LABOUR LEGISLATIONS

MBA (Personnel)
Paper 4.31

1
 MBA PAPER 4.31 LABOUR LEGISLATIONS

SYLLABUS

UNIT 1 Factories Act, 1948: Objects – Provisions relating to health, safety, welfare, working hours, leave etc. of
workers approval – Licensing and registration of factories – Manager and occupier – Their obligations
under the Act – Powers of the authorities under the Act – Penalty provisions.

UNIT 2 Workmen’s Compensations Act, 1923: Objects – Employer’s liability for compensation – Amount of
compensation – Method of calculating wages – Review – Distribution of compensation – Notice and
claims – Statements regarding facts accidents – Medical examination – Remedies of employer
against stranger – Liability in the event of the company in winding-up proceedings – Returns as to
compensation – Commissioners for workmen’s compensation.

Employee’s State Insurance Act, 1948: Objects – Registration of factories and establishments – The
Employees’ State Insurance Corporation – Standing committee and medical benefit council
provisions relating to contributions – Inspectors, their functions and disputes and claims – Offences
and penalties – Miscellaneous provisions.

UNIT 3 Industrial Disputes Act, 1948: Industrial disputes – Authorities for settlements of industrial disputes –
Reference to industrial disputes – Procedure – Powers and duties of authorities – Settlements and
strikes – Lock-outs – Lay-off – Retrenchment – Transfers and closure – Unfair labour practices –
Miscellaneous provision offences by companies – Conditions of service to remain unchanged under
certain circumstances, etc.

Industrial employment (Standing Orders) Act, 1946: Objects – Provisions regarding certification and operation
of standing orders – Duration and modification of standing orders – Power of certifying officer –
Interpretation of standing orders.

Trade Union Act, 1926: Objects – Registration of trade unions – Rights and liabilities of registered trade
unions – Procedure – Penalties.

UNIT 4 Employees Provident Funds and Miscellaneous Provisions Act, 1952 and Payment of Gratuity Act: Objects –
Employees Provident Fund and other schemes – Determination and recovery of money due from
employer – Appointment of inspectors and their duties – Provisions relating to transfer of accounts
and liability in case of transfer to establishment exemption under the Act – Court’s power under the
Act.

Objects: Payment of gratuity – Exemption – Nomination – Determination and recovery of the amount of
gratuity.

UNIT 5 Payment of Bonus Act, 1965: Objects – Computation of available surplus calculation of direct tax payable by
the employer, eligibility for bonus and payment of bonus – Deduction from bonus payable –
Adjustment of customary or interim bonus payable – Adjustment of customary or interim bonus linked
with production of productivity – Set on the set off of allocable surplus – Presumption about accuracy
of balanced sheet and profit and loss account.

UNIT 6 Payment of Wages Act, 1936: Objects – Provision relating to responsibility for payment of wages – Fixation of
wage periods, time of payment, deduction and fines – Maintenance of records and registers –
Inspectors – Appointment of authorities and adjudication of claims.

Minimum Wages Act, 1948: Objects – Fixing of minimum rate of wages – Procedure for fixing and revising
minimum wages – Appointment of advisory board – Payment of minimum wages – Maintenance of
registers and records contracting out – Powers of appropriate government – offences and penalties.

2
 Contents

UNIT – I

1. Factors Act, 1948

UNIT – II

2. Workmen’s Compensation Act, 1923

3. Employees’ State Insurance Act, 1948

UNIT – III

4. Industrial Disputes Act, 1947

5. Industrial Employment (Standing Orders) Act, 1946

6. The Trade Unions Act, 1926

UNIT – IV

7. Employees’ Provident Funds (and Miscellaneous Provisions Act, 1952

8. The Payment of Gratuity Act, 1972

UNIT – V

9. Payment of Bonus Act, 1965

UNIT – VI

10. Payment of Wages Act, 1936

11. Minimum Wages Act, 1948

3
 Lesson 1

Factories Act, 1948

The first Factories Act in India was passed in 1981. It was followed by new Acts in 1891, 1911, 1922 and 1934.
Because of the large and growing industrial activities in the country a new comprehensive Act was passed in 1948.
The Factories Act, 1948 came into force on the 1st day of April, 1949.

Its object is to regulate the conditions of work in manufacturing establishments which come within the definition of the
term ‘factory’ as used in the Act.

Definition

Factory [See. 2(m)]

‘Factory’ means any premises including the precincts thereof –

• Whereon 10 or more workers are working or were working on any day of the preceding 12 months, and in any
part of which a manufacturing process is being carried on with the aid of powers, or is ordinarily so carried on.

• Whereon 20 or more workers are working or were working on any day of the preceding 12 months, and in any
part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried
out.

In simple words, a factory is a premises whereon 10 or more persons are engaged in power is used, or 20 or more
persons are engaged if power is not used, in a manufacturing process.

Manufacturing process [Sec.2(k)]

Manufacturing process means any process for-

• Making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breading up,
demolishing, or otherwise treating or adapting any article or substance with a view to its use, sale, transport,
delivery or disposal, or

• Pumping oil, water, sewage, or any other substance, or

• Generating transforming or transmitting power, or

• Compo9sing types of printing, printing by letter press, lithography, photogravure in other similar process or
book binding, or

• Constructing, reconstructing, repairing, refitting, finishing, breaking up ships or vessels, or

• Preserving or storing any article in cold storage.

Worker [Sec.2(i)]

A worker means a person employed, directly or by or through any agency (including contractor) with or without the
knowledge of the principal employer, whether for remuneration or not, in any manufacturing process, or in any other
kind or work incidental to, or connected with the manufacturing process or the subject of he manufacturing process
but does not include any member of the armed forces of the Union.

Adult [Sec.2(a)]: An ‘adult’ means a person who has completed who has completed his 18th year of age.

Adolescent [Sec.2(b)]: An ‘adolescent’ means a person who has completed his 15th year of age.

Child [Sec.2(c)]: An ‘child’ means a person who has not completed hi 15th year of age.

Competent person [Sec.2c a)]: ‘Competent person’ means a person or an institution recognized as such by the Chief
Inspector. The recognition must be for the purposes of a carrying out tests, examinations and inspection required to
be done in a factory under the provisions of the Act.
4
Hazardous process [Sec.2(c b)]: It means any process or activity in relation to an industry specified in the First
Schedule where, unless special care in taken, raw material used therein or the intermediate or finished products, bye-
products, wastes or effluents thereof would –

• Cause material impairment to the health of the persons engaged in or connected therewith, or

• Result in the pollution of the general environment.

Calendar year [Sec.2(b b)]: In means the period of 12 months beginning with the 1st day of January in any year.

Young person [Sec.2(d)]: An ‘young person’ means a person who is either a child or an adolescent.

Day [Sec.2(3)]: It means a period of 24 hours beginning at midnight.

Week (Sec.2(f)]: It means a period of 7 days beginning at midnight on Saturday night or such other night as may be
approved in writing for a particular area by the Chief Inspector of Factories.

Occupier [Sec.2(n)]: ‘Occupier’ of a factory means the person who has ultimate control over the affairs of the factory.

• In the case of a firm or other association of individuals, any one of the partners or members thereof shall be
deemed to be the occupier.

• In the base of a company, the directors shall be deemed to be the occupier.

• In the case of a factory owned or controlled by the Central Government or State Government or any local
authority, the person or persons appointed to manage the affairs of the factory by the Central Government,
the Sate Government or the local authority, as the case may be, shall be deemed to be the occupier.

The important test whether a person is an occupier or not is the possession or vesting in of the ultimate control of the
factory. The control should be an ultimate one, though it may be remote. There was a lot of controversy regarding’
Occupier’ in case of a company, as the Section 2(n)(ii), provides that any one of the directors of the company shall be
deemed to be occupier of the factory. However, the Supreme Court in the case of J.K. Industries Ltd. Vs. Chief
Inspector of Factories (1997) I-L.L.J. SC722, has held that only a member of Board of Directors of the company can
be occupier of the factory of the Company. The ultimate control of factory owned by company vests in Board of
Directors. Company control which vests in Board of Directors cannot be vested in any one else. Company owing
factory cannot nominate its employees or officers except Directors of the company as occupier of its factory.
Therefore an employee of company or factory cannot be occupier.

Statutory agencies and their powers for enforcement of the act

The State Governments assume the main responsibility for administration of the Act and its various provisions by
utilizing the powers vested in them. The State Government assumes power under Sec. 4 of the Act to declare
different departments to be separate factories or two or more factories to be single factory for the purposes of this Act.
This power will be utilized by the State Government either on its own or on an application made to it by the occupier.

In case of public emergency, Section 5 further empowers the State Government to exempt by notification any factory
or class or description of factories from all or any of the provision of this Act.

The State Government carryout the administration of the Act through:

• Inspecting Staff

• Certifying Surgeons

• Welfare Officers

• Safety Officers

5
The Inspecting Staff

Inspectors (Sec.8)

As per this section, the State Government may, by notification in the Official Gazette, appoint any person to be a
Chief Inspector to exercise the powers conferred on him by the Factories Act. The State Government may also
appoint as many Additional Chief Inspectors, Joint Chief Inspectors, Deputy Chief Inspectors, and as many other
officers as it thinks fit, to assist the Chief Inspector and to exercise such of the powers of the Chief Inspector as may
be specified in the notification [Sec. 8(2-A)]. These officers are public servants.

Every District Magistrate shall be an Inspector for his district. The State Government may appoint certain public
officer, to be the Additional Inspectors for certain areas assigned to them. [Sec.8(5)].

When in any area, there are more inspectors than one, the State Government may by notification in the Official
Gazette, declare the powers which such Inspectors shall respectively exercise and the Inspector to whom the
prescribed notice are to be sent.

Inspector appointed under the Act is an Inspector for all purposes of this Act. Assignment of local area to an Inspector
is within the discretion of the State Government.

A Chief Inspector is appointed for the whole State. He shall in addition to the powers conferred on a Chief Inspector
under this Act, exercise the powers of an Inspector throughout the State. Therefore, if a Chief Inspector files a
complaint, the court can legally take cognizance of an offence. Even assignment of areas under Sec. 8(6) does nto
militate in any way against the view that the Chief Inspector can file a complaint enabling the court to take
cognizance. The Additional, Joint or Deputy Chief Inspector or any other officer so appointed shall in addition to the
powers of a Chief Inspector, exercise the powers of an Inspector throughout the State.

Powers of inspectors (Sec.9)

An Inspector may, within the local limits for which he is appointed –

• Enter, with assistants who are in the service of the Government or any local or other public authority or with
an expert, the premises of a factory;

• Make examination of the premises, plant, machinery, article or substance;

• Inquire into any accident or dangerous occurrence, whether resulting in bodily injury, disability or not, and
take on the spot or otherwise statements of any person which he may consider necessary for such inquiry;

• Require the production of any prescribed register or any other document relating to the factory;

• Seize, or take copies of, any register, record or other document or nay portion thereof, as he may consider
necessary in respect of any offence under this Act, which he has reason to believe, has been committed;

• Direct he occupier that any premises or any part thereof, or anything lying therein, shall be felt undisturbed
(whether generally or in particular aspects) for so long as is necessary for the purpose of any examination
under Clause (b);

• Take measurements and photographs and make such recordings as he considers necessary for the purpose
of any examination under Clause (b) taking with him any necessary instruments or equipment;

• In case of any article or substance found in any premises, being an article or substance which appears to him
as having caused or is likely to cause danger to the health or safety of the workers, direct it to be dismantled
or subject it to any process of test. Further, he may take possession of any such article or substance or a part
thereof, and detain it for so long as is necessary for such examination;

• Exercise which other powers as may be prescribed.

6
Additional powers

An inspector has also the power

• To require medical examination of a ‘young person’ working in a factory (Sec.75), and also

• To take sample of any substance used, or intended to be used, in a factory for the purpose of finding out if the
substance is injurious to the health of the workers (Sec.91).

Penalty for obstructing inspector (Sec.95)

Whenever willfully obstructs an Inspector in the exercise of any power conferred on him by or under the Act, or fails to
produce on demand by an Inspector any registers or documents, shall be punished with imprisonment unto 6 months
or with fine up to Rs. 10,000 or with both.

Certifying surgeons (Sec.10)

Appointment

The State Government may appoint qualified medical practitioners to be certifying surgeons for specific local limits or
factories [Sec.10(1)]. A certifying surgeon may, with the approval of the State Government, authorize any qualified
medical practitioner to exercise any of his powers [Sec.10(2)].

Duties of certifying surgeons

The certifying surgeon shall carry out such duties as may be prescribed in connection with –

• the examination and certification of young persons;

• the examination of persons engaged in factories in dangerous occupations or processes;

• the exercising of such medical supervision as may be prescribed for any factory where

o cases of illness have occurred which it is reasonable to believe or due to the nature of the
manufacturing process carried on, or other conditions of work prevailing, therein;

o by person of any change in the manufacturing process carried on or in the substances used therein,
there is a likelihood or injury to that health of workers employed in that manufacturing process;

o young persons are, or are about to be, employed in any work which is likely to cause injury to their
health [Sec.10(4).

Welfare officer

Section 49 of the Act imposes statutory obligation upon the occupier of the factory of the appointment of Welfare
Officer/s wherein 500 or more workers are ordinarily employed. Duties, qualifications and conditions of service may
be prescribed by the State Government.

Approval, Licensing and Registration of Factories

The State Government is empowered under Sec. 6 to make rules requiring the submission of plans, and approval,
licensing and registration of factories. The effect of Sec. 6 is that before a site is used for a factory, previous
permission in writing of the State Government or of the Chief Inspector has to be obtained. This permission is granted
only when an applicant has duly complied with directions enjoined by Sec. 6.

Application for permission

• Under Sec. 6 the State Government may make rules requiring the submission of plans of factories to the
Chief Inspector of the State Government.

7
 • Sec. 6 further requires the previous permission in writing to be obtained for the site on which the factory is to
be situated and for the construction or extension of the factory. An application for such permission may be
made to the State Government or the Chief Inspector, along with the duly certified plans and specifications.

