The Supreme Court of India (“Supreme Court”), in its decision in the matter of Daivshala v. Oriental Insurance Company Limited, Civil Appeal No. 6986 of 2015 dated July 28, 2025 has clarified that commuting accidents may qualify as arising out of and in the course of employment, provided a nexus of time, place, and circumstance is established. Treating Section 51E of the Employees’ State Insurance Act, 1948 (“ESI Act”) as clarificatory and retrospective, the Supreme Court aligned the Employees’ Compensation Act, 1923 (“EC Act”) with social welfare objectives. This ruling restores compensation to dependents and moves away from the narrow “factory gate” approach.

Facts of the case

Shahu Sampatrao Jadhavar was employed as a watchman in a sugar factory (Respondent No. 2). He left to report for duty in the early hours- from 3:00 a.m. to 11:00 a.m. on April 22, 2003, on his personal vehicle, however, he met with a fatal road accident, leaving behind his widow, four children, and his mother.

The dependents instituted proceedings under the EC Act. The Commissioner for Workmen’s Compensation and Civil Judge (Senior Division), Osmanabad awarded Rs. 3,26,140 (Rupees three lac twenty-six thousand one hundred forty) with 12% (twelve percent) p.a. interest from May 22, 2003, in favour of the claimants, and directed the insurance company (Respondent No. 1) to deposit the compensation under the insurance policy. It also imposed a penalty of 50% (fifty percent) of awarded amount on the employer. The penalty and compensation were directed to be paid within 1 (one) month.

On appeal, the High Court of Judicature at Bombay, Aurangabad Bench, reversed the Commissioner’s award. Relying principally on Regional Director, ESI Corporation v. Francis De Costa (1996) 6 SCC 1, it held that an accident occurring while the employee was on the way to work did not arise out of and in the course of employment. The dependents carried the matter to the Supreme Court by special leave.

Arguments of the Appellants

For the appellants, it was argued that the accident had a causal nexus with employment and was not a purely private risk. The deceased, a night-duty watchman, was travelling at an odd and vulnerable hour for work; the risk encountered was therefore incidental to his service. Counsel for the appellants invoked the theory of notional extension, under which employment can extend, within reasonable limits of time and space, beyond the strict precincts of the workplace to the employee’s ingress and egress. The EC Act, being a social welfare legislation, should receive a liberal interpretation to advance its remedial purpose.

The petitioners further contended that the High Court’s reliance on Francis De Costa was misplaced after Parliament’s intervention via Section 51E of the ESI Act, introduced with effect from June 1, 2010, which declares that an accident occurring while commuting to or from work “shall be deemed to have arisen out of and in the course of employment,” provided a nexus of circumstances, time, and place is established. In other words, the legislative policy has moved away from the restrictive approach in Francis De Costa, and the Court ought to give effect to that policy.

Counsel also pointed out that, after the Commissioner’s award, the insurance company had deposited the compensation with interest and the claimants/ dependants were permitted to withdraw the principal-circumstances that, at the very least, reflected acknowledgment of liability under a valid policy.

Arguments of the Respondents

Appearing for the respondents, it was submitted that the fatal injuries did not arise out of or occur in the course of employment, because the accident took place before the employee reached the workplace. Commuting, it was argued, is a personal act outside the scope of service risks. Reliance was placed on Francis De Costa, where the Supreme Court had rejected a claim by an employee injured 1 (one) kilometre away from the workplace while travelling to duty, holding that such a road accident cannot be attributed to employment unless the employee was doing something incidental to his employment. On this view, employment does not begin until the employee reaches the work premises.

The counsel for the respondents also argued that although in the case of General Manager, B.E.S.T. Undertaking v. Agnes (1964) 3 SCR 930, the court granted compensation to the dependants of the deceased worker under the EC Act who met with an accident on his way to work, such case can be distinguished from the present case.

It was argued that in the Agnes case, the court applied the notional extension doctrine to include the transport facility as a part of workplace on special facts, as it concerned an employer who provided such transport facility to its employees; and it did not govern ordinary commuting on a personal vehicle.

Analysis

The Supreme Court framed 3 (three) threshold questions: (i) whether Section 51E of the ESI Act operates retrospectively so as to cover a commuting accident of April 22, 2003; (ii) if so, whether the interpretive effect of Section 51E of ESI Act can inform the meaning of the EC Act (which uses the same operative phrase “arising out of and in the course of employment”); and (iii) on the application of that meaning, whether the facts satisfy the nexus requirement in this instant case.

Statutory Provisions:

a. Section 3 of the EC Act provides for compensation to be paid by the employer if personal injury is caused to an employee by accident ‘arising out of and in the course of his employment.’

b. Section 2 (8) of the ESI Act provides the definition of ‘employment injury’ to mean personal injury to an employee caused by accident or an occupational disease ‘arising out of and in the course of his employment.’  

c. Further, Section 51E of the ESI Act specifically provides for accidents happening while commuting to the place of work and vice versa and states, ‘an accident occurring to an employee while commuting from his residence to the place of employment for duty or from the place of employment to his residence after performing duty, shall be deemed to have arisen out of and in the course of employment if nexus between the circumstances, time and place in which the accident occurred and the employment is established.’

