Right To Indemnity Under Workmen's Compensation Act Does Not Authorise Unilateral Appropriation From Unrelated Contract: J&K&L High Court
The High Court of Jammu & Kashmir and Ladakh has held that the right of indemnity under Section 12(2) of the Workmen's Compensation Act does not entitle the principal employer to unilaterally withhold or appropriate amounts lying in relation to an independent contract. The Court observed that any right of recovery must be enforced through legally permissible procedures before a competent forum.
The Court was hearing a Letters Patent Appeal filed by the J&K Lake Conservation and Management Authority against the judgment and order passed by the Single Judge, whereby the communication rejecting the respondent's claim for release of his Call Deposit Receipt was quashed and the Authority was directed to release the CDR amount of Rs. 2,24,750/-.
A Division Bench of Justice Sindhu Sharma and Justice Shahzad Azeem, while dismissing the appeal, observed,
"In the absence of a specific 'recovery' or 'lien' clause in the agreement of the Nigeen contract allowing adjustments from other works, the appellants cannot bypass due process. A right to be indemnified must be enforced through legally recognized channels either by establishing a claim before a competent forum or by adjusting bills within the specific contract where the liability arose."
The Court further observed,
"Unilaterally, withholding the CDR of a separate project amounts to executive high-handedness and violates the principles of natural justice and contractual propriety."
Background:
Pursuant to NIT, the respondent, being the lowest bidder, was awarded the contract for construction of a sewer line at Nigeen and deposited a Call Deposit Receipt amounting to Rs. 2,24,750/-. The proposed sewer line was to pass through land belonging to the Tourism Department and private land, due to which the respondent could not execute the work. Although the matter was subsequently resolved, the respondent declined to resume the work. The Authority contended that no substantial work was executed.
The respondent had also been awarded another contract for construction of a sewer line at Habbak. During execution of the work, two labourers engaged by the respondent died, and the Commissioner under the Workmen's Compensation Act awarded compensation, directing the Authority to pay Rs. 4,33,820/- in each case, being the principal employer. The Authority deposited the amounts, and the legal heirs withdrew the compensation.
The respondent filed a writ seeking release of the cost of work executed and refund of the CDR. By an order, the writ petition was disposed of directing the Vice Chairman to consider the respondent's claim in the light of the recommendations contained in the communication. The Vice Chairman rejected the claim concluding that the respondent was not entitled to the amount in view of the Workmen's Compensation Act.
Aggrieved, the respondent filed another writ which was allowed by the Single Judge directing release of the CDR amount. The Authority preferred the present LPA.
Court's Observation:
The Division Bench examined the core issue of whether the mode of recovery adopted by the Authority was legally permissible. The Court observed that the Single Judge had correctly appreciated the scope and ambit of Section 12(2) of the Workmen's Compensation Act.
The Court observed,
"The said provision undoubtedly confers a right upon the principal employer to seek indemnification from the contractor in respect of the compensation paid to the workmen or their legal heirs. However, the statute does not authorize the principal employer to unilaterally appropriate or withhold amounts lying in relation to another independent contract as a mode of enforcing such right. The right of indemnity contemplated under Section 12(2) is required to be enforced in accordance with law before the Competent Forum."
The Court relied upon Union of India v. Raman Iron Foundry (1974) 2 SCC 231, wherein the Supreme Court held: "a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority."
The Court observed,
"In the absence of a specific 'recovery' or 'lien' clause in the agreement of the Nigeen contract allowing adjustments from other works, the appellants cannot bypass due process. A right to be indemnified must be enforced through legally recognized channels either by establishing a claim before a competent forum or by adjusting bills within the specific contract where the liability arose."
The Court further remarked,
“..The appellants have failed to point out any contractual stipulation or statutory provision empowering them to retain the said amount towards satisfaction of the liability arising out of another contract”.
In view of these observations the court dismissed the Letters Patent Appeal, affirming the judgment passed by the Single Judge. The Court, however, clarified that dismissal of the appeal shall not preclude the appellants from pursuing such remedy as may be available to them in law for recovery of the amount allegedly recoverable from the respondent.
Case Title: Union Territory of J&K and Others v. Gulzar Ahmad Wagra
Citation: 2026 LiveLaw (JKL) 326
Appearances
Appellants: Mr. Furqan Yaqub, GA
Respondent: Mr. N. A. Beigh, Sr. Advocate; Mr. Sofi Manzoor, Advocate