Employee Compensation: Employer not the insurer to bear Penalty – The case originated from an employee’s compensation claim following the death of a 24-year-old due to a motor accident during employment1. The Employees’ Compensation Commissioner initially awarded the parents (Appellants) Rs. 6,55,410/- in compensation, plus 12% interest and a 50% statutory penalty of Rs. 3,27,705/-, with the entire liability placed on the Insurer. The High Court subsequently reduced the compensation to Rs. 4,36,940/- and the penalty to a fixed Rs. 30,000/-, shifting the penalty liability solely to the Employer. The Appellants challenged only the reduction of the penalty. Crucially, the entire Commissioner’s award, including the 50% penalty, had already been paid by the Insurer to the Appellants before the High Court’s appea.
Law Involved
Employees’ Compensation Act, 1923: Specifically, Section 4A(3)(b), which pertains to the imposition of a penalty on the employer for unjustified delay in paying compensation.
Case Law: The Supreme Court relied on Ved Prakash Garg Vs. Premi Devi and Ors. (1997) and L.R. Ferro Alloys Ltd. v. Mahavir Mahto (2002), which clarify that the insurer is not liable to indemnify the statutory penalty imposed on the employer.
Reasoning: The Supreme Court reaffirmed the settled legal principle that the statutory penalty under Section 4A(3)(b) of the Act is solely the liability of the employer and is not to be indemnified by the Insurer. Therefore, the High Court’s decision to fix penalty liability on the Employer was upheld.
However, the Court found that the High Court had not provided any reasoning for drastically reducing the penalty from 50% of the award (as determined by the Commissioner) to a fixed sum of Rs. 30,000/-. The Commissioner had made a specific factual finding that the Employer had not paid any amount to the claimants at the time of injury or when the claim was filed, indicating an unjustified delay. The Supreme Court held that the High Court could not interfere with such a finding without establishing a contrary fact—that the Employer had indeed made timely payments.
Holding: The Supreme Court partially allowed the appeal and modified the High Court’s order concerning the penalty.
The statutory penalty under Section 4A(3)(b) was fixed at 30% of the compensation amount.
Based on the High Court’s reduced compensation of Rs. 4,36,940/-, the new penalty amount calculated at 30% is Rs. 1,31,082/-.
This penalty amount remains the sole liability of the Employer.
To ensure justice, the Insurer, who had already paid the entire Commissioner’s award, was directed to initially pay the Rs. 1,31,082/- penalty and then recover this amount from the Employer [Para 18, 19(i)].
Furthermore, since the Insurer had previously paid the higher amount of compensation and penalty as per the Commissioner’s initial award, the Supreme Court directed the Insurer to recover Rs. 4,15,093/- (representing the excess compensation and penalty paid) from the Appellants [Para 18, 19(ii)].
The Insurer was granted the liberty to pursue legal recourse for these recoveries.
Sheela Devi And Another V. Oriental Insurance Company Limited And Another
Supreme Court: 2025 INSC 516: (DoJ 17-04-2025)
