Daivshala v. Oriental Insurance Company – Another Feather in the Cap of Theory of Notional Extension

Introduction

The theory of notional extension occupies a central position in labour law. Recently, in the noteworthy judgment of Daivshala & Ors v. Oriental Insurance Company & Anr., 2025 INSC 904 (“Daivshala”), the Supreme Court has expanded the contours of this theory and observed that the phrase, “accident arising out of and in course of his employment” occurring in Section 3, Employees Compensation Act, 1923 includes 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, provided the nexus between the circumstances, time and place in which the accident occurred and the employment is established.

The term notional extension in the context of labour law refers to the hypothetical extension of the employment premises or employment period in certain cases, to provide compensation and similar benefits to the employee for injuries caused in accidents occurring while performing work-related activities. Rooted in social security, this doctrine expands the scope of the employer’s liabilities for accidents even if they have not taken place directly in the employer’s premises.

Evolution of law

The applicability and the extent of applicability of this doctrine in India has been a matter of much debate. The growing concerns around the social security of workers in pre-independence era led to the enactment of the Employees Compensation Act, 1923 (“EC Act”) and Employees State Insurance Act, 1948 (“ESI Act”). Section 3, EC Act provides that if any personal injury is caused to the employee arising out of or in the course of employment then his employer shall be liable to pay compensation with certain well delineated exceptions. Section 2(8), ESI Act provides similar recognition of the theory of notional extension.

The first recognition of this theory in judicial pronouncements is seen in the case of Saurashtra Salt Mfg. Co. v. Bai Valu Raja & Ors., AIR 1958 SC 881. Then came the landmark judgment of General Manager, B.E.S.T Undertaking, Bombay v. Mrs. Agnes, (1964) 3 SCR 930. In this case, the workman was a bus driver of the Appellant company and after finishing his work boarded another bus to go to his residence. That bus was involved in an accident resulting in his death. Agnes – his widow sued for compensation under the EC Act and contended that her husband died in an accident arising out of and in the course of employment. The Court granted compensation to the widow. Notably, the Court observed that an employment may end or may begin not only when the employee begins to work or leaves his tools but also when he uses the means of access and egress to and from the place of employment.

However, this evolution of law in the employee-friendly direction, suffered a setback with the passing of the judgment in the case of Regional Director, ESIC & Anr. v. Francis De Costa & Anr., (1996) 6 SCC 1 (“Francis De Costa”). In this case Francis De Costa, the employee met with an accident when he was on his way to the place of employment, at a distance of 1 km from the place of work. The Court found against the employee observing that unless it can be said that his employment began as soon as he set out for the factory from his home, it cannot be said that the injury was caused by an accident “arising out of … his employment”.

However, in 2010, the legislature introduced Section 51E in the ESI Act. The introduction of Section 51E clearly neutralised the holding in Francis De Costa wherein the section provided that 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. The only condition was that nexus between the circumstances, the time and place in which the accident occurred and the employment had to be established.

Present Case

Factual Matrix & Case History

In the present case, Shahu Sampatrao Jadhavar was employed as a watchman in the Respondent no. 2-Sugar Factory. His duty hours were from early morning 3 am to 11 am. On 22nd April 2003, he left home on his Motorcycle to report for duty. However, unfortunately, he never reached his place of work. When he was 5 kms away from the factory his motorcycle was involved in a fatal accident. The family was allowed compensation by the Civil Judge. However, in appeal the Bombay High Court reversed the decision. The aggrieved family members preferred an appeal by way of special leave before the Supreme Court.

Contentions of Parties

The Appellant contended that –

1. There was causal connection between the employment and the accident. Theory of notional extension applied. Travel undertaken was not personal rather it was incidental to his employment.
2. EC Act is a beneficial legislation intended for the welfare of employees.
3. The judgment in Francis De Costa no longer governed the situation after the introduction of Section 51E, ESI Act.

