New India Assurance Co Ltd vs Rekha Chaudhary

2026 INSC 177 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.174 OF 2026

NEW INDIA ASSURANCE CO. LTD. …….APPELLANT(S)

VERSUS

REKHA CHAUDHARY AND OTHERS ……RESPONDENT(S)

JUDGMENT

ARAVIND KUMAR J.

1. Heard. Leave Granted.

INTRODUCTION

2. The scope of present Appeal is confined to a limited aspect that is challenge

to the Impugned Judgement and Order dated 21.05.2025 passed in F.A.O

No. 147 of 2021 by the Delhi High Court to the extent it has fastened the

liability of payment of penalty imposed under Section 4A(3)(b) of the Signature Not Verified Digitally signed by RASHI GUPTA Employees Compensation Act, 1923 (hereinafter referred to as “EC Act”) Date: 2026.02.23 17:15:18 IST Reason:

upon the Appellant - New India Assurance Company Limited (for short

1 ‘Insurance Company’) in addition to the amount of compensation and

interest while allowing the appeal under Section 30 of the EC Act against

order dated 19.11.2020 and 08.02.2021.

BRIEF FACTUAL MATRIX

3. The facts shorn of unnecessary details are set forth hereinbelow.

4. The Respondent no. 1-3 herein are the legal heirs of the deceased employee

Shri Sandeep who was employed as a commercial driver by Respondent No.

4-Shri Manoj Kumar. On 13.02.2017 at about 1 pm when Shri Sandeep was

driving the offending vehicle Maruti Swift Dzire Cab (LMV) bearing

Registration No. HR 63C 6448 registered in the name of Respondent No. 4,

he collapsed. The passengers accompanying him in the car brought him to

casualty where he was pronounced dead. Pursuant to the said incident, the

Respondent no. 1-3 preferred claim petition on 13.07.2017 seeking

compensation under Employee’s Compensation Act, 1923 before the

Learned Commissioner, Labour Department, GNCT of Delhi.

5. The Learned Commissioner vide Order dated 19.11.2020 held that there

existed an ‘employer-employee’ relationship between Respondent no. 4

herein and deceased employee Sandeep and it was further held that since

death had occurred during & in the course of employment with Respondent

no. 4, the employer was liable to pay compensation for death to the

claimants. Consequently, the Learned Commissioner after applying the 2 relevant factor as prescribed under Schedule IV of the EC Act arrived at the

compensation amount at Rs. 7,36,680/- (Seven Lakhs Thirty-Six Thousand

Six Hundred Eighty Rupees Only) and also granted an Interest @12% on

compensation amount with effect from 13.02.2017 i.e., date of incident.

Since there existed a valid insurance policy of the vehicle under Commercial

Vehicle Package Policy from the Appellant herein and the incident had

occurred during the currency of the policy (i.e., 26.06.2016 to 25.06.2017),

the commissioner granted Respondent No. 4-employer to indemnify the

compensation amount which he was held liable to pay by claiming it from

the Appellant-Insurance company. Further, the commissioner had also

issued show cause as to why penalty not exceeding 50% (fifty percent) of

the compensation amount should not be imposed upon Respondent No. 4-

employer under Section 4A(3)(b) of the EC Act for default in paying the

compensation within one month from the date it fell due.

6. However, the Respondent no. 4 neither appeared nor filed any reply to the

said show cause to explain any justification for the delay in depositing the

compensation within specified period of one month. Hence, Commissioner

by Order dated 08.02.2021 imposed penalty of 35% (thirty five percent)

upon Respondent no. 4-employer i.e., Rs. 2,57,838/- (Two Lakhs Fifty-

Seven Thousand Eight Hundred Thirty-Eight Rupees Only) for delaying the

deposit payment of compensation within reasonable time without any

justification. Being aggrieved by the order of learned Commissioner, 3 claimants preferred an appeal bearing F.A.O. No. 147 of 2021 under Section

30 of the EC Act before the Delhi High Court seeking enhancement of

compensation to the tune of Rs. 25,00,000/- (Twenty-Five lakhs Rupees

Only) along with @12% interest and also challenged the findings of the

learned Commissioner to the extent he had imposed the primary liability to

pay the compensation upon Respondent no. 4 and not on the appellant who

was the insurer.