• The State Government may also make rules requiring the registration and licensing of factories and
prescribing the fees payable for such registration and licensing and the renewal of licences.

• But no such licence shall be granted or renewed unless the notice specified in Sec. 7 (as discussed below)
has been given [Sec.6(1)].

Presumption of Permission if nothing is heard within 3 months. If on an application to the State Government or the
Chief Inspector for permission accompanied by plans and specification of a factory, nothing is heard within 3 months,
the permission is deemed to be granted [Sec.6(2).

Notice by occupier (Sec. 7)

The occupier shall, at least 15 days before he begins to occupy or use any premises as a factory, send to the Chief
Inspector a written notice containing –

• the name and situation of the factory;

• the name and address of the occupier;

• the name and address of the owner of the premises or building (including the precincts thereof);

• the address to which communications relating to the factory may be sent;

• the nature of the manufacturing process to be carried on in the factory during the next 12 months;

• the total rated horse power installed or to be installed in the factory (not including the rated horse power of
any separate standby plant);

• the name of the manager of the factory for the purposes of this Act;

• the number of workers likely to be employed in the factory; and

• such other particulars as may be prescribed (Sec.7(1)].

General duties of the occupier

Section 7A is inserted by the Factories (amendment) Act, 1987 as under;

1. Every occupier shall ensure, so far as is reasonably practicable, the health, safety and welfare of all workers
whole they are at work in the factory.

2. Without prejudice to the generality of the provisions of Sub-section (1) the matters to which such duty extends
shall include:

• The provisions and maintenance of plant and systems of work in the factory that are safe and without risks to
health;

• The arrangement in the factory for ensuring safety and absence of risks to health in connection with the use,
handling, storage and transport of articles and substances;

• The provision of such information, instruction, training and supervision as are necessary to ensure the health
and safety of all workers at work;

• The maintenance of al places of work in the factory in a condition that is safe and without risks to health and
provisions and maintenance of such means of access to, and egress form, such places as are safe and
without such risks;

8
 • The provision, maintenance or monitoring of such working environment in the factory for the workers that is
safe, without risks to health and adequate as regards facilities and arrangements for their welfare at work.

3. Except in such cases as may be prescribed, every occupier shall prepare, and as often as may be
appropriate revise, a written statement of his general policy with respect to the health and safety of the
workers at work and organisation and arrangements for the time being in force for carrying out that policy,
and to bring the statement and any revision thereof to the notice of all the workers in such manner as may be
prescribed.

Health, Safety and Welfare Measures

The Act makes detailed provisions under Chapters III, IV and V of the Act with regard to various matters relating to
health, safety and welfare of the workers. These provisions impose upon the occupiers or mangers certain
obligations.

• to protect workers from accidents, and

• to secure for them in employment, conditions conducive to their health, safety and welfare.

Health

Chapter III (Sec. 11 to 20) of the Act deals with the provisions ensuring the health of the workers. These provisions
are as follows:

Cleanliness (Sec.11)

• Factory to be kept clean and free from effluvia and dirt.

• Effective means of drainage shall be provided.

• Use of disinfectants, detergents, painting, repainting and varnishing, revarnishing, whitewashing or

colourwashing shall be resorted to.

Disposal of wastes and effluents (Sec.12)

• Effective arrangements shall be made in every factory for the treatment of wasters and effluents due to
manufacturing process carried on therein.

• State Government may make rules prescribing the arrangements to be made in this regard.

Ventilation and temperature (Sec.13)

• Effective and suitable provision shall be made in every factory for securing and maintaining adequate
ventilation and temperature.

• The process which produces high temperature shall be separate from the workroom, by insulating the hot
parts or by other effective means.

• The State Government may prescribe a standard of adequate ventilation and reasonable temperature for any
factory and direct that proper measuring instruments shall be provided and such records as may be
prescribed shall be maintained [Sec.13(2)].

• Prescription of measures by the State Government to reduce temperature.

• Service of notice by the Chief Inspector on the occupier to adopt measures for reduction of temperatures.

Dust and fume (Sec.14)

• Effective measures for prevention of inhalation or accumulation of dust and fumes shall be taken.

• Exhaust for internal combustion engine.

9
Artificial humidification (Sec.15)

• Prescribing standards of humidification-ventilation and cooling of air.

• Water used for artificial humidification should be clean.

Overcrowding (Sec.16)

• Overcrowding injuries to health of workers to be avoided.

• There shall be at least 9.9 cubic meters and 14.2 cubic meters of space for every worker.

• Notice of maximum of workers to be employed in a workroom.

Lighting (Sec.17)

• Sufficient and suitable lighting in every part of factory shall be provided.

• Glazed windows and skylights to be kept clean.

• Measures for prevention of glare and formation of shadows should be taken.

• Prescription of standards of sufficient and suitable lighting.

Drinking water (Sec.18)

• Effective arrangements shall be made to provide and maintain at suitable points conveniently situated for all
workers employed therein a sufficient supply of wholesome drinking water.

• Drinking points to be legibly market and to be away from urinal, latrine etc.

• Cooling of drinking water where more than 250 workers employed.

Latrines and urinals (Sec.19)

• Separate latrines and urinals for male and female workers conveniently situated and adequately lighted and
ventilated.

• Latrine and urinal accommodation to be of prescribed sanitary types – floors and wall to be glazed and their
cleaning.

Spittoons (Sec.20)

• Sufficient number of spittoons shall be maintained in a clean and hygienic condition.

• A notice containing the provision of spittoons in the factory shall be prominently displayed at suitable places in
the premises.

• Whoever spits in contravention of Sec.20 (3) shall be punishable with fine.

Safety

The safety provision are absolute and obligatory in their character and the occupier of every factory is bound to follow
them. They are contained in Chapter IV (Secs. 21 to 41).

Fencing of machinery (Sec.21)

• Dangerous part of every machinery to be securely fenced.

• Prescription of further precautions by State Government.

10
Work on or near machinery in motion (Sec.22)

• Examination of machinery in motion by a trained adult male worker.

• Restriction on women and young persons to work on machinery in motion.

Employment of young persons on dangerous machines (Sec.23)

• Restriction on young persons to work on dangerous machines.

• Machines dangerous for young persons to be specified by the State Government.

Striking gear and devices for cutting off power (Sec.24)

• Suitable striking gear to be provided, maintained and used.

• Locking device to prevent accidental starting of transmission machinery.

Self-acting machines (Sec. 25)

• No transversing part of self-acting machine in any factory and no material carried thereon shall allowed to run
on its outward or inward transverse within a distance of 45 centimeters from any fixed structure which is not
part of the machine.

Casing of new machinery (Sec.26)

• All machinery driven power and installed in a factory – every set screw, bolt or key or any revolving shaft,
spindle, wheel or pinion shall be so sunk, encased or otherwise effectively guarded as to prevent danger.

• If any one sells or lets on hire either directly or as an agent, any machine which does not comply with the
provisions of Sec. 16, he shall be punishable with imprisonment or with fine or with both.

Prohibition of employment of women and children dean cotton-openers (Sec.27)

• No women or child shall be employed in any part of a factory for pressing cotton in which a cotton-opener is
at work. They should be employed on the side of the partition where the feed-end is situated.

Hoists and lifts (Sec.28)

• Hoists and lifts to be a good mechanical construction and to be properly maintained and examined once in
every 6 months.

• No lifting machine or appliance shall be deemed to be a hoist or lift unless it has a platform or cage, the
direction or movement of which is restricted by a guide or guides.

Lifting machines, chains, ropes and lifting tackles (Sec.29)

• Cranes and lifting machines etc. to be of good construction and to be examined once in every 12 months.

• Cranes and lifting machines not to be loaded beyond safe working load.

• Crane not to approach within 6 meters of a place where any person is employed or working.

Revolving machinery (Sec.30)

• Notice to maximum safe working speed of grindstone or abrasive wheel etc. to be kept near machine.

• The speeds indicated in notices under Sec. 30(1) shall not be exceeded.

• Effective measures shall be taken in every factory to ensure that the safe working peripheral speed of every
revolving vessel, cage, basket, fly-wheel, pulley, disc or similar appliance driven by power is not exceeded.

11
Pressure plant (Sec.31)

• Safe working pressure not to be exceeded.

• Rule-making power of the Sate Government providing for examination and exemption.

Floors, stairs and means of access (Sec.32)

• All floors, steps, stairs, passages and gangways shall be of sound construction and properly maintained.

• Safe means of access to every place at which any person is at any time required to work shall be provided
and maintained.

• When any person has to work at a height from where is likely to fall, provision shall be made.

Pits, sumps, opening in floors, etc. (Sec.33)

• Pits, sumps etc. to be securely covered or fenced.

• The State Government may, by order in writing, exempt any factory in respect of any vessel, sump, tank, pit
or opening from compliance with the above provision.

Excessive weights (Sec.34)

• Prohibition on lifting or carrying of excessive weights.

• Maximum weights to be lifted or carried to be prescribed.

Protection of eyes (Sec.34)

• In every factory, screen or suitable goggles shall be provided for the protection of persons employed on, or
other process which involve any danger or injury to the workers’ eyesight.

Precautions against dangerous fumes, gases etc. (Sec.36)

• Prohibition on entry into any chamber, tank, vat, pit, pipe etc. where any gas, fume etc is present.

• Practicable measures to be taken for removal of gas, fume etc. shall be taken.

Precautions regarding the use of portable electric light (Se.36-A)

• No portable electric light or nay other electric appliance of voltage exceeding 24 volts shall be permitted for
use inside any chamber, tank, vat, pit, flue or other confined space in a factory, unless adequate safety
devices are provided.

Precautions against explosive or inflammable dust, gas etc. (Sec.37)

• Practicable measures to prevent explosion on ignition of gas, fume etc. shall be taken.

• Provision of chockes, vents, etc. to restrict the spread of the explosion.

• Special measures are taken where explosive or inflammable gas or vapour is under pressure greater than
atmospheric pressure.

• A plant, tank or vessel containing explosive or inflammable substance whall not be welded, brazed, soldered
or cut by applying heat until such substance and fumes are rendered non-explosive and non-inflammable.

• The State Government may by rules exempt any factory from compliance with all or any of the provisions of
Se. 37.

12
Precaution in case of fire (Sec.38)

• Practicable measures shall be taken to prevent outbreak of fire and its spread, both internally and externally,
and to provide and maintain – safe means of escape for all persons in the event of a fire; and the necessary
equipment and facilities for extinguishing fire.

• Effective measures shall be taken to ensure that in every factory all the workers are familiar with the means of
escape in case of fire and have been adequately trained.

Power to require specification of defective parts or test of stability (Sec.-39)

If the inspector feels that the conditions in the factory are dangerous and human lie or safety he may serve on the
occupier or manger or both notice in writing requiring him before the specified date to furnish such drawings,
specifications and other particulars as may be necessary to determine whether such building, machinery or plant can
be used with safety or to carryout such test in such a manner as may be specified in the order and to inform the
inspector of the results thereof.

Safety of buildings or machinery (Sec.40)

The inspectors in the case of dangerous conditions of building or any part of ways machinery of plant require the
manager or occupier or both tot take such measures which in his opinion should be adopted and require them to be
carried out before a specified date. In case the danger to human life is immediate and imminent from such usage of
building, ways of machinery he may order prohibiting the use of the same unless it is repaired or altered.

Maintenance of buildings (Sed.40-A)

If it appears to the inspector that any building or part of it is in such a state of disrepair which may lead to conditions
detrimental to the health and welfare of workers he may serve on the manager or occupier or both, an order in writing
specifying the measures to be carried out before a specified date.

Safety officers (Sec.40-B)

In every factory (i) where 1,000 or more workers are ordinarily employed, or (ii) where the manufacturing process or
operation involves risk of bodily injury, poisoning or disease or any other hazard to health of the persons employed
therein, the occupier shall employ such number of safety officers as may be specified in the notification with such
duties and qualifications and conditions of service as may be prescribed by State Government.

Welfare

Chapter V (Sec.42 to 50) of the Act deals with facilities for the welfare of workers. The various provisions in this
regard are as follows:

Washing facilities (Sec.42)

• In every factory adequate and suitable facilities shall be provided and maintained for the use of the workers.

• Such facilities shall be conveniently accessible and shall be kept clean.

Facilities for storing and drying clothing (Sec.43)

• The State Government may make rules requiring the provision of suitable places for keeping clothing of
workers not worn during working hours and for the drying of wet clothing in respect of any factory or class of
factories.

Facilities for sitting (Sec.44)

• Provision of sitting arrangement for workers obliged to work in a standing position.

• Provision of seating arrangement for workers doing work which can be done in a sitting position.

13
First-aid appliances (Sec.45)

• There should be at least one first-aid box with prescribed contents for every 150 workers.

• First-aid box should contain only the prescribed contents.

• First-aid box to be in charge of responsible person.

• There should be an Ambulance room in every factory employing more than 500 workers.

Canteens (Sec.46)

• Canteen shall be provided and maintained in factory employing more than 250 workers.

Shelters, rest rooms and lunch rooms (Sec.47)

• Provision to be made for shelters, rest rooms, lunch rooms in factories employing more than 150 workers.

• Shelters etc. to be sufficiently lighted, ventilated and cooled.

Creches (Sec.48)

• Provisoin to be made for Creches in factories employing more than 30 women workers.

• Crèches to be adequately lighted and ventilated and to be under the charge of trained women.

Welfare officers (Sec.49)

• Employment of Welfare Officers in factories employing 500 or more workers.

• The State Government may prescribe the duties, qualifications and conditions of service of welfare officers.

The State Government may make rules exempting, subject to compliance with such alternative arrangements for the
welfare of workers as may be prescribed, any factory or class or description of factories from compliance with any of
the provisions of Secs. 42 to 49.

Special provisions relating to hazardous processes

1. The State Government may, for purpose of advising it to consider applications for grant of permission for the
initial location of a factory involving a hazardous process or for the expansion of any such factory, appoint a
site appraisal committee.