The Respondent contended that –

1. The accident could not be said to have its origin in employment. Employment cannot commence until the employee has reached the place of work and what happened before that could not be said to be in the course of employment.
2. And placed reliance on the judgment in Francis De Costa.
3. Issues

The Court framed the following issues –

1. Does Section 51E, ESI Act have retrospective effect so as to cover an accident that has taken place on 22.04.2003 when the Section was enacted on 01.06.2010?
2. Assuming Section 51E of the ESI Act applies, would the said interpretation enure to the benefit of the appellants whose claim arises under the EC Act?
3. Lastly, assuming both the above questions are answered in favour of the Appellants, are the ingredients of Section 51E attracted to the facts of the present case?
4. Analysis by the Court

As to issue i), the Court observed that in order to ascertain whether Section 51E would have retrospective application or not, it had to be seen whether Section 51E was clarificatory or not. Based on an analysis of the aforementioned judgments, the Court observed that the question whether accident occurring during the commute to and from workplace constitutes an accident arising out of and in course of employment has vexed courts for very long time with diverse findings based on individual facts. In view of the above, the Amendment of introducing Section 51E is clarificatory in character and will have retrospective effect.

As to issue ii), the Court proceeded by highlighting the difference in applicability of the ESI Act and EC Act. The Court observed that, ESI Act applies to all factories, including factories belonging to the Government and also to establishments or class of establishments, industrial, commercial, agricultural or otherwise notified in the official gazette under Section 1(5) of the Act. In fact, the principal difference between the ESI Act and the EC Act is that while the ESI Act applied to the employees of factories and notified establishments as mentioned above, the EC Act applied to employees under all other employers as defined.Since ESI Act and EC Act statutes in pari materia, the Court observed that it could use Section 51E, ESI in the interpretation of the phrase “accident arising out of and in course of employment” under the EC Act and the said interpretation could be employed to extend the benefit to the Appellant.

As to issue iii), the Court observed that the phrase “accident arising out of and in the course of his employment” occurring in Section 3, EC Act includes 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, provided the nexus between the circumstances, time and place in which he accident occurred and the employment is established. Considering that the deceased was a night watchman and was dutifully proceeding to his workplace to be well on time, there was a clear nexus between the circumstances, time and place in which the accident occurred and his employment as watchman. The accident having clearly arisen out of and in the course of employment, the Appellant was entitled to compensation under EC Act.

Applicability of the judgment to workers in non-traditional work setups

While the judgment in Daivshala has settled the position of law with respect to workers in employee-employer relationship, the bigger question that remains to be answered is how will the interests of the employees in non-traditional work setups be protected. This includes ‘work from home’ situations and gig workers.

Work from home has become the new normal after the Covid-19 pandemic with many organizations working in either entirely in remote mode or in hybrid work mode where the employee works from the employer’s place on certain days of the week and works from home on the other days. If some mishap occurs while working from home, the moot question is whether they will be treated at par with those working in their offices, for the matter of compensation?

One of the objectives behind the introduction of Social Security Code, 2020 (“the Code”) is to provide social security to gig workers and platform workers which is to ensure access to health care and to provide income security, particularly in cases of old age, unemployment, sickness, invalidity, work injury, maternity or loss of a breadwinner by means of rights conferred on them and schemes framed, under the Code.^[1]

The Code defines Gig Workers as “a person who performs work or participates in a work arrangement and earns from such activities outside of traditional employer-employee relationship”^[2] As per Niti Aayog’s Report published in June, 2022, the number of gig workers and platform workers in the country was 7.7 million in 2020-21 which is expected to rise to 23.5 million by 2029-30. Since gig workers are to constitute such a significant part of the workforce in India, it becomes imperative to examine whether the benefit of this expansion in law will be extended to them. It is important to note, that though the Code was enacted in 2020, it has still not come into force. Gig Workers are not covered under EC Act and ESI Act. In this situation, how the compensation for injury caused in the course of employment will be extended to them is a matter of great concern and remains to be seen.

References

1. Section 2(78), Code on Social Security, 2020 ↑
2. Section 2(35), Code on Social Security, 2020 ↑

(This post has been co-authored by Arpita Pande, an arbitration reporter with Livelaw, and Advocate at the Supreme Court and Delhi High Court and Mukul Pande, retired Additional Secretary, Rajya Sabha Secretariat.)

CITE AS: Arpita Pande and Mukul Pande ‘Daivshala v. Oriental Insurance Company – Another Feather in the Cap of Theory of Notional Extension’ (The Contemporary Law Forum, 11 September 2025) <https://tclf.in/2025/09/11/daivshala-v-oriental-insurance-company-another-feather-in-the-cap-of-theory-of-notional-extension/> date of access.