7. The High Court vide the Impugned Order did not interfere to enhance the

compensation amount but set aside the order dated 19.11.2020 and

08.02.2021 to the extent it imposed the primary liability of paying the

compensation, interest and penalty upon Respondent no. 4-employer and

fastened it upon the appellant herein. It is pertinent to mention here that

appellant has admitted its liability to pay the amount of compensation and

interest. However, the Appellant is aggrieved by the limited aspect of

imposition of liability for payment of Penalty under Section 4A(3)(b) of the

EC Act. Hence, the present appeal.

SUBMISSIONS ON BEHALF OF THE PARTIES

8. Learned Counsel Shri Salil Paul appearing on behalf of the Appellant has

submitted that Commissioner vide Order dated 08.02.2021 held that Show

Cause Notice dated 19.11.2020 was sent to the employer-Respondent no. 4

to appear on 18.12.2020 and show cause as to why penalty upto the extent

4 of 50% of compensation amount be not imposed upon for not depositing the

compensation within time when it fell due but Respondent no. 4 neither

appeared nor filed any reply to the said show cause notice hence, the

Commissioner vide Order dated 08.02.2021 had rightly held that

Respondent no. 4 was not interested to defend itself and his opportunity to

file reply was closed therefore he was held liable to pay the penalty.

9. He further submitted that employer had a duty to pay compensation as soon

as the injury or death of the workman occurred under Section 4A(1) of the

EC Act but he failed to pay the same within the stipulated period of one

month as prescribed under Section 4A(3) of EC Act therefore he was called

upon to show cause by the learned Commissioner and on his failure to show

any justifiable cause, the Commissioner had rightly fastened the liability

upon the employer as prescribed under Section 4A(3)(b) of the EC Act.

10. Lastly, he vehemently submitted that fastening of liability by the High Court

for the payment of penalty upon the appellant under Section 4A(3)(b) of the

EC Act is contrary to law laid down by this Court in Ved Prakash Garg v.

Premi Devi1 wherein it has been held that the burden of payment of penalty

as imposed by the Commissioner under Section 4A(3)(b) of EC Act has to

be made good by the employer himself and same cannot be imposed upon

the Insurance company since imposition of penalty under the said provision

1 1997 (8) SCC 1

5 is the result of personal fault and negligence on the part of the employer.

Hence, the Insurance company cannot be made liable to indemnify the same.

11. Per Contra, Learned Counsel Shri Manish Maini appearing on behalf of

Respondent no. 1 to 3 and 5 have submitted that it would be wrong to

interpret Section 4A(3)(b) of the EC Act to limit the liability of payment of

penalty, specifically and exclusively upon the employer only.

12. He also submitted that appellant had failed to lead any evidence whatsoever,

to prove any fundamental breach of the Insurance Policy to escape its

liability. As per the indemnity clause, the primary liability to pay the victim

of the accident, i.e., the employee or his Legal heirs falls upon the employer

to be satisfied by the insurance company under its contractual liability. The

Appellant-Insurance company is legally bound under contract as well as

statutory liability to pay the compensation to the claimants.

13. He further submitted that Section 4A of the EC Act does not distinguish

between the extent of liability between the employer and its authorized

insurer. The plain and simple reading of the said provision indicates that

entire liability to pay the compensation along with interest and penalty lies

upon the employer without any distinction whatsoever. The liability to pay

the employee is always joint and several. As such, there is an authorized

insurer who collected the premium from the employer and issued the

insurance policy for such unforeseeable event by which it automatically

6 stepped into the shoes of employer to protect the interest of the employee or

his family by compensating them.

14. He lastly, submitted that appellant cannot distinguish Section 4A(3)(b) from

the remaining provisions Section 4A(1), (2) & (3)(a) of the EC Act as the

entire Section 4A is to be read with the same intent and purpose in its

entirety. Therefore, the appellant’s attempt to carve out any exception under

Section 4A(3)(b) or terming it as a special provision of Employer personal

liability only to exonerate themselves is mala fide.

ISSUE FOR CONSIDERATION

15. We have heard the learned counsels appearing on behalf of the parties at

length and after perusing the material on record, we are of the considered

view that the core issue which arises for our consideration is whether the

High Court has committed an error to fasten the liability of paying the

penalty component under Section 4A(3)(b) of the Employees’

Compensation Act, 1923 upon the Appellant-Insurance Company in

addition to the compensation and interest component?

ANALYSIS

16. At the outset, it is apt and appropriate for us to consider the scope and

objective of the Employees’ Compensation Act, 1923 before we delve into

considering the submissions on merit so that we could give effect to the

7 purported legislative intent to the provision in question in its true perspective.

