. Thus the bench concluded that it is not prohibited for the courts to travel beyond the prescribed Schedule in order to determine loss of earning due to functional disability. 

"Hence it is not as if there can never be a departure from the Schedule in deciding the functional disability, which it has been recognised would in certain cases have a corelation with the physical disability."  

Applying the principle to the facts of the present case, the bench held that the Schedule does not account for loss of two and a half phalanges of the index finger. The Court considered this loss to be taken as a whole loss which accounts for 14%. 

It further added that, "in any event the disability even as determined by the Schedule to the Act would be 37% aggregating the total loss." 

The bench referred to Explanation 1 to sub-Section (1) (c) of Section 4, which provides that when a person suffers multiple injuries in the same accident, the compensation for each injury can be added together, but the total cannot be more than what would be paid for a permanent total disability.

It was observed that the statute only provides for a specific loss of a phalanx or a finger, and in the event of more than one such loss, it cannot be said that a mere aggregation would determine the actual loss.

While a medical certificate was also not produced in the present case, the Court stressed that the appellant had indeed suffered from functional disability after losing 4 of his fingers of the right hand. Considering the same, the bench enhanced the loss at 50%

" The fact remains that the appellants working hand has been seriously mutilated by the loss of one or more phalanges of four fingers. The middle and index finger having been disabled completely and the ring finger and the little finger having lost two phalanges and one phalanx respectively, functionally it is difficult for the right hand to be used with the same grip as available prior to the accident. Though a 100% disability cannot be assessed, insofar as the mutilation of the one hand which is also the operational hand, the right hand, we are inclined to determine the loss at 50%." 

The bench calculated the enhanced compensation as follows : 

"The loss thus would be assessed as ₹ 2,500/- x 60% x 213.57 which comes to ₹ 3,20,355/-. Fifty per cent of the same would come to ₹ 1,60,177.5. The employee would also be entitled to 12% interest from the date of accident and 50% of the penalty, i.e. ₹ 80,088.75/- as penalty. If the amounts as directed by the High Court has been paid, then the excess amount shall be paid with interest at 12% from the date of the accident and half of the enhanced amount as a penalty."

Case Details : KAMAL DEV PRASAD v. MAHESH FORGE | SPECIAL LEAVE PETITION (C) NO.4974 OF 2022

Citation : 2025 LiveLaw (SC) 510

Click here to read the judgment