2. The Site Appraisal Committee shall examine an application for the establishment of a factory involving
hazardous process and make its recommendation to the State Government within a period of ninety days of
the receipt of such application in the prescribed form.

3. Where any process relates to a factory owned or controlled by the Central Government or to a corporation or
company owned or controlled by the Central Government, the State Government shall co-opt in the Site
Appraisal Committee a representative nominated by the Central Government as a member of the Committee.

4. The Site Appraisal Committee shall have power to call for any information from the person making an
application for the establishment or expansion of a factory involving a hazardous process.

5. Where the State Government has granted approval to an application for the establishment or expansion of a
factory involving a hazardous process. It shall not be necessary for an applicant to obtain a further approval
from the Central board or the State Board established under the Water (Prevention and Control of Pollution)
Act, 1974 (6 of 1974), and the Air (Prevention and Control of Pollution) Act, 1981 (14 or 1981).

14
Compulsory disclosure of information by the occupier

1. The occupier of every factory involving a hazardous process shall disclose in the manner prescribed all
information regarding dangers, including health hazards and the measures to overcome such hazards arising
form the exposure to or handling of the materials or substances in the manufacture, transportation, storage
and other processes, to the workers employed in the factory, the Chief Inspector, the local authority within
whose jurisdiction the factory is situated and the general public in the vicinity.

2. The occupier shall by down a detailed policy with respect to the health and safety of the workers employed
therein and intimate such policy to the Chief Inspector and the local authority.

3. The information furnished, shall include accurate information as to the quantity, specifications and other
characteristics of wastes and the manner of their disposal.

4. Every occupier shall, with the approval of the Chief Inspector, draw up an on-site emergency plan and
detailed disaster control measures for his factory and make known to the workers employed therein and to
the general public living in the vicinity of the factory the safety measures required to be taken in the event of
an accident taking place.

5. Every occupier shall, within a period of 30 days inform the Chief Inspector of the nature and details of the
process in such form and in such manner as may be prescribed.

6. Where any occupier of a factory contravenes the provisions of Sub-Section (5), the licence issued shall be
liable for cancellation.

7. The occupier shall lay down measures for the handling, usage, transportation and storage of hazardous
substances inside the factory premises and the disposal of such substances outside the factory premises and
publicize them in the manner prescribed among the workers and the general public living in the vicinity.

Specific responsibility of the occupier in relation to hazardous processes

Every occupier of a factory involving any hazardous process shall –

• Maintain accurate and up-to-date health records or, as the case may be, medical records, of the workers in
the factory who are exposed to any chemical toxic or any other harmful substances which are manufactured,
stored handled or transported and such records shall accessible to the workers subject to such conditions as
may be prescribed;

• Appoint persons who posses qualificaotin and experience in handling hazardous substances and the
competent to supervise such handling within the factory and to provide at the working place all the necessary
facilities for protecting the workers in the manner prescribed;

• Provide for medical examination of every worker –

• Provide for medical examination of every worker –

o Before such worker is assigned to a job involving the handling or, a working with, a hazardous
substance, and

o While continuing in such job, and after he has ceased to work in such job at intervals not exceeding
twelve months, in such manner as may be prescribed.

Working Hours of Adults

Chapter VI contains provisions for regulating working hours for the adult workers. The rules as to the regulation of
hours of work of adult workers in a factory and holidays are as follows:

1. Weekly hours (Sec. 51): No adult worker shall be required or allowed to work in a factory for more than 48
hours in any week.

15
 2. Weekly holidays (Sec.52): This section provides that there shall be a holiday for the whole day in every week
and such weekly holiday shall be on the first day of the week. However, such holiday may be substituted for
any one or the three days immediately before or after the first day of the week.

3. Compensatory holidays (Sec.53): Where a worker is deprived of any of the weekly holidays under Sec.52 or
by any of the rules made by the State Government exempting a factory from the provisions of Sec.52, he
shall be allowed compensatory holidays for equal number of the holidays so lost. Such compensatory
holidays shall be allowed within the month in which the holidays were due to the workman or within 2 months
immediately following that month.

The State Government may prescribe the manner in which the compensatory holidays shall be allowed.

4. Daily hours (Sec. 54): Subject to the above rule no adult worker shall be required or allowed to work in a
factory for more than 9 hours in any day.

5. Intervals for rest (Sec. 55): The periods of work of adult workers in a factory each day shall be so fixed that no
period shall exceed 5 hours. Further, no worker shall work for more than 5 hours before he has an interval for
rest of the least half an hour. The total number of hours worked without an interval shall not exceed 6 hours.

6. Spreadover (Sec.56): This section provides that the daily working hours should be adjusted in such a manner,
that inclusive of rest interval under Section 55, they are not spreadover more that 10½ hours on any day.

Night shifts (Sec.57)

Where a worker in a factory works on a shift which extends beyond midnight –

• His weekly or compensatory holiday for a whole day means a period of 24 consecutive hours beginning when
his shift ends, and

• The following day for him shall be deemed to be the period of 24 hours beginning when such shift ends, and
the hours he has worked after midnight shall be counted in the previous day.

Extra wages for overtime (Sec.59)

1. Wages at twice the ordinary rate: Where a worker works in a factory for more than 9 hours in a day or more
than 48 hours in any week, he shall in respect of overtime work be entitled to wages at the rate of twice his
‘ordinary rate of wages’ [Sec.59(1)].

2. Ordinary rate of wages: It means the basic wages plus such allowances, including the cash equivalent of the
advantage accruing through the concessional sale to workers of food grains and other articles, at he worker is
for the time being entitled to. It does not include a bonus and wages for overtime work (Sec.59(2).

3. Workers paid on piece rate basis: The time rate in case of workers paid on piece rate shall be deemed to be
equivalent to the daily average of their full time earnings for the days on which they actually worked on the
same or identical job during the month immediately preceding the calendar month during which the overtime
work was done, and such time rates shall be deemed to be the ordinary rates of wages of those workers
[Sec.59(3)].

Restriction on double employment (Sec.60)

No adult worker shall be required or allowed to work in any factory on any day on which he has already been working
in any other factory served in such circumstances as may be prescribed.

Notice of periods of work for adult workers (Sec.61)

1. A notice of periods of work for adult workers shall be displayed at some conspicuous and convenient place at
or near the main entrance to the factory and shall be maintained in a clean and legible condition. The notice
shall be in English and in a regional language.

2. The periods shown in the notice shall be fixed beforehand and shall not contravene the provisions of weekly
and daily hours, weekly holidays, intervals for rest, spread over and prohibition of overlapping shifts. Where
16
 all the adult workers in a factory are required to work during the same period, the manager shall fix generally
the periods.

3. Where all the adult workers in a factory are not required to work during the same periods, the manager of the
factory are not required to work during the same periods, the manager of the factory shall classify them into
groups according to the nature of their work indicating the number of workers in each group.

Register of adult workers (Sec.62 and 63)

The manager of every factory shall maintain a register of adult workers showing –

• The name of each adult worker in the factory,

• The nature of his work,

• The group, if any, in which he is included.

• Where his group works on shifts, the relay to which he is allotted, and

• Such other particulars as may be prescribed.

The register shall be available to the Inspector at all times during working hours, or when any work is being carried on
in the factory.

The State Government may prescribe the form of the register of adult workers, the manner in which it shall be
maintained and the period for which it shall be preserved [Sec.62(2)].

Employment of Young Persons

Prohibition of employment of young children (Sec.97): No child who has not completed his 14th year shall be required
or allowed to work in a factory:

Non-adult workers to carry tokens (Sec.68): A child who has completed his 14th year or an adolescent may be allowed
to work in a factory if –

• A certificate of fitness for such work is in the custody of the manager of the factory, and

• Such child or adolescent carries, while he is at work, a token giving a reference to such certificate.

A provision is made for a certificate of fitness under Sec.69. Such a certificate entitles a young person who has
completed his 14th year to work in a factory as a child. But if the young person has completed his 15 th year, the
certificate of fitness entitles him to work in a factory as an adult.

Certificate of fitness (Sec.69)

It is a certificate granted to a young person by a certifying surgeon after examining him and ascertaining his fitness for
work in a factory. An application for such examination may be made by the young person himself or by his guardian. It
shall, however, be accompanied by a document signed by the manager of he factory that such person will be
employed therein if certified to be fit for factory that such person will be employed therein if certified to be fit for work
in a factory. The manager of the factory may also apply for such examination of the young person. The certifying
surgeon shall examine the place of work and the manufacturing process before granting a certificate unless he has
the personal knowledge of it.

Safety provisions for young persons

• Restriction on young persons to work on machinery in motion [Sec.22(2)].

• Employment dangerous for young persons on dangerous machines [Sec.23(1)].

o Restriction on young persons to work on dangerous machines.

o Machines dangerous for young persons to be specified by the State Government.

17
 • Dangerous operations [Sec.87(b)]. No young person shall be employed on any operation carried on in a
factory which exposes the young person to a serious risk of bodily injury, poisoning or disease.

Working hours for children

Sec. 71 lays down further restrictions on the employment of children in the factories. These restriction as stated below
relate to working hours for children:

1. A child shall not be employed or permitted to work for more than 4½ hours in any day.

2. He is not permitted to work during night, i.e. during a period of atleast 12 consecutive hours, including
intervals, between 10 p.m. and 6 p.m.

3. The period of work shall be limited to two shifts only.

4. These shifts shall no overlap.

5. Shifts should not spreadover more than 5 hours each.

6. Each child shall be employed in only one of the relays.

7. The relay should not be changed more frequently than once in a period of 30 days, otherwise previous
permission of the Chief Inspector should be sought in writing.

8. The provision relating to weekly holiday under Sec.52, also apply to child workers. But Section 7(3) does not
permit any exemption in respect of these provisions.

9. No child shall be required or allowed to work in any factory on any day on which he has already been working
in another factory.

10. No female child shall be required or allowed to work in any factory except between 8 am. And 7 pm.

Register for child workers

According to Sec. 73(01), in every factory, in which children are employed, a register of child workers should be
maintained and should be available for inspection by the inspector at all times during working hours or when any work
is being carried on in the factory.

Employment of Women

All the provisions of the Factories Act regarding employment and work of adult male workers apply to adult female
workers except the following provisions which apply to adult female works only.

1. A woman shall not be required or allowed to work in a factory for more than 48 hours in any week or 9 hours
in any day.

2. A woman shall be required or allowed to work in a factory only between the hours of 6 am. and 7 pm. Women
should not be allowed to work between 10 pm. And 5 am.

3. There shall be no change of shifts except after a weekly holiday or any other holiday.

4. Dangerous operations [Sec.87(b)]: Where the State Government is of opinion that any operation carried on in
a factory exposes any person employed in it to a serous risk of bodily injury, poisoning or disease, it may
make rules prohibiting or restricting the employment of women in that operation.

Annual Leave with Wages

Secs. 78 to 84 (Chapter VIII) provide for the grant of a certain period of leave with wages to workmen.

18
Rules relating to annual leave with wages.

1. Leave entitlement – Every worker who has worked for a period of 240 days or more in a factory during a
calendar year shall be allowed during the subsequent calendar year leave with wages for a certain number of
days. These days of leave shall be calculated at the rate of –

a. If an adult, one day for every 20 days of work performed by him during the previous calendar year;

b. If a child, one day for every 15 days of work performed by him during the previous calendar year
[Sec. 79(1)].

The leave admissible under the above rule shall be exclusive of all holidays whether occurring during
or a either and of the period of leave.

2. Computation of period of 240 days: For computing the period of 240 days, the days of lay-off, maternity leave
to a female worker not exceeding 12 weeks, and the leave earned in the previous year shall be included in
this period of 240 days, but he/she shall not earn leave for these days.

3. Discharge, dismissal, superannuation, death or quitting of employment: If a worker is discharged or dismissed

from service or quits his employment or is superannuated or dies while in service, during the course of he
calendar year, he or his heir or nominee, as the case may be, shall be entitled to wages. These wages shall
be in lieu of he quantum of leave to which he was entitled calculated at the rates specified in Sec. 79(1)

4. Treatment of fraction of leave: In calculating leave period, fraction of leave of half a day or more shall be
treated as one full day’s leave, and fraction of less than half a day shall be omitted.

5. Treatment of unavailed leave: If a worker does not in any one calendar year take the whole of the leave
allowed to him, any leave not taken by him shall be added to the leave to be allowed to him in ht succeeding
calendar year. But the total number of days of leave that may be carried forward to a succeeding year shall
not exceed 30 in the case of an adult or 40 in the case of a child. However, annual leave not allowed because
of any scheme for leave in operation shall be carried forward without any limit.

6. Application for leave to be made in writing within a specific time: A worker may at any time apply for annual
leave in writing to the manager of the factory at least 15 days before the date on which he wishes his leave to
begin. In a public utility service the application shall likewise be made at least 30 days before the date on
which the worker wishes his leave to begin.

7. Annual leave with wages cannot b e availed for more than three times during the year.

8. The application to avail annual leave with wages for illness purposes can be made at any time.

9. An application for leave which does not contravene the provisions of Sec.79(6) shall not be refused unless
the refusal is in accordance with the scheme for the time being in operation under sub-sections (8) and (9) of
Sec. 79.

10. Scheme for the grant of leave: For the purpose of ensuring the continuity of work, the occupier or the
manager of a factory may draw up and submit with the chief Inspector a scheme for regulating the grant of
leave.

11. Display of scheme for grant of leave: The scheme shall be displayed at some convenient and conspicuous
places in the factory. It shall be in force in the first instance for 12 months, and may be renewed for a further
period of 12 months at a time. A notice of renewal shall be sent to the Chief Inspector before it is renewed.

12. Payment of wages to worker for leave period of he is discharged or if he quits service: If a worker being
entitled to leave according to the rules is discharged, or if having applied for is refused leave and quits
services before he has taken the leave, he shall be paid wages in respect of the leave not taken.

