In a significant ruling, the Supreme Court of India has clarified that an insurance company cannot be made liable to pay a statutory penalty imposed on an employer for delay in compensation under the Employees’ Compensation Act, 1923.
The Court allowed an appeal filed by New India Assurance Co. Ltd., setting aside a Delhi High Court order that had fastened the penalty liability on the insurer.
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Background of the Case
The matter arose from the death of Sandeep, a commercial driver employed by Manoj Kumar. On 13 February 2017, while driving a cab in the course of his employment, he suddenly collapsed and was declared dead at a hospital.
His legal heirs approached the Commissioner under the Employees’ Compensation Act seeking compensation. In November 2020, the Commissioner held that there was an employer-employee relationship and that the death had occurred during employment.
Compensation of ₹7,36,680 was awarded along with 12% annual interest from the date of the incident. Since the vehicle was insured with New India Assurance, the insurer was directed to indemnify the employer for compensation and interest.
However, because the employer failed to deposit the compensation within one month, the Commissioner imposed a penalty of 35%-amounting to ₹2,57,838-under Section 4A(3)(b) of the Act.
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The Delhi High Court later shifted the entire liability-including penalty-onto the insurance company. That limited aspect was challenged before the Supreme Court.
Issue Before the Court
The central question was simple yet crucial:
Can an insurance company be made liable to pay the penalty imposed on an employer for delay in paying compensation under Section 4A(3)(b) of the Employees’ Compensation Act?
Notably, the insurer had already admitted its liability to pay compensation and interest. The dispute concerned only the penalty component.
Court’s Observations
The bench of Justices Aravind Kumar and Prasanna B. Varale closely examined the structure and history of Section 4A.
The Court explained that the Employees’ Compensation Act is a social welfare law meant to ensure timely financial relief to workers or their families. However, it also noted that the penalty provision is triggered specifically by an employer’s failure to pay compensation within one month.
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“The penalty under Section 4A(3)(b) arises out of the personal fault and negligence of the employer,” the bench observed.
The Court traced the legislative history and pointed out that after the 1995 amendment, compensation and interest were separated from the penalty clause. This separation, the Court said, showed that Parliament intended to treat penalty differently from compensation and interest.
The bench relied on its earlier decision in Ved Prakash Garg v. Premi Devi, where it was held that insurance companies are liable to indemnify compensation and interest but not the penalty imposed due to the employer’s delay.
Quoting from that judgment, the Court reiterated that:
“The insurance company will be liable to meet the claim for compensation along with interest… But so far as the penalty imposed on the employer under Section 4A(3)(b) is concerned… it would be the liability of the insured employer alone.”
The bench further emphasized that statutory obligations placed on the employer cannot be shifted to the insurer merely through contractual arrangements.
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The Decision
Allowing the appeal, the Supreme Court set aside the Delhi High Court’s order to the extent it had imposed penalty liability on the insurance company.
The Court held that the employer alone must pay the penalty of ₹2,57,838 as ordered by the Commissioner. The amount is to be paid within eight weeks.
All other findings of the High Court, including compensation and interest payable by the insurer, were left undisturbed.
The appeal was accordingly allowed.
Case Title: New India Assurance Co. Ltd. v. Rekha Chaudhary & Others
Case No.: Civil Appeal No. 174 of 2026
Decision Date: February 23, 2026