The perusal of the statement of objects of the said legislation makes it crystal

clear that said legislation is a social welfare statute brought in by the

parliament to redress the grievances of the employees in case of accidents

that may occur in or during the course of employment by payment of

adequate compensation expeditiously so as to enable the employee or his

family to defray the medical expenses of employees’ in case of injury or

sustain livelihood in case of death of an employee. Hence, this Court in

catena of decisions has stressed upon the liberal and purposive interpretation

of the said Act in favour of the employee being a social welfare legislation.

Pertinently, this Court in Fulmati Dhramdev Yadav v. New India Assurance

Co. Ltd.2 , while considering the beneficial purpose of the EC Act observed:

“30. It is well-established that the Act is a social welfare legislation and, therefore, it must be given a beneficial construction. Matters thereunder are to be adjudicated with due process of law and also with a keen awareness of the scope and intent of the act. This Court has, time and again, reiterated this principle. We may refer to K. Sivaraman v. P. Sathishkumar wherein, speaking for the Court, Dr. D.Y Chandrachud J., observed: —

“25. The 1923 Act is a social beneficial legislation and its provisions and amendments thereto must be interpreted in a manner so as to not deprive the employees of the benefit of the legislation. The object of enacting the Act was to ameliorate the hardship of economically poor employees who were exposed to risks in work, or occupational hazards by providing a cheaper and quicker machinery for compensating them with pecuniary benefits. The amendments to the 1923 Act have been enacted to further this salient purpose by either streamlining the compensation process or

2 2023 SCC OnLine SC 1105

8 enhancing the amount of compensation payable to the employee.”

17. Hence, it is in light of above objective we will now examine the issue before

us. Yet before delving to merits, it is apt and appropriate for us to note that

the Appellant-Insurance Company has undeniably admitted its liability to

pay the compensation and Interest component under Section 4A(3)(b) of the

EC Act which is to the tune of Rs. 7,36,680/- with 12% p.a. simple interest

from the date of death (13.02.2017) till payment and there is no dispute as

such on the same. Therefore, the scope of the present appeal is thus, confined

to the extent of determining the liability for paying the penalty component

under Section 4A(3)(b) of the EC Act. As such, we have confined our

analysis to this limited aspect and for the consideration of the same it is sine

qua non for us to consider the scope of the said provision. The provision in

question Section 4A(3)(b) has been extracted hereinbelow for easy

reference:

“4A. Compensation to be paid when due and penalty for default.-

(1) Compensation under section 4 shall be paid as soon as it falls due.

(2) XXXX (3) Where any employer is in default in paying the compensation due under this Act within one month from the date it fell due, the commissioner shall—

(a) XXXX

(b) if, in his opinion, there is no justification for the delay, direct that the employer shall, in addition to the amount of the arrears and interest thereon, pay a further sum not exceeding fifty per cent, of such amount by way of penalty;

9 Provided that an order for the payment of penalty shall not be passed under clause (b) without giving a reasonable opportunity to the employer to show cause why it should not be passed.

………”

18. We cannot not lose sight of the fact that the present form of Section

4A(3)(b) is the result of substitution brought into the principal section by

way of Workmen’s Compensation (Amendment) Act, 1995 (Act No. 30 of

1995) which came into force 15th September 1995. Hence, it is imperative

to trace the legislative history of the provision in question i.e., Section 4A

to understand the true purport of the legislative intent behind incorporating

this provision.

19. Section 4A did not form part of the Original Act of Employees

Compensation Act, 1923. It was inserted by way of Workmen’s

Compensation (Amendment) Act, 1959 (Act no. 8 of 1959) as follows:

“4A. Compensation to be paid when due and penalty for default.— (1) Compensation under section 4 shall be paid as soon as it falls due.

(2) In cases where the employer does not accept the liability for compensation to the extent claimed, he shall be bound to make provisional payment based on the extent of liability which he accepts, and, such payment shall be deposited with the commissioner or made to the workman, as the case may be, without prejudice to the right of the workman to make any further claim. (3) Where any employer is in default in paying the compensation due under this Act within one month from the date it fell due, the commissioner may direct that, in addition to the amount of the arrears, simple interest at the rate of six per cent per annum on the amount due together with, if in the opinion of the commissioner there is no justification for the delay, a further sum not exceeding fifty per cent of such amount, shall be recovered from the employer by way of penalty.”