13. Unavailed leave not to be taken into account while computing period of notice: The unavailed leave of a
worker shall not be taken into consideration in computing the period of any notice required to be given before
discharge or dismissal.

19
Wages during leave period (Sec. 80)

For the leave allowed to a worker he shall be entitled to wages at a rate equal to the daily average of his total full time
earnings for the days on which he actually worked during the month immediately preceding his leave. The full time
earnings shall be exclusive of any overtime and bonus but inclusive of darkness allowance.

Penalties and Procedure

Secs. 92 to 106 (Chapter X) provide for penalties for certain offences and procedural matters. The Amendment Act of
1987 has considerably enhanced these penalties so that they serve as a deterrent for the commission of offences.

General penalty for offences (Sec.92)

If in any factory there is any contravention of any of the provisions of the Act or of any rules made thereunder, the
occupier and manager of the factory shall each be guilty of an offence and punishable with imprisonment for a term
up to 2 years or with fine up to Rs. 1,00,000 or with both. If the contravention is continued after conviction, they shall
be punishable with a further fine which may extend to Rs. 1,000 for each day till contravention continues.

Where the contravention of any of he provision of Chapter IV (dealing with ‘safety’) or any rule made thereunder or
under Sec. 87 (dealing with ‘dangerous operations’) has resulted in an accident causing death or serious bodily injury,
the fine shall not be less than Rs. 25,000 in the case of an accident causing death and Rs. 5,000 in the case of an
accident causing serious bodily injury.

Punishment for subsequent conviction for guilty of offence includes imprisonment for a term which may extend to 3
years or with fine which may not be less than Rs. 10,000 but which may extend to Rs. 2,00,000 or with both. Provided
further, that where contravention of any of he provisions of Chapter IV or any rule made thereunder or under Sec. 87
has resulted in an accident causing death or serious bodily injury, the fine shall not be less than Rs. 35,000 in case of
death and Rs. 10,000 in the case of an accident causing serious bodily injury.

Sec. 95 lays down penalty of imprisonment for 6 months or fine of Rs. 10,000 or with both for willfully obstructing and
inspector in the exercise of any power conferred on him by or under this Act or fails to produce any registers or other
documents to him on demand or concealing or preventing any worker from appearing before or being examined by an
Inspector.

Sec. 96 provides imprisonment extending up to a term of six months and fine upto Rs. 10,000 or both for the wrongful
disclosure of results of analysis of the analysis done under Sec. 91 of the Act.

Sec. 96A provides punishment of 7 years imprisonment or fine which may extend to Rs. 2,00,000 for the non-
compliance with or contravenes any of the provisions of Sec. 41B, 41C ro 41H or rules made thereunder by any
person.

Appeals (Sec.107)

The manager of a factory on whom an order in writing by an Inspector has been served under the provisions of this
Act or the occupier of the factory may, within 30 days of service of the order, appeal against it to the prescribed
authority. Such authority may, subject to rules made in this behalf by the State Government, confirm, modify or
reverse the order.

Display of notices (Sec.108)

In addition to the notices required to be displayed in any factory by or under this Act, there shall be displayed in every
factory a notice containing such abstracts of this Act and of the rules made there under as may be prescribed and
also the name and address of the Inspector and the certifying surgeon [Sec. 108(1)]. The notices shall be in English
and in a language understood by the majority of the workers in the factory. They shall be displayed at some
conspicuous and convenient place at or near the main entrance to the factory, and shall be maintained in clean and
legible condition [Sec.108(2)]. The Chief Inspector may, by order in writing served on the manager of the factory,
require the display of posters relating to the health, safety and welfare of workers [Sec.108 (3)].

20
Returns (Sec.110)

The State Government may make rules requiring owners, occupiers or managers of factories to submit such returns,
occasional or periodical, as may in its opinion be required.

Power to make rules and given directions (Sec. 112, 113 and 115)

The State Government may make rules providing for any matter which may be considered expedient in order to given
effect to the purposes of the Act (Sec. 112). The Central Government may also give directions to a State Government
as to the carrying into execution of the provisions of the Act (See113). Sec. 115 provides for the publication of rules
made under the Act in the Official Gazette.

Restriction on disclosure of information (New Sec. 118-A as introduced by the amendment act of 1987)

Every inspector shall treat as confidential the source of any complaint brought to his notice on the breach of any
provision of this Act. Further, he shall not, while making any inspection under this Act, disclose to the occupier,
manager or his representative that the inspection is made in pursuance of the receipt of a complaint.

21
 Lesson 2

Workmen’s Compensation Act, 1923

The Workmen’s Compensation Act was passed in 1923 and it came into force on the first day of July 1924. It is a
social security legislation. It imposes statutory liability upon an employer to discharge his moral obligation towards his
employees when they suffer from physical disabilities and diseases during the course of employment in hazardous
working conditions. The Act also seeks to help the dependents of the workmen rendered destitute by the ‘accidents’
and from the hardship arising out from such accidents.

The main object of the Act is to provide for the payment of compensation by certain classes of employers to their
workmen for injury by accident.

The principle on which the Compensation Act works is that injuries to employees ware no longer the result of fault or
negligence, but they are the product of the industry itself”. Therefore there should be indemnity in every case where
casualty is incidental to the employment, unless indeed the casualty is brought about by the injured person’s own
willful negligence. The workman is not to bear the pecuniary burden, even where the casualty is the result of the
negligence of the workman or his fellow-workers, as accidents are an essential feature of industrial undertakings, and
the effective force in creating and managing the employment is the employer. Moreover, the work is undertaken
primarily in the interest of the employer, and ultimately for the public, and the compensation ha has to pay can easily
be transferred by him to the consumer, thus placing the burden of the workman’s disablement or death upon the
society. Therefore, the employer must pay for an accident arising out of and in course of employment.

The Workmen’s Compensation Act performs a great service to both the employer and the employee, by providing a
very large simple procedure for the recovery of compensation. It is cheap, prompt and both the parties know how
much is to be paid, as schedules for different types of casualties are provided in the Act.

The Act extends to the whole of India. It applies to workmen employed in factories, mines, plantations, transport
establishments, construction works, railways, ships, circuses, and other hazardous occupations and employments
specified in Schedule II to the Act. It covers all workmen (other than casual workers and workers employed otherwise
than for the purposes of the employer’s trade or business).

Definitions

Sec. 2 gives the definitions of the terms used in the Act. Some of the important definitions are as follows:

Dependant [Sec.2(1)(b)]

Sec.2(1)(d) defines the terms ‘dependant’ by giving a long list of persons covered by the term ‘dependant’. In ordinary
usage ‘dependant’ refers to a person who depends upon another for his livelihood. According to Sec. 2(1)(d), there
are 3 categories of ‘dependants’.

1. The following relations are dependants, whether actually so or not – a widow, a minor legitimate son, an
unmarried legitimate daughter, or a widowed mother.

2. The following relations are dependents if they are wholly dependent on the earnings of the workman at the
time of his death – as son or a daughter who has attained the age of 18 years and who is in firm.

3. The following relations are dependants if they were wholly or in part dependent on the earnings of the
workman at the time of his death –

• A widower,

• A parent other than a widowed mother,

• A minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or illegitimate if married
and a minor or if widowed and a minor,

• A minor brother or an unmarried sister or a widowed sister if a minor,.

• A widowed daughter-in-law,

22
 • A minor child of a pre-deceased son

• A minor child of a pre-deceased daughter where no parent of the child is alive, or

• A paternal grandparent if no parent of the workman is alive.

Employer [Sec.2(1)(e)]

Employer includes –

• Any body of persons whether incorporate or not;

• Any managing agent of an employer; and

• The legal representative of a deceased employer.

• Any person to whom the services of a workman are temporarily lent or let on hire to another person by the
person with whom the workman has entered into a contract of service or apprenticeship.

The definition of the term ‘employer’ is not exhaustive. It includes a contractor also. Whether a person is an employer
or not is a question of face depending on the facts of a particular case.

Wages

According to Sec.2(1)(m), the term “Wages” include any privilege or benefit which is capable of being estimated in
money, other than a traveling allowance or the value of any traveling concession or a contribution paid by the
employer of a workman towards any pension or provident fund or a sum paid to a workman to cover any special
expenses entailed on him by the nature of his employment.

Wages include dearness allowance, free accommodation, overtime pay etc. (Godawari Sugar Mills Ltd., Vs.
Shakuntala; Chitru Tanti Vs. TISCO; and Badri Prasad vs. Trijugi Sitaram).

The driver of a bus died in an accident. On a claim for compensation made by widow it was held that lien allowance
and night out allowance come under the privilege or benefit which is capable of being estimated in money and can be
taken into consideration in computing compensation as part of “wages” (KSRTC Bangalore Vs. Smt. Sundari, 1982
Lab. I.C. 230). The claim of bonus being a right of the workman is a benefit forming part of wages and the same can
be included in wages (LLJ-II 536 Ker.).

Disablement

The Act does not define the work “Disablement”. It only defines the “partial” and “total disablement”. Disablement
means loss of capacity to work or to move. Disablement of a workman may result in loss or reduction of his earnings
capacity. In the latter case, he is not able to earn as much as he used to earn before his disablement.

Disablement may be (i) partial, or (ii) total. Further it may be (i) permanent, or (ii) temporary.

Partial disablement [Sec.2(1)(g)]

This means any disablement as reduces the earnings capacity or a workman as a result of some accident. Partial
disablement may be temporary or permanent.

Temporary partial disablement means any disablement as reduces the earning capacity of a workman in any
employment in which he was engaged at the time of accident which resulted in such disablement.

Permanent partial disablement is one which reduces for all time his earning capacity in every employment which he
was capable of undertaking at the time.

The type of disablement suffered can be determined only from the facts of the case. But it is provided by the Act that
injuries specified in Part II of Schedule I (given below) shall be deemed to result in permanent partial disablement.
These injuries are knows as ‘scheduled injuries’.

23
Total disablement [Sec.2(1)(i)]

It means such disablement, whether of a temporary or permanent nature, which incapacitates a workman for all work
which he was capable of performing at the time of the accident resulting in such disablement. It refers to that condition
where a workman becomes unfit for every type of work and is not able to get job anywhere due to that disablement.

Total disablement is deemed to result from every injury specified in Part I of Schedule I (given above) or from any
combination of injuries specified in Part II of Schedule-I, where the aggregate percentage of the loss of earnings
capacity, as specified in Part II against those injuries, amounts to 100 per cent or more.

EXTRACT FORM SCHEDULE 1

[See Secs.2(g) and (1) and 4]

Description of Injury Percentage of Loss of

Earning Capacity

PART I

List of injuries deemed to result in permanent total disablement

Loss of both hands or amputation at higher sites … 100

Loss of hand and a foot … 100

Loss of sight to such an extent as to render the claimant unable to perform … 100
any work for which eye-sight is essential

Very severe factal disfigurement … 100

Very severe factal disfigurement … 100

Absolute deafness … 100

PART II

List of injuries deemed to result in partial disablement

Amputation cases – upper limbs (either arm)

Amputation through shoulder joint … 90

Loss of a hand or of the thumb and four fingers of one hand or amputation … 60
from 4-½” below tip of olecranon

Lost of thumb … 30

Loss of four fingers of one hand … 50

Loss of three fingers of one hand … 30

Loss of two fingers of one hand … 20

Loss of terminal phalanx of thumb … 20

Amputation cases – lower limbs

Amputation of both feet resulting in end-hearing stumps … 90

Amputation at hip … 90

Amputation below middle high to 3-1/2” below knee … 60

Amputation below knee with stump exceeding 3-1/2” but not exceeding 5” … 50
24
 Amputation below knee with stump exceeding 5” … 40

Amputation of one foot resulting in end-bearing … 30

Other injuries

Loss on one eye, without complication, the other being normal … 40

Loss of vision of one eye, without complications or disugurement of eye- … 30

ball, the other being normal

Loss of fingers of right or left hand

Index finger

Whole … 14

Two phalanges … 11

One phalanx … 9

Middle finger

Whole … 12

Two phalanges … 9

One palanx … 7

Ring or little finger

Whole … 7

Two phalanges … 6

One phalanges 5

Where the worker lost his vision of one eye permanently in an accident in course his employment in colliery, the
compensation should be assessed in accordance with items 26 Part II in Schedule-I (Katras Jherriah Coal Co. Ltd.,
Vs. Kamakhya Paul 1978 Lab. I.C. 751).

In an injury the workman, had amputated his left arm from elbow, who was carpenter. It was held by the Supreme
Court in Pratap Narain Sing Deo Vs. Sriniwas Sabata, 1976 I Lab.L.J.235, that it is a total disablement as the
carpenter cannot carry his work with one hand and not a partial permanent disablement.

Where the workman, a driver of bus belonging to the employer was involved in an accident which resulted in an
impairment of the free movement of his left hand disabling him from diving vehicles, it was held that this is not one of
the injuries mentioned in the 1st Schedule which are accepted to result in permanent total disablement. In the present
case the workman was also capable of performing duties and executing works other than driving vehicles. Nature of
injury to be determined not on the basis of the work he was doing at the time of accident (Divisional Manager KSRTC
Vs. Bhimaian, 1977 II L.L.J.521).

Workman [Sec.2(1)(n)]

‘Workman’ means any person who is –

1. A railway servant as defined in Sec. 3(34) of the Railways Act, 1989, who is not permanently employed in any
administrative, district or sub-divisional office of a railway and not employed in any such capacity as is
specified in Schedule II, or

25
 2. Employed in any such capacity as is specified in Schedule II.

But ‘workman’ does not include –

• A person whose employment is of a casual nature, and who is employed in work not connected with the
employer’s trade or business;

• Any person working in the capacity of a member of naval, military or air force

Employer’s Liability for Compensation (Sec.3)

An employer’s is liable to pay compensation to a workman for –

• Occupational diseases contracted by him.

