The Supreme Court has ruled that the liability to pay the penalty imposed under Section 4A(3)(b) of the Employees’ Compensation Act, 1923, for default in paying compensation within the stipulated period, is the exclusive responsibility of the employer and cannot be fastened upon the Insurance Company.
The Court clarified that the penalty is levied on account of the employer’s personal fault and negligence for not providing a justifiable cause for the delay, and therefore, while the insurer is contractually and statutorily bound to indemnify the employer for the principal compensation amount and interest thereon under Section 4A(3)(a), the liability for the penalty under Section 4A(3)(b) must be borne by the employer alone.
A Two-Judge Bench comprising Justice Aravind Kumar and Justice Prasanna B. Varale observed that the EC Act, 1923, is a social welfare legislation intended to provide expeditious compensation to employees and their families, and its provisions must be given a liberal and purposive interpretation. The Bench traced the legislative history of Section 4A of the EC Act, noting it was inserted in 1959 and subsequently substituted by an amendment in 1995.
The pre-1995 version of Section 4A(3) combined compensation, interest, and penalty, using the phrase ‘together with’, which suggested a composite liability that an insurer would have to indemnify, added the Bench.
The Bench noted that the 1995 amendment deliberately severed the penalty component from the compensation and interest components. The substituted Section 4A(3) now deals with compensation and interest under clause (a), and the penalty for unjustified delay under a separate clause (b). The legislative intent behind this separation was to place the burden of the penalty, which arises from the employer’s default, directly on the employer to act as a deterrent.
Further, the Bench observed that the statutory obligation on the employer to pay compensation within one month, as mandated by Section 4A(3), cannot be overridden by any contractual arrangement, such as an insurance policy. Thus, the Bench reaffirmed the legal principle that while an insurer is liable for compensation and interest, the penalty imposed under Section 4A(3)(b) is due to the ‘personal fault’ of the insured employer and cannot be passed on to the insurer.
Briefly, the case pertains to the death of Sandeep, a commercial driver employed by Respondent No. 4, Manoj Kumar. On February 13, 2017, while driving the employer’s cab, Sandeep collapsed and was subsequently pronounced dead. His legal heirs (Respondents No. 1-3) filed a claim under the Employee’s Compensation Act, 1923. The Commissioner determined that an employer-employee relationship existed and the death occurred during the course of employment. An award of Rs. 7.36 Lakh as compensation with 12% interest from the date of the incident was passed. Since the vehicle was insured by the Appellant (New India Assurance Co. Ltd.), the Commissioner directed that the employer could be indemnified by the insurance company.
Thereafter, a show-cause notice was issued to the employer for the delay in paying the compensation, as required under Section 4A(3)(b) of the EC Act. The employer failed to appear or provide justification for the delay. Consequently, the Commissioner imposed a penalty of 35% of the compensation amount, i.e., Rs. 2.57 Lakh upon the employer. The claimants appealed to the Delhi High Court, which upheld the compensation amount but modified the Commissioner’s order by fastening the liability for the compensation, interest, and the penalty upon the Appellant-Insurance Company. The Insurance Company then appealed to the Supreme Court, challenging only the part of the High Court’s order that made it liable for the penalty component.
Appearances:
AOR Manjeet Chawla, along with Advocates Salil Paul, Sahil Paul, Sandeep Dayal, Kanupriya Mehta, and Jyoti, for the Appellant
AOR Ashish Pandey, along with Advocates Manish Maini, Akash, Mahesh Dutt Shukla, Abhimanyu Singh, and Ram Chandra, for the Respondent