10

20. The comparative chart of the Section 4A as was introduced in 1959 and

substituted in 1995 is herein below for easy reference:

NEWLY INSERTED SUBSTITUTED SECTION SECTION 4A AS PER 4A AS PER WORKMEN’S WORKMEN’S COMPENSATION COMPENSATION (AMENDMENT) ACT OF (AMENDMENT) ACT OF 1995 1959 4A. Compensation to be paid 4A. Compensation to be paid when due and penalty for when due and penalty for default.—(1) Compensation default.-(1) Compensation under section 4 shall be paid as under section 4 shall be paid soon as it falls due. as soon as it falls due. (2) In cases where the (2) In cases where the employer does not accept the employer does not accept the liability for compensation to liability for compensation to the extent claimed, he shall be the extent claimed, he shall be bound to make provisional bound to make provisional payment based on the extent of payment based on the extent of liability which he accepts, liability which he accepts, and, such payment shall be and, such payment shall be deposited with the deposited with the commissioner or made to the Commissioner or made to the workman, as the case may be, employee, as the case may be, without prejudice to the right without prejudice to the right of the workman to make any of the employee to make any further claim. further claim. (3) Where any employer is in (3) Where any employer is in default in paying the default in paying the compensation due under this compensation due under this Act within one month from Act within one month from the date it fell due, the the date it fell due, the commissioner may direct commissioner shall— that, in addition to the amount of the arrears, simple (a) direct that the employer interest at the rate of six per shall, in addition to the cent per annum on the amount of the arrears, pay amount due together with, if simple interest thereon at the in the opinion of the rate of twelve per cent per annum or at such higher rate 11 commissioner there is no not exceeding the maximum justification for the delay, a of the lending rates of any further sum not exceeding scheduled bank as may be fifty per cent of such amount, specified by the Central shall be recovered from the Government, by notification employer by way of penalty. in the Official Gazette, on the amount due; and (b) if, in his opinion, there is no justification for the delay, direct that the employer shall, in addition to the amount of the arrears and interest thereon, pay a further sum not exceeding fifty per cent, of such amount by way of penalty Provided that an order for the payment of penalty shall not be passed under clause (b) without giving a reasonable opportunity to the employer to show cause why it should not be passed. ………”

21. The comparison of Section 4A clearly reveals that the legislative intent of

the newly inserted Section 4A by way of Amendment Act of 1959 was

totally different when compared to its substituted version which was

brought in by way of Amendment Act of 1995. We say so because when

Section 4A was newly introduced, all the three components: Compensation,

Interest and Penalty, formed common part of sub-section (3). Moreover, the

said sub-section (3) explicitly used the expression “together with” before

12 the penalty component to indicate that the legislative intent was to ensure

that entire liability of paying the compensation along with Interest and

penalty were fastened upon the employer, if he committed default to pay

the compensation within one month from the date it fell due. Hence, during

1959 to 1995, if the employers had a valid indemnity contract in their

favour, the entire liability to satisfy the claim of compensation, interest and

penalty as imposed upon them could have been fastened upon the insurer

and it had to indemnify entirely and the compensation and indemnity-holder

would be entitled to recover all three components from the indemnifier.

Nevertheless, the same is not the case after substitution of Section 4A by

way of 1995 amendment wherein the three components i.e., compensation,

interest and penalty have been severed to form part of two different clauses

within the same sub-section (3) i.e., Clause (a) which includes

compensation and interest component and Clause (b) which solely includes

the penalty component. The legislative intent behind severing the penalty

component was to address larger predicament of easing the burden of

indemnifiers who were adversely impacted by the obligation to pay the

penalty which was not even the natural corollary of the obligation on their

part under the indemnity contract to pay compensation and interest, rather

such additional burden by way of penalty arose consequent to the default

of obligation on the part of employer to pay compensation within the

stipulated period of one month from the date it fell due. As such, the 13 indemnifier was imposed with higher monetary burden to pay the

consolidated sum and was entrusted to discharge an obligation which was

not consequent to the failure on its part. The employers were reluctant to

pay the compensation and interest expeditiously within the stipulated time

of one month from the date it fell due which resulted to levy of penalty upon

them but since the penalty formed part of compensation and interest

component by virtue of expression “together with” the indemnifier was

compelled to pay the said component of penalty as well, as such, there

remained no deterrence for the employers to deposit the compensation

amount within a span of one month making the said obligation of depositing

the compensation within time frame of one month redundant and the

consequent penalty a mere dead letter.