• Personal injury caused to him by accident as well as for any

Occupational diseases

Workers employed in certain occupations are exposed to certain diseases which are inherent in those occupations.
For example, a person engaged in any process involving use of lead tetra-ethyl is liable to contract poisoning by lead
tetra-ethyl, and a person employed as a telegraph operator may contract telegraphist’s cramp. All such diseases are
known as occupational diseases. Contracting of an occupational disease is deemed to be an injury by accident within
the meaning of Sec.3(2). In such a case, unless the contrary is proved, the accident is deemed to have arisen out of
and in the course of employment. As such, the employer is liable to pay compensation of the disease can be directly
attributable to a specific injury by accident arising out of and in the course of employment.

Personal Injury by accident

An employer is liable to pay compensation to a workman if personal injury is caused to him by accident arising out of
an in the course of his employment [Sec.3(1)].

Personal injury: The word ‘personal injury’ means damage done to a workman by some accident. The Act
contemplates compensation for persona injury. It is not necessarily confined to physical or mental injury. It includes
psychological and physiological injury as well [Yates v. South Kirby Collieries]. Thus nervous shock causing
incapacity to work is as much a personal injury as a broken limb.

Indian News Chronicle Ltd. v. Mrs. Lazarus, A workman, in the course of his duties, had frequently to go into a
heating room and from there to a cooling room. One night when he went into the cooling room, he got pneumonia of
which he died. Held, the death was due to personal injury.

Accident: The word ‘accident’ means some a mishap or an toward event which is not expected or designed [Fenton v.
Thorley] by the injured workman himself even though there may be negligence on his part. Therefore, if an
occurrence is unexpected and without any design on the part of the workman, it is accident.

Arising out of and the course of employment

The employer is liable to pay compensation only if personal injury is caused to a workman by an accident arising out
of and in the curse of his employment.

Probably no other expression has received so much judicial considerations as the pharse “arising out of and in the
course of the employment”. Several Judges have, with more or less success, offered explanations. A few of he
explanations by eminent Judges are stated here to give an idea of the meaning of the phrase. Before, however,
discussing the meaning of the expression it may be emphasized that the injury must not only arise, “in the course of”
but also “out of” the employment. Proof of he one without the other will not make the employer liable to pay
compensation. While an accident arising out of an employment almost necessarily occurs in the course of it, the
converse does not follow. An injury which occurs in the course of the employment will ordinarily arise out of the
employment; but not necessarily so. To bring the case within the Compensation Act the employee must show that he
was at the time of the injury engaged in the employer’s business, or in furthering that business, and was not doing
something for his own benefit or accommodation.

In order to prove that injury arose ‘out of employment’, two conditions must be fulfilled:

26
 • Inquiry must have resulted from some risk incidental to the duties of the service, or inherent in the nature or
condition of employment, and

• At the time of injury worker must have been engaged in the business of the employer and must not be doing
something for his personal advantage or benefit.

Arising out of employment

The expression “arising out of “employment” suggests some causal connection between the employment and the
accidental injury. The cause contemplated is the proximate cause and not any remote cause. Thus, where a workman
suffers from heart disease and ides on account of strain of work by keeping continuously standing or working, held
that the accident arose out of employment (Laxmibai Atma Ram Vs. Bombay Prot. Trust, AIR 1954 Bom 180).
Generally if a workman is suffering from a particular disease and as a result of wear and tear of his employment he
dies of that disease, employer is not liable. But if the employment is contributory cause or has accelerated that death
that the death was due to disease coupled with the employment, then the employer would be liable as arising out of
the employment.

Arising in the course of employment

It refers to the time during which employment continues. It covers the whole of the time a workman is carrying out the
duties required of him as incidental to his contract of service. It includes not only the period when he is at a place
where he would not be but for his employment. [Works Manager, East India Rail v. Mahabir].

The word “employment” has a wider meaning than work. Man may be in course of his employment not only when is
actually engaged in doing something in the discharge of his duty but also when he is engaged in acts belonging to
and arising out of it (Union of India Vs. Mrs. Noorjahan, 1979 Lab. I.C. 652).

When a means of transport is provided by the employer for the purpose of going to and from the place of work and
workmen use that transport, the time during which that transport is used by the workmen is also included in the
course of employment.

When a period of rest is granted to a workman, the course of employment includes the period of rest provided the
workman remains in the employer’s premises during the rest period.

When a workman reaches the place of employment well in time to equip himself for the work, he is in the curse of
employment.

On the other hand, where a boy employed in a boot-making business took home contrary to the orders of authorities a
pair of boots for repairing them and thus to improve his own skill and while doing the repairs at home, he injured an
eye with an awl, and it had to be removed, it was held that the injury did not arise out of an in the course of
employment (Borley v. Ockenden]. The applicant who was a piecer in a cotton mill, went out of his work and interfered
with tin rollers while in motion and his dhoti having been caught he put out his hand to pull it and got his hadn
crushed. It was held that he was not entitled to compensation [Gouri Kinkar Bhakat v. Radha Krishna Cotton Mills].

To conclude, it may be stated that an accident arises out of an in the course of employment when a causes
connection exists between the employment and the accident.

Some of the important cases of accidents arising out of and in the course of employment are given below:

• A railway employee was ordered to travel to a certain station to repair a water main. When he had finished
the work and was crossing the platform to catch the train he slipped and died as a result. Held, the death
arose out of and in the course of employment [Works Manager, Carriage and Wagon Shop v. Mahabir]

• While returning from his duty a workman was crushed by an engine, held he met with an accident in the
course of his employment [Workman C & W Shops vs. Mahabir].

• Where a watchman in the course of his duty lifts G.I. Pipe in order to keep it in a safe place, the injuries must
be taken to have been received in the course of his employment, if he is injured (R.M.Pandey v. A.P.I. Ltd.

• A boy returning to the factory canteen after having served tea in his usual round to certain persons in the
factory premises was struck by a bullet and he died that following day. Held, death of the boy was due to an
accident arising out and in the course of his employment.
27
Theory of notional extension of employment

The theory of notional extension was laid down by Supreme Court in Saurashtra Salt Mfg. Co. v. Bat Valu Raja.
According to this theory, in certain circumstances, and employers is liable for injury to his workman even when the
workman is away from the premises at the time of accident. It was observed in this case:

“As a rule, the employment of a workman does not commence until he has reached the place of employment and
does not continue when he has left the place of employment: the journey to and from the place of work is thus
excluded from the notion of employment. However, it is now well settled that this is subject to the theory of notional
extension of the employer’s premises, so also to include in it an area which the workman passes and repasses in
going to and in leaving the actual place of work, so that there may be some reasonable extension in both time and
place of work and a workman may be regarded as in the course of his employment even through he had not reached
or had left the actual premises where he was employed.

The facts and circumstances of each case will have to be examined carefully in order to determine whether the
accident arose out of and in the course of employment of a workman, keeping in view at all times this theory of
notional extension”.

Defences Available to Employers

An employer is not liable to pay compensation for persons injury caused to a workman by accident arising out of and
in the course of employment –

• If the injury does not result in the total or partial disablement of the workman for a period exceeding 3 days;

• If the injury, not resulting in death or permanent total disability, is caused by an accident which is directly
attributes to –

o The workman having been at the time of the accident under the influence of drink or drugs; or

o The willful disobedience of the workman to an order expressly given, or to a rule expressly framed,
for the purpose of securing the safety of workmen; or

o The willful removal or disregard by the workman of any safety guard or other device (which is an
offence under the Factories Act, 1948) which he knew to have been provided for the purpose of
securing the safety of the workmen.

In these defences were not available to the employer, a workman may be induced to cause to himself an injury by his
own acts and to claim compensation from the employer (R.B. Moondra & Co., Vs. Mst. Bhanwari, AIR, 1970 Raj.
111).

Death of workman

The exceptions, namely (i) intoxication by drink or drugs, (ii) willful disobedience of certain rules and orders, (iii) willful
removal of safety devices, are not applicable in case of a fatal accident. The reason is that where a workman has died
as a result of persona injury it is extremely difficult for the dependants to rebut evidence that the accident was caused
by the deceased’s misconduct.

Employer’s liability when contractor is engaged

Section 12 of the Act envisages the employer’s liability to pay compensation to a contractor.

Sometimes, employer may engage a contractor instead of employing his own workman for he purpose of doing any
work in respect of his trade or business. Such a contractor then executes the work with the help of workman engaged
by him. If any injury is caused by an accident to any of these workers, the employer cannot be held liable because
they are not employed by him and hence are not his workman. But now Section 12(1) makes the employer liable for
compensation to such workman hired by the contractor under following circumstances:

• The contractor is engaged to do a work which is the trade or business of the employer (called principal).

• The workman were engaged in the course of or for the purpose of his trade or business.

28
 • The accident occurred in or about the premises on which the principal employer has undertaken or
undertakes to execute the work concerned.

The amount of compensation shall be calculated with reference to the wages of the workman under the employer by
whom he is immediately employed.

According to section 12(2), where the principal is liable to pay compensation under this section, he shall be entitled to
be indemnified by the contractor or any other person from whom the workman could have recovered compensation.

Compensation

“Compensation” has been defined under Sec.2(1)(c) of the Act to mean “compensation” as provided for by this Act.
The meaning of the term will be more clear in the following paragraphs.

Amount of Compensation

Amount of compensations is payable in the event of a workman meeting with an accident resulting into temporary
disability or disease as stated in Schedule II and III in terms of Sec. 4 of the Act, read with Schedule IV.

The amount of compensation payable to a workman depends on –

• The nature of the injury caused by accident.

• The monthly wages of the workman concerned, and

• The relevant factor for working out lump-sum equivalent of compensation amount as specified in Schedule IV.

There is no distinction between an adult and a minor worker with respect to the amount of compensation.

Schedule II contains a list of person engaged in different employments/ operations specified therein who are covered
by the definition of workman and entitled to compensation. E.g. a person employed for loading/ unloading of materials
in a factory or ship, persons employed in work incidental or connected with manufacturing process. Schedule III
contains a list of occupational diseases which if contracted while in employment entitles a workman to compensation
such as disease caused by lead, mercury etc. Schedule IV lays down the relevant factor (a certain figure) related to
the age of the workman at the time of death, injury or accident by which wages are multiplied to arrive at
compensation.

Compensation to be paid when due and penalty for default

Time of payment of compensation

Section 4A of the Act provides that compensation under Section 4 shall be paid as soon as it falls due. Compensation
becomes due on the date of death of workman and not when Commissioner decides it (Smt. Jayamma Vs Executive
Engineer, P.W.D. Madhugiri Division, 1982 Lab. I.C. Noc.61.)

The employer is required to deposit or to make provisional payment based on the extent of liability which he accepts
with the Commissioner or hand over to the workman as the case may be even if the employer does not admit the
liability for compensation to the extent claimed.

Where an employer is in default in paying compensation, he would be liable to pay interest thereon and also a further
sum not exceeding fifty percent of such amount of compensation as penalty.

Calculation of monthly wages (Sec.5)

The amount payable to the injured employee is to be determined from the amount of his average monthly wages.
What constitutes such wages is a question of fact that requires consideration to be given to numerous circumstances:
such as absence from work duration and continuity of employment, remuneration in addition to regular wages, and
the existence of concurrent employments. Specific methods for ascertaining such average monthly wages are
prescribed in Sec. 5, as follows:

The expression “monthly wages” means the amount of wages deemed to be payable for a month’s service (whether
the wages are payable by the month or by whatever other period or at piece rates), and are calculated as follows:

29
 • where the workman has, during a continuous period of not less than twelve months immediately preceding
the accident, been in the service of the employer who is liable to pay compensation, the monthly wages of the
workman shall be on-twelfth of the total wages which have fallen due for payment to him by the employer in
the last 12 months of that period;

• where the whole of the continues period of service immediately preceding the accident during which the
workman was in the service of the employer wo is liable to pay the compensation was less than one month,
the monthly wages of the workman shall be deemed to be the average monthly amount which, during the 12
months immediately preceding the accident, was being earned by a workman so employed, by a workman
employed on similar work in the same locality;

• in other cases, including cases in which it is not possible to calculate the monthly wages under clause (b), the
monthly wages shall be 30 times the total wages earned in respect of the last continuous period of service
immediately preceding the accident from the employer who is liable to pay compensation, divided by the
number of days comprising such period.

A period of service shall be deemed to be continuous which has not been interrupted by a period of absence from
work exceeding 14 days.

Computation of half-monthly payment (Sec. 7)

Any right to receive half-monthly payments may, by agreement between the parties or if the parties cannot agree and
the payments have been continued for not less the 6 months, on the application of either party to the Commissioner
be redeemed by the payment of a lump sum of such an account as may be agreed to by the parties or determined by
the Commissioner, as the case may be.

The Commissioner, on the application either of the employer or of the workman accompanied by the certificate of a
qualified medical practitioner that there has been change in the conditions of the workman, may review any half-
monthly payment agree to by the parties or fixed by the Commissioner. On such review the half-monthly payment
may be continued, increased, decreased, or ended, or if the accident is founded to have resulted in permanent
disablement, be converted to the lump sum to which the workman is entitled less any amount which he has already
received by way of half monthly payments (Sec.6).

Distribution of Compensation

Where an adult male worker has been totally or partially disabled by an injury the employer may either pay the
compensation to the worker or deposit it with the Commissioner, who will then pay to the worker.

Where the compensation is payable –

• in respect of death of a workman, or

• in lumpsum to woman or a person under legal disability, it must be depositing with the Commissioner, and not
paid directly to the dependants of the decease workman or to a woman or a person under legal disability, as
the case may be. The employer cannot make payment of compensation directly to the deceased’s legal heirs.
It is the Commissioner who decides on the distribution of compensation to the legal hires of deceased’s
workman Sec. 8.

On the deposit of the compensation money, the Commissioner shall distribute it among the dependants of the
deceased workman in any promotion as he thinks fit, or may even allot it to any one dependent. If he is satisfied that
no dependant existing the Commissioner shall repay to the employer by whom it was deposited. Where the amount is
payable to a woman or a person under a legal disability, such sum may be invested or otherwise dealt with for the
benefit of such woman or person under legal disability.

