The insurance company is liable to indemnify the principal compensation and interest as per statutory obligations; however, it is not liable to pay the penalty imposed on the employer for failure to deposit compensation within the stipulated time, as such penalty arises from the employer's personal fault and negligence.

Headnote:(A) Employees’ Compensation Act, 1923 - Section 4A - Penalty for default in payment of compensation - Liability of insurance company - Whether insurance company is liable to indemnify penalty imposed on employer - Court held that penalty under Section 4A(3)(b) arises due to personal fault and negligence of employer for failing to pay compensation within time - Insurance company is liable to indemnify principal compensation and interest but not the penalty component. (Paras 21, 23, 24)

(B) Appeal - Scope - Appellate jurisdiction - Court held that statutory liability for penalty remains with the employer as it acts as a deterrent for delay in payment, and this burden cannot be shifted to the insurer under a contract of indemnity, as it does not naturally flow from the obligation to compensate the victim. (Paras 22, 23)

Facts of the case:
The legal heirs of a deceased employee claimed compensation for death occurring during the course of employment. The commissioner awarded compensation and interest, additionally imposing a penalty on the employer for failure to deposit the amount within the statutory period of one month. The appellate court initially fastened the entire liability, including the penalty, upon the insurer, who then challenged the liability regarding the penalty.

Findings of Court:
The legislative intent behind separating the penalty component from the compensation and interest provisions in the amended statute was to place the burden of penalty on the employer due to their failure to fulfil statutory obligations promptly. The insurer is not accountable for the employer’s default or personal negligence.

Issues: The primary issue was whether an insurance company is legally obligated to indemnify the penalty component imposed on an employer under the provisions of the compensation statute for failure to make timely payments.

Ratio Decidendi: The Court held that the insurance company’s liability is confined to the payment of compensation and interest as per the indemnity contract and statutory requirements. The penalty imposed due to the employer's default is a consequence of personal negligence and cannot be statutorily or contractually shifted to the insurer.

Result: Appeal allowed.

J U D G M E N T

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 se

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2026 Supreme(Online)(SC) 1465

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION 2026 INSC 177 CIVIL APPEAL NO.174 OF 2026 NEW INDIA ASSURANCE CO. LTD. …….APPELLANT(S)VERSUSREKHA CHAUDHARY AND OTHERS ……RESPONDENT(S) ARAVIND KUMAR J. FEBRUARY 23rd, 2026

Cases Referred (2)

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

2026 INSC 177

CIVIL APPEAL NO.174 OF 2026

NEW INDIA ASSURANCE CO. LTD. …….APPELLANT(S)
VERSUS
REKHA CHAUDHARY AND OTHERS ……RESPONDENT(S)

ARAVIND KUMAR J.

FEBRUARY 23rd, 2026