The Supreme Court on Monday (February 23) held that the statutory penalty for delay in paying compensation under the Employees’ Compensation Act must be paid by the employer. The Court clarified that this penalty cannot be shifted to the insurer.
A Bench of Justices Aravind Kumar and Prasanna B. Varale partly set aside a Delhi High Court order which had directed New India Assurance Co. Ltd. to pay the penalty imposed on the employer for delayed payment.
Background of the claim
The dispute arose from the death of a commercial driver who collapsed while driving his employer’s vehicle. After his death, the driver’s legal heirs approached the Commissioner under the Employees’ Compensation Act and sought compensation.
The Commissioner awarded ₹7.36 lakh as compensation along with 12% interest. Since there was a delay in payment, the Commissioner issued a show-cause notice to the employer. However, the employer did not respond. Accordingly, the Commissioner imposed a 35% penalty under Section 4A(3)(b) of the Employees’ Compensation Act, 1923, which permits a penalty when an employer defaults for more than one month.
The employer had insured the vehicle with New India Assurance Co. Ltd. While the insurer accepted liability for the compensation and interest, it disputed liability for the penalty.
High Court direction and appeal
The Delhi High Court directed the insurer to pay the compensation, interest, and penalty. Aggrieved by the direction on penalty, the insurer challenged the order before the Supreme Court.
Before the Supreme Court, the insurer relied on Ved Prakash Garg v. Premi Devi, 1997 (8) SCC 1. It argued that the penalty under Section 4A(3)(b) flows from the employer’s personal fault and negligence. Therefore, only the employer can be made liable for it.
Supreme Court ruling
The Supreme Court accepted the insurer’s submissions. Justice Aravind Kumar authored the judgment.
The Court held that an insurer cannot be made to pay for the employer’s personal default. In particular, it emphasised that the statute places a clear duty on the employer to pay compensation within one month. As a result, this obligation cannot be bypassed through contractual arrangements.
The Court observed:
“when the statute itself has obligated the employer to make the payment within one month, such obligation cannot be countenanced as sub-servient to any contractual obligation or bypassing the statutory obligation, as the same would tantamount to disregard of the legislative intent envisaged under the said provision.”
It further noted that the Act creates a statutory duty on the employer. Hence, the penalty for delayed payment must remain with the employer, and no one can “fasten” that liability on the insurer.
Accordingly, the Court ordered:
“Consequently, the Impugned Judgement and Order…is set aside, so far as it imposes the liability of paying the penalty under Section 4A(3)(b) of Employees’ Compensation Act, 1923 on the Appellant-Insurance Company and the said liability is fastened upon the Employer i.e., Respondent no. 4 herein to pay the amount of penalty…within a period of eight (8) weeks from today.”
The appeal was allowed.
Cause Title
NEW INDIA ASSURANCE CO. LTD. VERSUS REKHA CHAUDHARY AND OTHERS
Appearance
For Petitioner(s): Mr. Salil Paul, Adv.; Ms. Manjeet Chawla, AOR; Mr. Sahil Paul, Adv.; Mr. Sandeep Dayal, Adv.; Ms. Kanupriya Mehta, Adv.; Ms. Jyoti, Adv.
For Respondent(s): Mr. Manish Maini, Adv.; Mr. Akash, Adv.; Mr. Mahesh Dutt Shukla, Adv.; Mr. Abhimanyu Singh, Adv.; Mr. Ram Chandra, Adv.; Mr. Ashish Pandey, AOR