According to a recent ruling of the Supreme Court in Pratap Narian Singh Deo v. Shrinivas Sahata, the employer
becomes liable to pay compensation as soon as the injury is caused to the workman at the rate as provided by Sec.
4. If he fails to pay and also makes no provisional payment under Sec. 4(2) but challenges the jurisdiction of the
Commissioner, the employer is liable to pay interest and penalty.

Compensation not to be assigned

30
Sec. 9 provides that no lump-sum or half-monthly payment payable as compensation shall in any way be capable of
being assigned or charged or be liable to attachment or pass to any person other than the workman by operation of
law, nor shall any claim be set off against the same.

Contracting out of compensation (Sec.12)

Any contract or agreement whether made before or after the commencement of this Act, whereby a workman
relinquishes any right of compensation from the employer for personal injury arising out of and in the course of the
employment shall be null and void in so far as it purports to remove or reduce the liability of any person to pay
compensation under this Act.

Section 13 provides that there a third party was responsible for accident the employer may recover form that third
party any compensation he has paid to his workman, in addition to any other damages he may be able to claim.

Where in employer, who has insured his liability for compensation under the Act, becomes an insolvent, or if the
employer being a company has gone into liquidation, the rights of the employer against the insurers shall pass to the
workman; and if the insurer’s liability is less than the liability of the employer to the workman, the workman can prove
for the balance in the insolvency proceedings or liquidation. Any breach of the contract by the employer shall not
operate against the workman, so long as the premia have been regularly paid (Sec.14).

Notice and Clam (Sec.10)

No claim for compensation shall be entertained by the Commissioner unless the notice of the accident has been given
by the workman in writing [Sec. 10(1)] in the following manner:

1. The notice of the accident shall be given as soon as practicable after the happening of the accident.

2. The notice shall give the name and address of the person injured and state the cause of injury and the date of
accident.

3. The notice shall be served on the employer or upon any one of several employers or upon any person
responsible to the employer for the management of any branch of the trade or business [Sec.10(2).

4. The notice may be served by delivering it at, or sending it by registered post addressed to the residence or
any office or place of business of the person on whom it is to be served or by entry in a notice-book if such a
book is maintained by the employer (Sec. 10(4)].

5. The State Government may require any prescribed class of employers to maintain at the place of the
employment a notice-book in the prescribed form for keeping the record of accidents. The notice-book shall
be readily accessible at all reasonable times to any injured workman employed on the premises and to any
person acting bonafide on his behalf [Sec. 10(3)].

Claim

Claim for compensation shall be preferred before the Commissioner within 2 years of the occurrence of the accident,
or in case of death within 2 years from the date of death [Sec.10(1)]. The Commissioner may entertain and decide
any claim to compensation in any case not withstanding that the notice has not been given, or the claim has not been
preferred, in due time. The Commissioner should however be satisfied that the failure to give the notice or prefer the
claim, as the case may be, was due to sufficient cause.

Fatal Accidents (Secs. 10-A and 10-B)

Where a Commissioner receives informant from any source regarding fatal accident of a workman, he may send by
registered post a notice to the workman’s employer. The notice requires the employer to submit, within 30 days of the
service of the notice, a statement in the prescribed form giving the circumstances leading to the death of the
workman. The employer has further to indicate whether, in his opinion, he is or is not liable to deposit compensation
on account of death [Sec. 10-A(4)].

If the employer feels that he is liable for compensation, he shall make the deposit within 30 days of the service of the
notice [Sec.10-A(2)]. If he is of opinion that he is not liable, he shall indicate the ground for such disclaimer [Sec. 10-
A(2)]. In case the employer has disclaimed liability, the Commissioner may, after such inquiry as he may think fit,

31
inform any of the dependants of the deceased workman, that it is open to them to make a claim for compensation and
may given them such information as he may think fit [Sec.10-A(4)].

Report of fatal accidents and serious bodily injury

Sec. 10-B provides that an employer, who is required to give a notice to any authority of any accident occurring on his
premises resulting in death or serious bodily injury shall send a report to the Commissioner within 7 days of the
accident. The report shall give the circumstances leading to the death or serious bodily injury. If the State Government
permits, the person required to give notice may instead of sending such report to the Commissioner send it to the
authority to whom be is required to give notice [Sec. 10-B(1)].

Sec. 10-B does not apply to the factories to which the Employees’ State Insurance Act. 1948 applies [Sec. 10-B(3)].

Medical examination (Sec.11)

In certain cases of accidents, a workman has to be medically examined in order to be entitled to claim any
compensation. Sec. 11 of the Act gives the following rules for medical examination:

1. Where a workman ha given notice of an accident and the employer before the expiry of 3 days from the date
of the service of the notice offers to have him examined fee of charge by a qualified medical practitioner, the
workman shall submit himself for such an examination. He shall also submit himself for such examination
from time to time in accordance with the rules framed for this purpose [Sec.11(1)].

2. If the workman improperly refuses to submit himself for medical examination or in any way obstructs the
same, his right to compensation shall be suspended during the continuance of such refusal or obstruction
[Sec.11(2)].

3. If the workman voluntarily leaves, without having been so examined, the vicinity of the place in which he was
employed, his right to compensation shall be suspended until he returns and offers himself for the medical
examination [Sec.11(3)].

4. Where the workman, who refused medical examination, subsequently dies, the Commissioner may, if he
thinks fit, direct the payment of compensation to the dependants of the deceased workman [Sec.11(4)].

5. Where a right to compensation is suspended, no compensation shall be payable in respect of the period of
suspension [Sec.11(5)].

6. In case the injury of a workman has been aggravated due to his refusal to be attended by a qualified medical
practitioner or his refusal to follow the instructions of the medical practitioner, the workman would get
compensation only for that injury which would have been, had he been properly treated. He would not get any
compensation for aggravated injury [Sec.11(6)].

Appeals

An appeal shall lie to the High Court form the following orders of a Commissioner, namely:

• An order awarding as compensation a lump sum whether by way of redemption of a half-monthly payment or
otherwise or disallowing a claim in full or in part for a lump sum.

• An order awarding interest or penalty under Section 4A.

• An order refusing to allow redemption of a half-monthly payment;

32
 • An order providing for the distribution of compensation among the dependants of a deceased workman or
disallowing any claim of a person alleging himself to be such dependant;

• An order allowing or disallowing any claim for the amount of an indemnity under the provisions of Sub-section
(2) of Section 12; or

• An order refusing to register a memorandum of agreement or registering the same or providing for the
registration of the same subject to conditions (Sec.30).

Such appeal should be filed within 60 days of order.

Penalties

Section 18A of the Act prescribes penalties for the contravention of the provisions of the Act which include fine up to
Rs. 5,000. The following omissions attract this punishment under the Act:

• Whosoever fails to maintain a notice book which he is required to maintain under Section 10(3); or

• Whosoever fails to send to the Commissioner a statement of fatal accidents which he is required to send
under Section (10A(1); or

• Whosoever fails to send a report of fatal accidents and serious bodily injuries which he is required to send
under Section 10B; or

• Whosoever fail to make a return of injuries and compensation which he is required to make under Section 16.

No prosecution under Section 18A shall instituted except by or with the previous sanction of the Commissioner and no
court shall take cognizance of any offence under this section unless complaint is made within 6 months of the date on
which the alleged commission of offence comes to the knowledge of the Commissioner.

33
 Lesson 3

Employees’ State Insurance Act, 1948

The Employees’ State Insurance Act is a piece of social security legislation. Its object is to introduce social insurance
by providing for certain benefits to employees in case of sickness, maternity and employment injury and for certain
other matters in relation – thereto. The benefits are secured by financial contributions to the Schedule both by
employers and employees.

The Act shall apply to all factories. But this will not apply to a factory or establishment belonging to or under the
control of the Government whose employees are otherwise in receipt of he benefits substantially similar or superior to
the benefits provided under this Act. Section 1(5) of the Act empowers the appropriate government to extend any of
the provisions of the Act to any other establishment or class of establishments, industrial, commercial, agricultural or
otherwise. However, this can be done by the appropriate government, only in consultation with the Employees’ State
Insurance Corporation set up under the Act and, where the appropriate government is a State Government, it can
extend the provision of the Act with the approval of the Central Government.

Under these enacting provisions, the Act has been extended by many State Governments to shops, hotels,
restaurants, cinemas, including preview theaters, newspaper establishments, road transport undertaking etc.
employing 20 or more persons. They should be employed as per Sec.2(9) of the Act, getting the wages prescribed
therein.

The coverage under the Act is at present restricted to employees drawing wages not exceeding Rs. 6,500 per month.

Definitions

Benefit period [Sec.292)]

It means period corresponding to the contribution period as defined in Sec.2(5). It must not exceed 6 consecutive
months corresponding to the contribution period, as may be specified in the regulations. But in the case of the first
benefit period a longer period may be specified by or under the regulations.

Confinement [Sec.2(3)]

It means labour resulting in the issue of a living child, or labour after 26 weeks of pregnancy resulting in the issue of a
child whether alive or dead.

Contribution [Sec.2(4)]

It means the sum of money payable to the Employees’ State Insurance Corporation by the principal employer in
respect of an employee and includes any amount payable by or on behalf of the employees in accordance with the
provisions of this Act.

Contribution period [Sec.2(5)]

It means such period as may be specified in the regulations. It must not exceed 6 consecutive months. However, in
the case of the first contribution period a longer period may be specified by or under the regulations.

Corporation [Sec.2(6)]

It means the Employees’ State Insurance Corporation set up under Sec.3 of the Act.

Dependent [Sec.2(6A)]

“Dependent” means any of the following relatives of a deceased insured person namely:

1. A widow, a minor legitimate son, an unmarried legitimate daughter, or adopted daughter; a widowed mother.
2. If wholly dependent on the earnings of the insured person at the time of this death, a legitimate or adopted
son or a daughter who has attained the age of 18 years and is infirm.

3. If wholly or in part dependent on the earnings of the insured person at the time of his death –

34
 • A parent other than a widowed mother,

• A minor illegitimate son, an unmarried illegitimate daughter or a daughter legitimate or illegitimate if married
and a minor or if widowed and a minor.

• A minor brother or an unmarried sister or a widowed sister if a minor,

• A widowed daughter-in-law,

• A minor child of a pre-deceased son

• A minor child of a pre-deceased daughter where no parent of the child is alive, or

• A paternal grandparent if no parent of the insured person is alive.

Employment injury [Sec.2(8)]

It means a personal injury to an employee caused by accident or an occupational disease arising out of and in the
course of his employment, being an insurable employment, whether the accident occurs of the occupational disease
is contracted within or outside the territorial limits of India.

In E.S.I. Corpn. Indore Vs. Babulal, 1982 Lab. I.C.468, the M.P. High Court held that injury arose out of employment
where a workman attending duty in spite of threats by persons giving call for strike and was assaulted by them while
returning after his duty was over.

The word “injury” does not means only visible injury in the form of some wound. Such a narrow interpretation would
be inconsistent with the purposes of the Act which provides certain benefits in case of sickness, maternity and
employment injury (Shyam Deve Vs. E.S.I.C. Air 1964 All.42).

Employee [Sec.2(9)]

“Employee” according to Sec.2(9) means any person employed for wages in connection with the work of a factory of
establishment to which this Act applies.

The word “employee” would include not only persons employed in a factory but also persons connected with the work
of the factory. The test of payment of salary or wages is not a relevant consideration. It is enough if the employee
does some work which is ancillary, incidental of has relevance to or link with the object of the establishment.

The Central government has since prescribed by a Notification under Rule 50 of the E.S.I. Rules, 1950 the wage limit
for coverage of an employee under Sec.2(9) of the Act as Rs. 6,500 per month.

Exempted employee [Sec 2(10)]

“Exempted Employee” means an employee who is not liable under this Act to pay the employee’s contribution.

Family [Sec.2(11)]

‘Family’ means all or any of the following relatives of an insured person, namely –

• a spouse;

• a minor legitimate or adopted child dependent upon the insured person;

• a child who is wholly dependent on the earnings of the insured person and who is (a) receiving education, till
he or she attains the age of 21 years, (b) an unmarried daughter.

• a child who is infirm by reason of any physical or mental abnormality or injury and is wholly dependent on the
earnings of the insured person, so long as the infirmity continues;

• dependent parents.

Insured person [Sec.2(14)]

35
It means a person who is or was an employee in respect of whom contributions are or were payable under the Act
and who is, by reason thereof, entitled to any or the benefits provided by the Act.

Miscarriage [Sec.2(14-B)]

It means expulsion of the contents of a pregnant uterus at any period prior to or during the 26 weeks of pregnancy but
does not include any miscarriage, the causing of which is punishable under the Indian Penal Code, 1860.

Sickness [Sec.2(20)]

It means a condition which requires medical treatment and attendance and necessitate abstention form work on
medical grounds.

Employees’ State Insurance

Section 38 of the Act makes compulsory that subject to the provisions of the Act all the employees in factories or
establishments to which this Act applies shall be insured in the manner provided by this Act. Such insured persons
shall pay contributions towards Insurance fund through their employers who will also pay their own contribution. Such
insured persons are entitled to get certain benefits form that fund which shall be administered by the Corporation. Any
dispute will be settled by the Employees Insurance Court.

Employees’ State Insurance Corporation

Section 3 of this Act provides for the establishment of Employees’ State Insurance Corporation by the Central
Government for administration of the Employees’ State Insurance Scheme in accordance with the provisions of the
Act. Such Corporation shall be body corporate having perpetual succession and a common seal and shall sue and be
sued by the said name.

Constitution

The Central Government appoints a Chairman, a Vice-Chairman and other member representing interests of the
employers, employees, State Governments’ Union Territories and medical profession. Three members of the
Parliament and the Director General of the Corporation are its ex-officio members.

Powers and duties of the corporation

Section 19 empowers the Corporation, to promote (in addition to the scheme of benefit specified in the Act),
measures for the improvement of the health and welfare of insured persons and for the rehabilitation and re-
employment of insured persons who have beer disabled or injured and incur in respect of such measures expenditure
from the funds of the Corporation within such limits as may be prescribed by the Central Government.

