The Supreme Court of India has held that an insurance company cannot be made liable under the Employees’ Compensation Act, 1923 to pay the statutory penalty imposed on an employer for delayed payment of compensation.
The bench of Justice Aravind Kumar and Justice Prasanna B. Varale has observed that
The appeal arose from a decision of the Delhi High Court, which had fastened liability not only for compensation and interest but also for penalty upon the insurer, New India Assurance Co. Ltd.
The case concerned the death of a commercial driver, Sandeep, who collapsed while driving a vehicle during the course of employment in February 2017. His legal heirs filed a claim under the Employees’ Compensation Act before the Commissioner, Labour Department, GNCT of Delhi.
The Commissioner has held that an employer-employee relationship existed; determined compensation at Rs. 7,36,680; awarded 12% interest from the date of death; and imposed a penalty of 35% (₹2,57,838) under Section 4A(3)(b) for failure to pay compensation within one month.
While the insurer admitted liability for compensation and interest, it challenged the High Court’s direction requiring it to also pay the penalty.
The central question before the Supreme Court was whether the insurer can be made liable to pay the penalty imposed under Section 4A(3)(b) of the Employees’ Compensation Act, 1923, in addition to compensation and interest?
The Court undertook a detailed examination of Section 4A and its legislative history. It observed that section 4A was amended in 1995. The amendment separated compensation and interest (Clause (a)) from penalty (Clause (b)). The penalty is triggered by the employer’s unjustified default in paying compensation within one month.
The Bench emphasized that the penalty under Section 4A(3)(b) is a consequence of the employer’s personal fault and negligence, not merely a statutory liability arising automatically from the compensation claim.
The Court relied heavily on the precedent laid down in Ved Prakash Garg v. Premi Devi, where it was held that the insurer is liable to indemnify compensation and interest. However, a penalty imposed for delayed payment due to the employer’s default cannot be indemnified by the insurer.
The Court also referred to its recent ruling in Sheela Devi v. Oriental Insurance Company Limited, which reaffirmed that statutory penalty under Section 4A(3)(b) must be borne exclusively by the employer.
The Supreme Court noted that the Employees’ Compensation Act is a beneficial social welfare legislation. However, statutory obligations imposed on the employer cannot be diluted through contractual indemnity arrangements. Allowing insurers to bear penalty would defeat the deterrent purpose of Section 4A(3)(b). The penalty is intended to ensure prompt payment of compensation by employers.
The Court further observed that if insurers were made liable for penalties arising from employer defaults, the statutory mandate requiring payment within one month would become redundant.
The Supreme Court set aside the Delhi High Court’s decision insofar as it imposed liability for penalty on the insurer.
The court held that the employer alone is liable to pay the penalty of Rs. 2,57,838; directed the employer to deposit the penalty within eight weeks; and maintained the insurer’s liability for compensation and interest.
Case Details
Case Title: New India Assurance Co. Ltd. Versus Rekha Chaudhary And Others
Citation: JURISHOUR-65-SC-2026
Case No.: Civil Appeal No.174 Of 2026
Date: 23/02/2026