22. Further the submission on the part of respondent that the Insurance policy

covered all the components of financial liability under the ambit of policy

which included compensation, interest and penalty cannot be accepted for

two reasons, firstly, the respondent has not produced the extant insurance

policy that was governing the field at the time of incident to persuade us on

the said submission and secondly, which in our view, is further more

significant is the presence of statutory obligation fastened upon the

employer by virtue of Section 4(A)(3) which mandates the payment of

compensation determined under section 4 within the time span of one

month from the date it fell due. Thus, when the statute itself has obligated 14 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.

23. Further, the submissions on behalf of the respondent are contrary and in

teeth of the law laid down by this Court in case of Ved Prakash Garg

(supra) wherein the Division bench of this Court had dealt with similar

issue and had held:

“13. The short question is whether the phrase “liability arising under the Compensation Act” as employed by the proviso to sub- section (1) of section 147 of the Motor Vehicles Act and as found in proviso to clause (i) of sub-section (1) of Section II of the insurance policy, would cover only the principal amount of compensation as computed by the Workmen’s Commissioner under the Compensation Act and made payable by the insured employer or whether it could also include interest and penalty as imposed on the insured employer under contingencies contemplated by Section 4-A(3)(a) and (b) of the Compensation Act?” 14………..Therefore, the conclusion becomes inevitable that when an employee suffers from a motor accident injury while on duty on the motor vehicle belonging to the insured employer, the claim of compensation payable under the Compensation Act along with interest thereon, if any, as imposed by the Commissioner, sections 3 and 4-A(3)(a) of the Compensation Act will have to be made good by the Insurance company jointly with the insured employer. But so far as the amount of penalty imposed on the insured employer under contingencies contemplated by section 4-A(3)(b) is concerned as that is on account of personal fault of the insured not backed up by any justifiable cause, the insurance company cannot be made liable to reimburse that part of the penalty amount imposed on the employer. The latter because of his own fault and negligence will have to bear the entire burden of the said penalty amount with proportionate interest thereon if imposed by the Workmen’s Commissioner.

…..

19. As a result of the aforesaid discussion it must be held that the question posed for our consideration must be answered partly in the affirmative and partly in the negative. In other words the insurance

15 company will be liable to meet the claim for compensation along with interest as imposed on the insured employer by the Workmen’s Commissioner under the Compensation Act on the conjoint operation of Section 3 and Section 4-A sub-section (3)(a) of the Compensation Act. So far as additional amount of compensation by way of penalty imposed on the insured employer by the Workmen’s Commissioner under Section 4-A(3)(b) is concerned, however, the insurance company would not remain liable to reimburse the said claim and it would be the liability of the insured employer alone.”

24. This court in Sheela Devi and Another v. Oriental Insurance Company

Limited & Another3 wherein one of us was part of the bench (Justice

Aravind Kumar) while dealing with a supplementary question of reduction

of penalty amount had reiterated the view taken by this court in Ved

Prakash Garg (supra) and observed that:

“10. It is settled law that statutory penalty which is imposed upon the employer under section 4-A(3)(b) of the Act is not to be indemnified by the Insured. In Ved Prakash Garg (supra), this court has held that the Insurance company shall compensate the Insured- Employer for the principal amount of compensation as well as interest thereon, however, in case of any additional amount of compensation is awarded by the commissioner by way of penalty, the same would be the liability of the Insured-employer alone and not of the Insurance Company. The decision in Ved Prakash Garg (Supra) has been followed in L.R. Ferro Alloys Ltd. v. Mahavir Mahto4 holding that the Insurer is liable to indemnify the owner only for the compensation along with Interest thereon and not the penalty imposed on the employer for default in payment of amount within one month from the date of incident. In view of the above, the direction of the High Court, fixing the liability to pay statutory penalty on the Employer only, requires no interference from this court.”

3 2025 SCC OnLine SC 827 4 (2002) 9 SCC 450

16 CONCLUSION

25. Hence, in the light of aforesaid discussion, we are of the considered view

that the present Appeal deserves to be allowed. Accordingly, it stands

allowed. Consequently, the Impugned Judgement and Order dated

21.05.2025 passed in F.A.O No. 147 of 2021 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 of Rs. 2,57,838/- (Two Lakhs Fifty-Seven Thousand

Eight Hundred Thirty-Eight Rupees Only) as Ordered by the Commissioner

by Order dated 08.02.2021 within a period of eight (8) weeks from today.

Rest of the findings of the High Court remains undisturbed.

26. Pending applications, if any, shall stand disposed of.

...................................................J. [ARAVIND KUMAR]

.....................................................J. [PRASANNA B. VARALE]

NEW DELHI;

FEBRUARY 23rd, 2026.

17