Francis De Costa backdrop: Both Section 3 of the EC Act and the definition of “employment injury” in Section 2(8) of the ESI Act hinge on the phrase “arising out of and in the course of employment.” In Francis De Costa, interpreting the ESI Act before Section 51E of the ESI Act existed, the Supreme Court had taken a restrictive view, “an accident on the way to work is not an employment injury unless it can be shown that the employee was doing something incidental to employment; employment does not commence the moment one leaves home”.

Section 51E of ESI Act and its character: In 2010, Parliament enacted Section 51E of the ESI Act to deem commuting accidents to have arisen out of and in the course of employment, subject to proof of a nexus between time, place, circumstances, and the employment. The provision, by its design and purpose, neutralized the restrictive holding in Francis De Costa. The judgement explains that the verb “deemed” in Section 51E of the ESI Act operates not as a fanciful legal fiction but to put beyond doubt the construction of the phrase “arising out of and in the course of employment,” which had been uncertain and variably applied in commuting contexts.

The Court then examined whether Section 51E of the ESI Act is clarificatory (and therefore retrospective). Drawing from Justice G.P. Singh’s Principles of Statutory Interpretation (14th Edition) and case law such as Commissioner of Income Tax, Bombay v. Podar Cement Private Limited (1997) 5 SCC 482, the Court reiterated that when an enactment is declaratory/ clarificatory (i.e., it removes doubt or supplies an obvious omission), retrospective application is generally intended. Accordingly, the Court held that Section 51E of the ESI Act is clarificatory in character and therefore retrospective.

Beneficial legislation and interpretive approach: The Court reiterated that the EC Act and ESI Act are beneficial statutes designed to ameliorate risks faced by employees and to protect their dependents from destitution on employment injuries. Such statutes warrant a liberal interpretation that advances, rather than defeats, their remedial purpose. The Court referred to precedents such as Bombay Anand Bhavan Restaurant v. Deputy Director, ESIC (2009) 9 SCC 61, and Jaya Biswal v. Branch Manager, IFFCO Tokio General Insurance Company Limited (2016) 11 SCC 201, describing the ESI Act and the EC Act, social security legislations, to which courts may, if necessary, strain the language to achieve the object. 

Statutes in pari materia: The Court emphasized that the EC Act and ESI Act are cognate social welfare statutes that use the same operative phrase and operate in close tandem. Where statutes are in pari materia, a meaning settled in one may inform the other, in the absence of contrary indication. Accordingly, the understanding from Section 51E of the ESI Act of commuting injuries, now clarified to fall within “arising out of and in the course of employment” upon proof of nexus can guide the EC Act inquiry as well. The Court did not just mechanically import Section 51E of the ESI Act into the EC Act; it adopted the same meaning for the same phrase used in related social legislation.

Application to the present facts: Bringing these strands together, the Court answers the three questions in favour of the appellants. First, Section 51E of the ESI Act is clarificatory and thus applies retrospectively to an accident of April 22, 2003. Second, the ‘in pari materia’ principle warrants adopting the Section 51E sense of the phrase “arising out of and in the course of employment” to the EC Act inquiry. Third, the nexus requirement is satisfied on the facts that the deceased was a night-duty watchman, travelling at 3 a.m. to report to his designated post when the accident occurred en route about 5 (five) kilometres from the factory. These circumstances establish a clear nexus between the time, place, and purpose of travel and the employment. Accordingly, the accident arose out of and in the course of employment.

Order of the Court

The Supreme Court allowed the appeal, set aside the High Court’s judgement dated December 1, 2011, in First Appeal No. 2015 of 2011, and restored the judgement of the Commissioner for Workmen’s Compensation and Civil Judge (Senior Division), Osmanabad dated June 26, 2009, in Workmen’s Compensation Application No. 28 of 2005. There was no order as to costs.

Conclusion

This case clarifies the legal position on commuting accidents under the Indian compensation laws. Recognizing the social-welfare character of the EC Act and ESI Act, the Court held that commuting injuries fall within “arising out of and in the course of employment” when there is a demonstrable nexus of time, place, and circumstance with the employee’s service. By reading together the provisions of statutes that aim to achieve the same social purpose, the Court moved away from a rigid boundary-line at the factory gate and aligned the law with realities of work, hours, and travel. The decision ensures that dependents are not denied protection by formalistic boundaries and that beneficial legislation achieves its purpose.

Please find attached a copy of the Judgement, here.

This update has been contributed by Aayush Kumar (Partner) and Vishakha Somani (Associate).

Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.