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SUPREME COURT OF INDIA
Aravind Kumar, Prasanna B. Varale, JJ.
New India Assurance Co. Ltd. – Appellant
Versus
Rekha Chaudhary And Others – Respondents
Civil Appeal No. 174 of 2026
Decided On : 23-02-2026
Employees Compensation Act, 1923 – Section 4A(3)(b) – Liability of payment of penalty – During 1959 to 1995, if employers had valid indemnity contract in their favour, entire liability to satisfy claim of compensation, interest and penalty as imposed upon them could have been fastened upon Insurer and it had to indemnify entirely and compensation and indemnity-holder would be entitled to recover all three components from indemnifier – Nevertheless, same is not the case after substitution of Section 4A by way of 1995 amendment wherein three components i.e., compensation, interest and penalty have been severed to form part of two different clauses within same sub-section (3) – Legislative intent behind severing penalty component was to address larger predicament of easing burden of indemnifiers who were adversely impacted by obligation to pay penalty which was not even natural corollary of obligation on their part under indemnity contract to pay compensation and interest – When statute itself has obligated employer to make payment within one month, such obligation cannot be countenanced as sub-servient to any contractual obligation or bypassing statutory obligation, as same would tantamount to disregard of legislative intent envisaged under said provision – Impugned Judgement and Order set aside, so far as it imposes liability of paying penalty under Section 4A(3)(b) of Employees’ Compensation Act, 1923 on Appellant-Insurance Company and said liability is fastened upon Employer. (Paras 21, 22 and 25)
Facts of the case:
The core issue which arises for our consideration is whether the High Court has committed an error to fasten liability of paying penalty component under Section 4A(3)(b) of Employees’ Compensation Act, 1923 upon Appellant-Insurance Company in addition to compensation and interest component?
Findings of Court:
Impugned Judgement and Order dated 21.05.2025 passed in F.A.O No. 147 of 2021 is set aside, so far as it imposes the liability of paying penalty under Section 4A(3)(b) of Employees’ Compensation Act, 1923 on the Appellant-Insurance Company and the said liability is fastened upon Employer i.e., Respondent no. 4 herein to pay the amount of penalty of Rs. 2,57,838/- as Ordered by Commissioner by Order dated 08.02.2021 within a period of eight (8) weeks from today. Rest of findings of High Court remains undisturbed.
Result : Appeal allowed.
Please provide the legal document content (inside
JUDGMENT :
ARAVIND KUMAR J.
1. Heard. Leave Granted.
INTRODUCTION
2. The scope of present Appeal is confined to a limited aspect that is challenge to the Impugned Judgement and Order dated 21.05.2025 passed in F.A.O No. 147 of 2021 by the Delhi High Court to the extent it has fastened the liability of payment of penalty imposed under Section 4A(3)(b) of the Employees Compensation Act, 1923 (hereinafter referred to as “EC Act”) upon the Appellant - New India Assurance Company Limited (for short ‘Insurance Company’) in addition to the amount of compensation and interest while allowing the appeal under Section 30 of the EC Act against order dated 19.11.2020 and 08.02.2021.
BRIEF FACTUAL MATRIX
3. The facts shorn of unnecessary details are set forth hereinbelow.
4. The Respondent no. 1-3 herein are the legal heirs of the deceased employee Shri Sandeep who was employed as a commercial driver by Respondent No. 4-Shri Manoj Kumar. On 13.02.2017 at about 1 pm when Shri Sandeep was driving the offending vehicle Maruti Swift Dzire Cab (LMV) bearing Registration No. HR 63C 6448 registered in the name of Respondent No. 4, he collapsed. The passengers accompanying him in the car brought him to casualty where he was pronounced dead. Pursuant to the said incident, the Respondent no. 1-3 preferred claim petition on 13.07.2017 seeking compensation under Employee’s Compensation Act, 1923 before the Learned Commissioner, Labour Department, GNCT of Delhi.
5. The Learned Commissioner vide Order dated 19.11.2020 held that there existed an ‘employer-employee’ relationship between Respondent no. 4 herein and deceased employee Sandeep and it was further held that since death had occurred during & in the course of employment with Respondent no. 4, the employer was liable to pay compensation for death to the claimants. Consequently, the Learned Commissioner after applying the relevant factor as prescribed under Schedule IV of the EC Act arrived at the compensation amount at Rs. 7,36,680/- (Seven Lakhs Thirty-Six Thousand Six Hundred Eighty Rupees Only) and also granted an Interest @12% on compensation amount with effect from 13.02.2017 i.e., date of incident. Since there existed a valid insurance policy of the vehicle under Commercial Vehicle Package Policy from the Appellant herein and the incident had occurred during the currency of the policy (i.e., 26.06.2016 to 25.06.2017), the commissioner granted Respondent No. 4-employer to indemnify the compensation amount which he was held liable to pay by claiming it from the Appellant-Insurance company. Further, the commissioner had also issued show cause as to why penalty not exceeding 50% (fifty percent) of the compensation amount should not be imposed upon Respondent No. 4- employer under Section 4A(3)(b) of the EC Act for default in paying the compensation within one month from the date it fell due.
6. However, the Respondent no. 4 neither appeared nor filed any reply to the said show cause to explain any justification for the delay in depositing the compensation within specified period of one month. Hence, Commissioner by Order dated 08.02.2021 imposed penalty of 35% (thirty five percent) upon Respondent no. 4-employer i.e., Rs. 2,57,838/- (Two Lakhs Fifty- Seven Thousand Eight Hundred Thirty-Eight Rupees Only) for delaying the deposit payment of compensation within reasonable time without any justification. Being aggrieved by the order of learned Commissioner, claimants preferred an appeal bearing F.A.O. No. 147 of 2021 under Section 30 of the EC Act before the Delhi High Court seeking enhancement of compensation to the tune of Rs. 25,00,000/- (Twenty-Five lakhs Rupees Only) along with @12% interest and also challenged the findings of the learned Commissioner to the extent he had imposed the primary liability to pay the compensation upon Respondent no. 4 and not on the appellant who was the insurer.
7. The High Court vide the Impugned Order did not interfere to enhance the compensation amount but set aside th
Employees Compensation Act, 1923 – Section 4A(3)(b) – Insurance Company has no liability for payment of penalty in addition to compensation and interest component.
The main legal point established in the judgment is that the penalty under Section 4-A(3)(b) of the Workmen's Compensation Act is the liability of the employer and not the insurance company.
The issue of imposing a penalty for default in paying compensation arises only after the main claim for compensation is determined by the competent Authority.
The court held that under the Employees' Compensation Act, 1923, employers cannot refuse to pay interest on compensation for delays, mandating payment of 12% interest from 30 days post-incident.
The insurance company is not liable for interest payments under the Workmen's Compensation Act; liability rests with the employer to pay compensation and associated interest.
The Insurance Company is liable for interest on compensation under the Employee’s Compensation Act, while the employer is responsible for penalty payments.
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