Functional Disability
Courts prioritize actual impact on livelihood over medical percentages and scheduled classifications.
Permanent Partial Disability and Employer Liability
Overview
Section titled “Overview”The following decisions examine the judicial approach to permanent partial disability, assessment of functional disability, determination of loss of earning capacity, compensability of non-scheduled injuries, the doctrine of added peril, and the extent of insurer liability under the Employee’s Compensation Act.
The courts have consistently emphasized that compensation must be determined not merely on the basis of medical disability, but on the actual impact of the injury on the employee’s ability to earn a livelihood.
Loss of Earning Capacity
Economic loss must be independently assessed through evidence and surrounding circumstances.
Employer & Insurer Liability
Insurance may indemnify compensation, but statutory obligations primarily remain with the employer.
Functional Disability and Scheduled Injuries
Section titled “Functional Disability and Scheduled Injuries”1. Pratap Narain Singh Deo vs. Srinivas Sabata and Ors.
Section titled “1. Pratap Narain Singh Deo vs. Srinivas Sabata and Ors.”(04.12.1975 - SC) : MANU/SC/0021/1975
Court shall grant compensation after considering facts and circumstances of case.
It has held that the workman was no more in a position to take up and do that work which he was doing, hence the disablement was assessed 100%.
In this case, worker did carpentry work, and the injury had resulted in the amputation of the left arm of the respondent above the elbow.
2. Kamal Dev Prasad vs. Mahesh Forge
Section titled “2. Kamal Dev Prasad vs. Mahesh Forge”(29.04.2025 - SC) : MANU/SC/0598/2025
The Supreme Court departed from the fixed percentages in the schedule to grant higher compensation, acknowledging that “functional disability” can exceed the “scheduled percentage” depending on the job.
In this case, Commissioner had granted 100% disability, which was reduced to 34% by Bombay HC in accordance with Part II of Schedule I of the Act. The SC disagreed with this view, and noticed functional disability is the type of disability that would interfere with the victim’s ability to carry out day-to-day activities and affect their capacity to earn a livelihood. And set aside the HC decision and restored Commissioner’s decision.
3. Oriental Insurance Co. Ltd. vs. Mohd. Nasir and Ors.
Section titled “3. Oriental Insurance Co. Ltd. vs. Mohd. Nasir and Ors.”(12.05.2009 - SC) : MANU/SC/0899/2009 : (2009) 6 SCC 280
The court held that both the Workmen’s Compensation Act, 1923 and the Motor Vehicles Act, 1988 are beneficial legislations aimed at providing expeditious relief to the victims of accidents, in the former to employees and in the latter to third parties. It was also held that the statutes hence deserve liberal construction.
The Court also held that when injuries are specified in Schedule I and the mode and manner for calculating the amount of compensation also stipulated, the same would be applicable.
It was also noted that the Motor Vehicles Act created a legal fiction insofar as permitting reference to Schedule I of the Workmen’s Compensation Act, 1923 which correlates the permanent disability, at least in certain cases, with the functional disability.
4. Raj Kumar v. Ajay Kumar
Section titled “4. Raj Kumar v. Ajay Kumar”(2011) 1 SCC 343
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The percentage of permanent disability is expressed by the doctors with reference to the whole body, or more often than not, with reference to a particular limb.
Where the claimant suffers a permanent disability as a result of injuries, the assessment of compensation under the head of loss of future earnings would depend upon the effect and impact of such permanent disability on his earning capacity.
The Tribunal should not mechanically apply the percentage of permanent disability as the percentage of economic loss or loss of earning capacity. What requires to be assessed by the Tribunal is the effect of the permanent disability on the earning capacity of the injured;
and after assessing the loss of earning capacity in terms of a percentage of the income, it has to be quantified in terms of money, to arrive at the future loss of earnings (by applying the standard multiplier method used to determine loss of dependency).
The Tribunal may also keep in view the First Schedule to the Workmen’s Compensation Act, 1923 which gives some indication about the extent of permanent disability in different types of injuries, in the case of workmen.
If a doctor gives evidence about the percentage of permanent disability, the Tribunal has to seek clarification as to whether such percentage of disability is the functional disability with reference to the whole body or whether it is only with reference to a limb.
5. National Insurance Co. Ltd. vs. Dheeraj Singh and Ors.
Section titled “5. National Insurance Co. Ltd. vs. Dheeraj Singh and Ors.”(JKHC) : MANU/JK/0242/2020
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Court held that, an employee is entitled to claim compensation computed in accordance with Section 4(1)(b) (Amount of compensation) of the Employee’s Compensation Act, even if the cause for the disablement is not a scheduled injury but comes within the purview of the definition of total permanent disablement.
Loss of Earning Capacity
Section titled “Loss of Earning Capacity”6. National Insurance Co. Ltd. vs. Mubasir Ahmed and Ors.
Section titled “6. National Insurance Co. Ltd. vs. Mubasir Ahmed and Ors.”(01.02.2007 - SC) : MANU/SC/0759/2007
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Loss of earning capacity is not a substitute for percentage of the physical disablement. Unless there is an adjudication, the question of an amount falling due does not arise.