Section 29 empowers the Corporation (a) to acquire and hold property both movable and immovable, sell or otherwise
transfer the said property; (b) it can invest and investments; (c) it can raise loans and discharge such loans with the
previous sanction of Central Government; (d) it may constitute for the benefit of its staff or any class of under Section
29 can be exercised subject to such conditions as may be prescribed by the Central Government.

Appointment of regional boards etc.

The Corporation may appoint Regional Boards, Local Committees and Regional and Local Medical Benefit Councils
in such areas and in such manner, and delegate to them such powers and functions, as may be provided by the
regulations (Section 25).

Wings of the corporation

The Corporation to discharge its functions efficiently, has been provided with two wings:

Standing committee

The Act provides for the constitution of a Standing Committee under Section 8 from amongst its members.

Power of the standing committee

36
The Standing Committee has to administer affairs of the Corporation and may exercise any of the powers and
perform any of the functions of the Corporation subject to the general superintendence and control of the Corporation.
The Standing Committee acts as an executive body for administration of Employees’ State Insurance Corporation.

Medical benefit council

Section 10 empowers the Central Government to constitute a Medical Benefit Council. Section 22 determines the
duties of the Medical Benefit Council stating that the Council shall:

• advise the Corporation and the Standing Committee on matters relating to administration of medical benefit,
the certification for purposes of the grant of benefit and other connected matters;

• have such powers and duties of investigation as may be prescribed in relation to complaints against medical
practioners in connection with medical treatment and attendance; and

• perform such other duties in connection with medical treatment and attendance as may be specified in the
regulations.

Employees’ State Insurance Fund (Sec.26)

Section 26 of the Act provides that all contributions paid under this Act and all other moneys received on behalf of the
Corporation shall be paid into a Fund called the Employees’ State Insurance Fund which shall be held and
administered by the Corporation for the purposes of this Act. The Corporation may accept grants, donations and gifts
from the Central or State Government, local authority, or any individual or body whether incorporated or not, for all or
any of the purposes of the Act. A Bank account in the name of “Employees’ State Insurance Fund” shall be opened
with the Reserve Bank of India or any other Bank approved by the Central Government. Such account shall be
operated on by such officers who are authorized by the Standing Committee with the approval of the Corporation.

Purposes for which E.S.I. fund may be expended (Sec.28)

The E.S.I. Fund shall expended only for the following purposes, namely:

1. payment of benefits and provision of medical treatment and attendance to insured persons and their families
and defraying the charges and costs in connection therewith;

2. payment of fees and allowances to members of the E.S.I. Corporation, the Standing Committee and Medical
Benefit Council, the Regional Boards, Local Committees and Regional and Local Medical Benefit Councils;

3. payment of salaries, leave and joining time allowances, travelling and compensatory allowances, gratuities
and compassionate allowances, pensions, contributions to provident or other benefit fund of officers and
servants of the E.S.I. Corporation and meeting the expenditure in respect of offices and other services set up
for the purpose of giving effect to the provisions of the Act.

4. Establishment and maintenance of hospitals, dispensaries and other institutions for the benefit of insured
persons and their families;

5. Payment of contributions to any State Government, local authority or any private body or individual, towards
the cost of medical treatment and attendance provided to insured persons and their families;

6. Defraying the cost of audition the accounts of the E.S.I. Corporation and of the valuation of its assets and
liabilities;

7. Defraying the cost (including all expenses) of the Employees’ Insurance Court set up under the Act;

8. Payment of any sums under any contract entered into for the purposes of the Act by the E.S.I. Corporation or
the Standing committee or by an officer duly authorized by the E.S.I. Corporation or the Standing Committee
in that behalf;

9. Payment of sums under any decree, order or award of any Court of Tribunal against the E.S.I. Corporation or
any of its officers or servants for any act done in execution of his duty or under a compromise or settlement of
any suit or other legal proceeding or claim instituted or made against the E.S.I. Corporation.

37
 10. Defraying the cost and other charges of instituting or defending any civil or criminal proceedings arising out of
any action taken under the Act;

11. Defraying expenditure, within the limits prescribed, on measures for the improvement of the health and
welfare of insured persons and for the rehabilitation and re-employment of insured persons who have been
disabled or injured; and

12. Such other purposes as may be authorized by the E.S.I. Corporation with the previous approval of the Central
Government.

The expenditure on the above purposes is subject to the provisions of the Act and of any rules made by the Central
Government in that behalf.

The E.S.I. Corporation shall maintain correct accounts of its income and expenditure in such form and in such manner
as may be prescribed by the Central Government. The accounts shall be audited annually by the Comptroller and
Auditor-General of India. The Corporation shall submit to the Central Government and Annual Report of its work and
activities. The annual report and the audited accounts together with the auditor report shall be placed before
Parliament.

Contributions (Chapter IV Secs.38 to 45-B)

Subject to the provisions of the Act, all the employees in factories and establishments to which the Act appliers shall
be insured (Sec.38). in accordance with the provisions of the Act, both the employers and employees have to pay
their contributions. The contribution payable by an employee is known as employee’s contribution and the contribution
payable by an employers is known as employer’s contribution. These contributions are to be paid to the E.S.I.
Corporation [Sec.39(1)]. The contributions shall be paid at such rates as may be prescribed.

Method of calculation

Schedule I to the Act lays down the method of calculation of the employees’ and the employers’ contribution.
According to it the amount of contribution for a wage-period shall be paid at a fixed percentage of wages. The present
rates of contribution are 4.75 percent and 1.75 percent of workers wages by employers and employees respectively.
The wage period in relation to an employee shall be the unit in respect of which all contributions shall be payable. The
contributions payable in respect of each wage period shall ordinarily fall due on the last day of the wage period and
where an employee is employed for part of the wage period, or is employed under two or more employers during the
same wage period, the contributions shall fall due on such days as may be specified in the regulations.

Principal employer to pay contributions in the first instance

According to Se. 40 of the act, it is incumbent upon the principal employer to pay in respect of every employee
whether directly employed by him or by or through an immediate employer, both the employer’s contributions and the
employee’s contribution. However, he can recover from the employee (not being an exempted employee) the
employee’s contribution by deduction from his wages and not otherwise.

According to Sec. 39(5) of the Act, if any contribution payable is not paid by the principal employer on the date on
which such contribution has become due, he shall be liable to pay simple interest at the rate of 12 percent per annum
or at such higher rate as may be specified in the regulations, till the date of its actual payment.

Method of payment of contribution (Sec.43)

Subject to the provisions of the Act, the E.S.I. Corporation may make regulations for any matter relating or incidental
to the payment and collection of contributions payable under the Act;

• the manner and time of payment of contributions;

• the payment of contributions by means of adhesive or other stamps affixed to or impresses upon books,
cards or otherwise and regulating the manner, time and conditions in, at and under which, such stamps are to
be affixed or impresses;

• the date by which evidence of contribution having been paid is to be received by the E.S.I. Corporation;

38
 • the entry in or upon books or cards of particulars of contributions paid and benefit distributed in the case of
the insured persons to whom such books or cards related and

• the issue, sale, custody, production, inspection and delivery of books or cards and the replacement of books
or cards which have been lost, destroyed or defaced.

Returns and registers

Every principal and immediate employer shall submit to the E.S.I. Corporation or to such officer of the E.S.I.
Corporation as it may direct such returns in such form and containing such particulars relating to persons employed
by him as may be specified in regulations made in this behalf [Sec.44(1)]. He shall also maintain such registered or
records in respect of his factory establishment as may be required by regulations made in this behalf [Sec.44(3)].

Benefits (Chapter V Secs.46 to 73)

The Act provides for 6 types of benefits to the insured persons, their dependents certain other persons who are
entitled. These benefits are as follows:

1. Sickness benefit.

2. Maternity benefit

3. Disablement benefit

4. Dependants’ benefit

5. Medical benefit

6. Funeral expenses

All these benefits except the medical benefit are monetary benefits, the rule regarding these benefits are contained in
Secs.46 to 58 and the First Schedule to the Act.

Sickness benefit (Secs.46(1) (a), 47 to 49)

A person shall be qualified to claim sickness benefit for sickness if it occurs during any benefit period.

An insured person shall be entitled to sickness benefit only if his sickness is certified by a duly appointed medical
practitioner. The qualification of a person to claim sickness benefit, the conditions subject to which such benefit may
be given, the rates and period thereof shall be such as may be prescribed by the Central Government.

The insured person shall not, however, be entitled to sickness benefit for an initial waiting period of 2 days. But if the
spell of sickness recurs within 15 days he shall be entitled to recover the benefit even for the first 2 days in the second
or subsequent spell. The sickness benefit is also not to be paid to any person for more than 56 days in any two
consecutive benefit periods.

Maternity benefit [Secs.46 (1) (b) and 50]

An insured woman shall be entitled to maternity benefit in case of (a) confinement, or (b) miscarriage, or (c) sickness
arising out of pregnancy, confinement, premature birth of a child or miscarriage. Before an insured woman is entitled
to maternity benefit she must be certified to be eligible for such payment by an authority specified in this behalf.
[Sec.46(1) (b)].

To obtain maternity benefit, the insured woman must get certificate of pregnancy, of the expected date of confinement
and of actual confinement and send them to the Local Office to which she is attached.

An insured woman shall be entitled to maternity benefit for an additional period not exceeding 1 month for all days she
does not work for remuneration in case of (a) sickness arising out of pregnancy, (b) confinement, (c) premature birth
of child, or (d) miscarriage. But the following conditions must be fulfilled before she can claim maternity benefit.

• She must be qualified to claim this amount under Sec.50(1).

• She must produce such proof as may be required under the regulations in support of her claim [Sec.50(4).
39
Disablement benefit (Secs.46 (1) (c), 51, 51-A to 51-D, 52-A, 53 to 55]

Disablement benefit shall be payable to an insured person suffering from disablement as a result of an employment
injury sustained as an employee if he is certified to be eligible for such payment by an authority specified in this
behalf. [Sec.46(1) (c)].

‘Employment injury’ means a personal injury to an employee caused by accident or an occupational disease arising
out of and in the course of his employment, being an insurable employment whether the accident occurs or the
occupational disease is contracted within or outside the territorial limits of India.

The disablement benefit shall be payable to the insured person as follows:

• For temporary disablement, at the full rate;

• For permanent total disablement, at the full rate;

• For permanent partial disablement resulting from an injury specified in Part II of the Second Schedule, at such
percentage of the full rate as is proportionate to the loss of earning capacity caused by that injury;

• For permanent partial disablement resulting form an injury not specified in Part II of the Second Schedule, at
such percentage of the full rate payable in the case of permanent total disablement as is proportionate to the
loss of earning capacity permanently caused by the injury;

Where more injuries than one are caused by the same accident, the rate of benefit payable under Clause (c)
and (d) shall be aggregated but not so in any case as to exceed the full rate.

• In case of disablement not covered by Clauses (a), (b), (c) and (d) at such rate not exceeding the full rate, as
may be provided in the regulations (Clause 7 of Schedule I).

Dependant’s benefits [Secs.46 (1) (d), 52 to 55-A)

If an insured person dies as a result of an employment injury sustained as an employee, his dependants who are
entitled to compensation under the Act, shall be entitled to periodical payments referred to as dependants’ benefit
[Sec.46 (1) (d)]. Whether or not he was in receipt of any periodical payment or temporary disablement in respect of he
injury, dependants’ benefit shall be payable to his dependants at such rates and for such periods and subject to such
conditions as may be prescribed by the Central Government. Till such rates, periods and conditions are prescribed by
the Central Government, provisions of Schedule I will continue to apply.

In case of insured person dies without leaving behind him the dependants as aforesaid, the dependants’ benefit shall
be paid to the other dependants of the deceased at such rates and for such periods and subject to such conditions as
may be prescribed by the Central Government.

Scale of dependants’ benefit

In the case of death of the insured person, the dependants’ benefit shall be payable to his widow and children as
follows:

Scale of dependants’ benefit

In the case of death of the insured person, the dependants’ benefit shall be payable to his widow and children as
follows:

• To the widow during life or until remarriage, an amount equivalent to 3/5th of the full rate. If there are 2 or
more widows, the amount payable to the widow as aforesaid shall be divided equally between the widows.

• To each legitimate or adopted son, an amount equivalent to 2/5 th of the full rate until he attains 18 years of
age.

In the case of a legitimate son who is infirm and who is wholly dependent on the earnings of the insured
person at the time of his death, dependants benefit shall continue to be paid while the infirmity lasts.

40
 • To each legitimate or adopted unmarried daughter, an amount equivalent to 2/5th of the full rate until the
attains 18 years of age or until marriage whichever is earlier.

Medical benefit [Secs.46 (1) (e), 46 (2), and 56 to 59]

An insured person and/or a member of his family whose conditions requires medical treatment an attendance shall be
entitled to receive medical treatment for and attendance on insure persons, hereinafter referred to as ‘medical
benefit’.

The medical benefit may be given either in the form of out-patient treatment and attendance in a hospital or
dispensary, clinic or other institutions or by visits to the home of the insured person or treatment as in-patient in a
hospital or other institution.

A person shall be entitled to medical benefit during any period for which contribution are payable in respect of his or in
which he is qualified to claim sickness benefit or maternity benefit or is in receipt of such disablement benefit as does
not disentitle him to medical benefit under the regulations.

An insured person and his family shall be entitled to receive medical benefit only of such kind and on such scale as
may be provided by the State Government or the E.S.I. Corporation.

Sec.59 makes provision for the establishment and maintenance of hospitals, dispensaries and other medical and
surgical services by the E.S.I. Corporation, with the approval of the State Government, for the benefit of insured
persons and their families.

Sec.59-A makes provision of medical benefit for insured persons and their families by the E.S.I. Corporation in lieu of
the State Government.

