“Loss of Earning Capacity Has to Be Reckoned at 100%”: Delhi High Court Upholds Full Compensation, Bars Insurer’s Recovery, Says “Penalty Cannot Be Fastened on Insurance Company”
Sanchayita Lahkar
The High Court of Delhi Single Bench of Justice Dharmesh Sharma, declined to grant recovery rights to an insurance company against the vehicle owner while affirming the imposition of statutory penalty upon the registered owner for delayed compensation under the Employees' Compensation Act, 1923. The Court held that although the claimant suffered only a 20% permanent physical impairment in his left upper limb, his loss of earning capacity was 100% as he was rendered unfit to work as a commercial driver.
The claimant, employed as a driver, sustained grievous injuries in the course of his employment while attempting to unload a tyre from the tool box of the insured bus. During this effort, the jack used for leverage dislodged, causing him to fall and suffer a scaphoid fracture on his left hand. A disability certificate issued by Aruna Asaf Ali Hospital dated 12.07.2017 certified a permanent impairment of 20% in the left upper limb. However, the claimant asserted that he was completely incapacitated from working as a driver.
The Commissioner for Employee’s Compensation, by order dated 28.04.2021, accepted the claimant's contention of total disability in the context of his profession and assessed loss of earning capacity at 100%. Compensation was awarded under Section 4 of the Employees’ Compensation Act, calculated using a wage of Rs. 8000/- per month plus Rs.150/- per day as food allowance. Applying the relevant factor for a 38-year-old (189.56) and using 60% of wages (Rs. 4800), the compensation was quantified as:
189.56 x 4800 / 100 = Rs. 9,09,888/-
Additionally, interest at 12% per annum from 23.10.2013 was awarded, along with a statutory penalty of Rs. 4,54,944/- against the vehicle’s registered owner under Section 4A(3)(b) of the Employees' Compensation Act.
The judgment was challenged in two appeals. The insurance company contested the 100% disability assessment and its resultant liability. The legal heir of the deceased registered owner of the vehicle (Rajveer Singh) challenged the imposition of penalty and the insurer's recovery rights.
The insurer, represented by Mr. Yuvraj Sharma (proxy for Mr. Pankaj Seth), argued that the disability certificate showed only 20% impairment and hence the loss of earning capacity should not have been deemed complete. The legal heir of the deceased registered owner, represented by Mr. D.M. Sharma, submitted that since the vehicle was insured with an additional premium under the Employees' Compensation Act, the insurer alone should bear all financial liability.
The claimant, represented by Mr. R.K. Nain and Mr. Chandan Prajapati, submitted that the permanent disability prevented him from engaging in his profession as a driver, constituting complete loss of earning capacity under the law.
Justice Dharmesh Sharma examined the scope of "loss of earning capacity" in the context of partial physical disability. The Court recorded:
"Considering that the respondent No.1/claimant/employee was admittedly employed as a driver, there is no denying the fact he has been rendered unsuitable for driving a heavy commercial vehicle, and thus, his disability has to be reckoned at 100%."
Relying on several precedents, including Raj Kumar v. Ajay Kumar, Pratap Narain Singh Deo v. Shrinivas Sabata, and Chanappa Nagappa Muchalagoda v. Divisional Manager, New India Assurance Co. Ltd., the Court reaffirmed that functional disability must be viewed in light of the claimant’s occupation:
"The bottom line is that loss of earning capacity is a crucial aspect which has to be determined by the Tribunal on appreciation of the evidence led on the record in its entirety."
The Court observed that the Commissioner rightly treated the disability certificate as non-conclusive and made an independent assessment:
"Such findings [in disability certificates] are neither conclusive in nature nor the same is binding in any manner."
Regarding the penalty imposed on the registered owner and the recovery rights claimed by the insurer, the Court held:
"The appellant/insurance company has not been able to prove a violation of any terms and conditions of the policy of insurance, and therefore, the appellant/insurance company remains liable to make payment of total compensation... which does not warrant any interference."
However, it distinguished between liability for compensation and penalty:
"The said penalty which is imposed upon the appellant/registered owner for his own default in not making payment of compensation to the employee within the stipulated period, cannot be fastened upon the appellant/insurance company."
Quoting the Supreme Court’s verdict in Ved Prakash Garg v. Premi Devi, the Court reiterated:
"While the insurer is liable to pay the compensation and interest thereon, the penalty under Section 4A(3)(b) is on account of personal fault and must be borne solely by the employer."
The Court dismissed the insurance company’s appeal (FAO 209/2021) entirely, confirming its liability to pay the full compensation and interest. However, the appeal by the registered owner’s legal heir (FAO 255/2021) was partly allowed. The Court stated:
"The Insurer... shall not be entitled to recovery rights for an amount of Rs.9,09,888/- with interest from the registered owner."
"The appellant in FAO No. 255/2021 shall be liable to pay compensation in the nature of additional penalty imposed under Section 4A(3)(b) of the E.C. Act to the respondent No.1/claimant/ employee."
The Commissioner was directed to release the deposited compensation amounts to the claimant along with accrued interest.
Advocates Representing the Parties
For the Appellant: Mr. Yuvraj Sharma, proxy for Mr. Pankaj Seth
For the Respondents: Mr. R.K. Nain and Mr. Chandan Prajapati, Mr. D.M. Sharma, Mr. Rakesh Kumar Pant
Case Title: National Insurance Co. Ltd v. Md. Safat & Ors and Rajveer Singh v. Mohd. Safat and Anr.
Neutral Citation: 2025: DHC:1823
Case Numbers: FAO 209/2021 & FAO 255/2021
Bench: Justice Dharmesh Sharma
[Read/Download order]