7. Regional Director, Employees State Insurance Corporation vs. Milton Francis Calders
Section titled “7. Regional Director, Employees State Insurance Corporation vs. Milton Francis Calders”(23.02.1979 - BOMHC) : MANU/MH/0348/1979
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The loss of physical capacity cannot be equated with loss of earning capacity. Where a workman claims compensation in respect of an injury which is not a scheduled injury, the loss of earning capacity cannot be proved by mere medical evidence.
It must be proved by evidence which will establish that the workman was, as a result of the injury unable to earn as much as he did before. This being a question of fact it has to be proved by the evidence like any other question of fact.
Added Peril and Course of Employment
Section titled “Added Peril and Course of Employment”8. Devidayal Ralyaram vs. Secretary of State
Section titled “8. Devidayal Ralyaram vs. Secretary of State”(17.05.1937 - SIND) : MANU/SN/0026/1937
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If a workman performs an act that is not required by his duty and involves extra danger, the employer is not liable for resulting injuries.
9. Mackinnon Mackenzie and Co. (P) Ltd. vs. Ibrahim Mahmmed Issak
Section titled “9. Mackinnon Mackenzie and Co. (P) Ltd. vs. Ibrahim Mahmmed Issak”(14.08.1969 - SC) : MANU/SC/0310/1969 : (1969) 2 SCC 607
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Relief shall not be granted in absence of corroborative evidence. held that while “arising out of employment” includes risks incidental to duties, the claim fails if the workman exposes himself to an “added peril” through his own imprudent act.
There must be a causal relationship between the accident and the employment.
The expression “arising out of employment” is not confined to the mere nature of the employment. The expression applies to employment as such to its nature, its conditions, its obligations and its incidents.
If by reason of any of those factors the workman is brought within the zone of special danger, the injury would be one which arises “out of employment.”
If the accident had occurred or account of a risk which is an incident of the employment, the claim for compensation must succeed, unless of course the workman has exposed himself to an added peril by his own Imprudent act.
(Doctrine of added peril)
10. National Insurance Co. Ltd. vs. Balawwa
Section titled “10. National Insurance Co. Ltd. vs. Balawwa”(04.06.1993 - KARHC) : MANU/KA/0204/1993
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The court found that a claim for compensation for the death of an employee could be made under Section 3 read with Section 4 of the Workmen’s Compensation Act only if the death of that employee has occurred due to an injury sustained by accident out of and in the course of his employment.
By a series of Judicial pronouncements it is now well settled that the word ‘accident’ should be taken to mean a mishap or untoward event, not expected or designed; that if a person suffers heart-attack and dies, it necessarily means that there has been an injury to the heart and that, that event being a mishap not expected or designed, is an accident and that, if a workman suffers heart-attack out of and in the course of his employment, then the employer is liable to pay compensation under Section 3 read with Section 4 of the Workmen’s Compensation Act.
Insurance and Employer Liability
Section titled “Insurance and Employer Liability”11. Ved Prakash Garg v. Premi Devi
Section titled “11. Ved Prakash Garg v. Premi Devi”1997 (8) SCC 1
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The burden of payment of penalty as imposed by the Commissioner under Section 4A(3)(b) of EC Act has to be made good by the employer himself and same cannot be imposed upon the Insurance company since imposition of penalty under the said provision is the result of personal fault and negligence on the part of the employer.
Followed in L.R. Ferro Alloys Ltd. v. Mahavir Mahto, (2002) 9 SCC 450, Insurer is liable to indemnify only for compensation and interest, and not penalty for default of payment.
12. New India Assurance Co. Ltd. vs. Harshadbhai Amrutbhai Modhiya and Ors.
Section titled “12. New India Assurance Co. Ltd. vs. Harshadbhai Amrutbhai Modhiya and Ors.”(SC) : MANU/SC/8127/2006
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The Workmen’s Compensation Act, does not confer a right on the claimant for compensation under that Act to claim the payment of compensation in its entirety from the insurer himself.
The entitlement of the claimant under the Workmen’s Compensation Act is to claim the compensation from the employer. As between the employer and the insurer, the rights and obligations would depend upon the terms of the insurance contract.
“Construing the contract involved here it is clear that the insurer has specifically excluded any liability for interest or penalty under the Workmen’s Compensation Act and confined its liability to indemnify the employer only against the amount of compensation ordered to be paid under the Workmen’s Compensation Act.”
13. New India Assurance Co. Ltd. v. Rekha Chaudhary & Ors.
Section titled “13. New India Assurance Co. Ltd. v. Rekha Chaudhary & Ors.”2026 INSC 177
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The Supreme Court reiterated that while an Insurance Company is liable to indemnify the employer for the principal compensation amount and interest, it cannot be fastened with the liability to pay the penalty component. It also noted that the penalty under Section 4A(3)(b) is imposed due to the “personal fault and negligence” of the employer for failing to deposit compensation within the stipulated one month.
When the statute itself has obligated the employer to make the payment within one month, such obligation cannot be countenanced as sub-servient to any contractual obligation or bypassing the statutory obligation, as the same would tantamount to disregard of the legislative intent envisaged under the said provision.