Funeral expenses [Secs.46 (1) (f)]

In case of insured person dies, the expenditure on his funeral, known as ‘funeral expense’, shall be payable to the
eldest surviving member of the family. Where the deceased person did not have a family or was not living with his
family at the time of his death, the funeral expense shall be payable to the person who actually incurs the expenditure
on the funeral of the deceased insured person. The amount of such payment shall not exceed the amount as may be
made within 3 months of the death of the insured person or within such extended period as the E.S.I. Corporation or
any officer or authority authorized by it in this behalf may allow.

Adjudication of Disputes and Claims (Chapter VI Secs. 74 to 83)

Secs. 74 and 75 of the Act lay down that where a dispute arises under the provision of the Act, the matter in the
dispute shall be decided by the Employees’ Insurance Court constituted under Sec. 74 and not by a Civil Court.

Subject to the provision of Sec.75(2-A), the following claims shall be decided by the Employees’ Insurance Court,
namely:

• Claim for the recovery of contributions from the principal employer;

• Claim by a principal employer to recover contribution from the principal employer;

• Claim by a principal employer under Sec.68;

• Claim under Sec.70 for the recovery of the value or amount of the benefits received by a person when he is
not lawfully entitled thereto; to

• Any claim for the recovery of any benefit admissible under the Act.

Penalties (Chapter VII Secs. 84 to 86)

Secs. 84 to 86 provide for penalties for certain offences.

Punishment for false statement (Sec.84)

41
If any person knowingly makes or causes to be made any false statement or representation for the purpose of

• Causing any increase in payment or benefit under the Act, or

• Causing any payment or benefit to be made where not payment or benefit is authorized by or under Act, or

• Avoiding any payment to be made by himself under the Act or enabling any other person to avoid any such
payment.

He shall be punishable with imprisonment and fine as per the provisions of the Act.

Punishment for failure of pay contributions, etc. (Sec.85)

If any person fails to pay any contribution which under the Act he is liable to pay, he shall be punishable with
imprisonment for a term which may extend to 3 years.

Power to recover damages (Sec. 85-B)

According to new Sec.85-B, introduced by the Employees’ State Insurance (Amendment) Act, 1975, where an
employer fails to pay the amount due in respect of any contribution or any other amount payable under the Act, the
E.S.I. Corporation may recover from the employer by way of penalty such damages not exceeding the amount of
arrears as may be specified in the regulations.

42
 Lesson 4

Industrial Disputes Act, 1947

Meaning

“A mission is an enduring statement of purpose that provides a clear vision of the organization’s current and future
business activities, in product, service and market terms, its values and beliefs, and its points of differentiation from
competitors. A mission helps determine the relationships in each of the key markets with which the organisation
interacts, and provides a sense of direction and purpose which leads to better independent decision-making at all
levels of he organisation”.

Such a mission statement should explicitly reflect the underlying beliefs, values and aspirations, and strategies of the
organisation.

During the last decade many services organisatoins have started to develop mission statements. Over this period
there has been increasing recognition of the potential value of mission statements and some companies have spent
enormous amounts of time and effort in developing them.

The development of an effective mission statement is especially important in services because of the need for focus
and differentiation in service sector businesses. Given the intangibility of services and the significance of people in
service operations, organizations need to develop a clear statement of purpose or ‘mission’ to ensure that the
appropriate attention is directed at the key elements of their strategy.

Issues to be considered while developing a good mission statement for a services business:

• This mission statement should be defined clearly.

• The audience for a mission should be carefully considered.

• It is necessary to understand in what business we are in.

• A mission statement should be unique.

• A mission statement should be market oriented.

Organization’s mission statement should be defined clearly

In developing a mission statement the key is to achieve a balance between not being so narrow as to restrict growth
opportunities and not being so broad as to lose focus. For example, some banks which diversified away from their
core business into stock broking and investment banking, with disastrous results, are not reconsidering their strategy.
Similarly, a number of retailers that have diversified away from their core businesses, have been unprofitable in these
new areas, and are now leaving them and consolidating back into their core retailing business. Hence the
organisation must be cautious while defining mission statement.

The audience for a mission should be carefully considered

Before formulating a mission statement the target audiences for the mission and thrie relative importance should
becomes dared. The sophistication of the mission needs to be reviewed taking into account the audience to whom it
is addressed. The following figure outlines some of he key potential audience for admission and some of their
expectations, based on a consideration of stakeholders. A mission statements aims to capture the values and beliefs
of the organization and provide guidelines for the way it should interact with its identified markets – customers,
internal employees, influence markets (including shareholders), suppliers, referral markets, as well as the recruitment
markets for employees.

It should be clear that a mission which attempts to address every one of these groups equally could become
extremely long a and consist of general ‘motherhood’ statements. In considering the various markets outlines above
the company needs to consider how the company intends to serve each of them and to extent it wants to incorporate
recognition of them within the mission.The decision on target audiences for the mission should be based on the
context of the particular service firm and its current position within the industry sector. Most senior managers in
service firms consider that the key messages in the mission statement should be concerned primarily with providing a
strategic direction for the organisatoin and motivating and focusing its internal staff.
43
 Customers
Good service quality
Trustworthiness
Fair prices

Suppliers Internal staff

Clear requirements Recognition
Partnership Rewards
Large orders Security
Reliable settlement Opportunity for advancement
BANK
Referral Sources
Employees (Potential) Reliability
Job supply Performance
Imager of first choice employer Recognition
Courteous treatment Reciprocation
Fig.4.1

Influencers

1. Shareholders 2. Government and regulators

• Returns • Credit rating

• Growth • Compliance

• Compliance • Reliability

• Good corporate • No surprises

• Good corporate citizen

It is necessary to understand in what business we are in

Consideration of the mission for a service organisation involves asking two interrelated questions: What business are
we in and what business should we be in? The mission should provide the target audience determined above,
including employees and other relevant stakeholders, with a understanding of the strategic direction and scope of the
organization.

The mission is a key vehicle for developing and reviewing the strategic market and service options. In considering the
basic purpose of the business it is essential that these strategic growth options are considered, otherwise the mission
may simply be a series of elegant words used to reinforce the existing status quo. To do this what should be done is
to consider the service and market areas in which the organisatoin may wish to develop. The following figure outlines
the product/ market options which the organisatoin needs to consider. These include the following.

• Market penetration

• Market development

• Product or service development

• Diversification

Product / Services

44
 Present New

Market New
Present
Market Penetration Product or Service Development

Market Development Diversification

Each section of the matrix in the above figure represents a core marketing strategy based on combinations of focus
on existing markets, new markets, existing services and products or new services and products.

For the services firm four possible growth options are available. A first option involves expanding its markets position
(market penetration) it can attempt to penetrate the existing market for its services by attracting customers away from
competitors, by increasing usage rates amongst existing competitors or by improving customer retention. A second
option (service development) involves introducing new services to the existing market place. Many of the banks are
following this strategy by introducing a continuous array of new products including investment and insurance services.
A third option (market development) is to develop new markets for the existing services. This could involve
identification and attack of new market segments or may involve regional or global geographic expansion. The fourth
option (diversification) involves offering new services or products to new markets.

Developing a mission involves consideration of what services and markets the company wants to be in, not just those
in which it is involved at present. A mission can help identify a policy defining future business growth and probability,
based on these four growth options.

A mission statement should be unique

A mission statement needs to be unique to the organisatoin under consideration: a key method of obtaining
competitive advantage is to be different in a preferred way to a selected customer base. The mission statement
should articulate the point of differentiation and at the same time act as a framework for helping evaluate current and
future activities. A mission statement should differentiate the company from other companies operating in the same
sector and help to establish an organization’s individuality and uniqueness.

It is essential to have a mission statement which is market oriented

It is particularly important to avoid mission statements that are product oriented, i.e. the mission should be defined in
a way that reflects customers needs rather than product features and attributes. Organizations such as airlines, hotels
and banks need to consider customer needs carefully and use this knowledge to make an input into the design of the
services that are offered.

A mission statement should articulate the right balance in terms of the desired long-term direction of the organisatoin,
determine to whom the mission is addressed, indicate the services to be offered and markets to be served, be unique
and focus more or customers’ needs rather than on the characteristics of the products and services offered.

Service Mission Statements

David ahs identified nine components of mission statements. These include the following:

1. Customers—who are they?

2. Products or services – what are the firm’s major products or services?

3. Location – where does the firm compete?

4. Technology – what is the firm’s basic technology?

5. Concern for survival – what are the firm’s economic objectives?

6. Philosophy – what are the basic beliefs, values, aspirations and philosophical priorities of the firm?

7. Self concept – what are the firm’s major strengths and competitive advantages?

45
 8. Concern for public image – what are the firm’s public responsibilities and what image in desired?

9. Concern for employees – what is the firm’s attitude towards its employees?

Example of service organization’s mission statements

DHL
Worldwide express*
Worldwide mission statement
DHL will become the acknowledged global leader in the express delivery of
documents and packages. Leadership will be achieved by establishing the
industry standards of excellence for quality of service and by maintaining the
lowest cost position relative to our service commitment in all markets of the
world.

The evolution of our business into new services, markets, or products will be
completely driven by our single-mined commitment to anticipating and meeting
the changing needs of our customers.

A good mission should to the following:

• Define the purpose of the organisation.

• Identify relevant services and markets

• Assist in reviewing current and future strategic options.

• Create a balance between narrowness and breadth

• Differentiate the organisation from others in its sector

• Be specific enough to have an impact on the behaviour of the organisation.

• Be realistic, attainable and flexible.

• Focus more on customer needs and their satisfaction than on the characteristics of the service themselves.

• Reflect the core competencies of the organisation.

• Permit close integration with corporate objectives, so that success in achieving the mission can be measured.

• Be clearly understood and widely communicated through the organisation.

The nine components of the mission outlined earlier together with the list above, can act as a check-list when
developing a mission.

Once a satisfactory mission has been developed, it should be communicated within and where appropriate outside
the organisation.

Andrew Campbell and his colleagues have identified the following four elements as important in a mission:

46
 • Purpose – why the company exists

• Strategy – the competitive position and distinctive competence.

• Values – what the company believes in.

• Standards and behaviour – the policies and behaviour patterns that underpin the distinctive competence and
the value system.

Degree of Sophistication

It is important that the degree of sophistication in the working used in a mission is appropriate to the organisation
concerned. The use of technical academic terms appropriate for a strategy consulting firm’s mission would be totally
inappropriate to a small company operating in road transportation.

Levels of Mission Statement

Just as companies have different levels of objectives, ranging from strategic objectives to tactical objectives and
action plans, a service organisation should consider to what extent it should develop mission or purpose statements
at lower levels. For example, a bank with diverse financial services operations could have a mission statement for the
bank as a whole as well as individual missions for each business unit. Thus it might develop missions for retain
banking, international banking, investment banking and its insurance and stock broking activities. Many multi-
business services organizations are in a similar position of needing to develop missions for their constituent parts. It
may also be appropriate to have missions at individual functional levels.

Developing a Service Mission

The first point in developing a mission statement is to consider if the organisatoin is ready to proceed with the task. A
number of different approaches can be used for the development of a mission.

A workshop approach

This typically takes place in the context of a strategy or marketing planning workshop with senior executives from the
organisation. A period is spent explaining the purpose and role of a mission statement and the different types of
mission that can exist at different levels. This is followed by syndicate exercises, where groups of about five people
spend a sufficiently long period to produce a first draft mission. The missions fro a number of different syndicates are
then presented and the strengths and weaknesses of each are discussed in detail, leading to the eventual
development of a mission statement.

T top team approach

Another approach is one which consists of boards of directors, with a group of upto eight people. The session starts
with the senior management, or board, being asked the purpose of their business. Each member is asked to write his
or her view of he mission on a card. Significant variations are often found. After an appropriate period the missions on
the cards are collected and shuffled, and during a coffee break they are written up on large sheets of paper and
pinned to the walls. The mission statements do not identify their authors. The terms is then invited to write a second
version of the mission on a card and again these are collected and written on large sheets of paper which replace the
ones on the wall. At this point a more detailed discussion follows. After two or three attempts a good draft mission
may start to evolve, although in some cases more fundamental analysis may be needed.

This time devoted to the development of a satisfactory mission can be considerable. The development of a mission
statement can be assisted by an external consultant.Once completed, mission statements change only less
frequently. The emergence of a new opportunity, a decline in the company’s existing markets or a new technology
offering a breakthrough in service delivery can create the need for change. A mission should be sufficiently robust to
last for some time but should be reviewed on an annual external environment.

MODEL QUESTION PAPER

PAPER 4.13 MARKETING OF SERVICES
Time: 3 Hours Maximum Marks: 100
Section – A (5 x 8 = 40)

47
Answer any FIVE Questions
Note : All questions carry equal marks
1. What do you mean by services? What are the salient features of services which complicate the task of
marketing services effectively?
2. Discuss the concept of market segmentation with reference to hospital services.
3. We find 5th P i.e. “People” more effective in managing the services. Comment on this statements.
4. What do you understand by service mission statements? What are its components?
5. Explain the concept of customer focused service.
6. The service generating organisatoins need to make their fee structure judicious, specially in the Indian
perspective. Do you agree with this view? Justify your answer.
7. Bring out the importance of personal selling and world – of – mouth promotion in the service generating
organizations.
8. The banks primarily deal in services and therefore the formulation of the product mix is to be processed in the
face of changing socio-economic conditions of the users’. Comment on this statement and focus on the
product mix for the banking services.
Section – B (4 x 15 = 60)
Answer any FOUR Questions
Question No. 15 is compulsory.

9. What do you mean by tourism marketing? Focus on the behavioral profile of users of the tourism services.
10. Examine the application of marketing mix elements in distance education.
11. What do you mean by the marketing mix? State and explain in brief the different components of marketing
mix for marketing the insurance services.
12. Explain relationship marketing
13. Bring out the importance of positioning of services. Explain the process of positioning.
14. Explain the steps involved in marketing planning process.
15. Explain the marketing strategies adopted by ICICI Bank in marketing their services.

48