Insurance Company Not Liable for Penalty Under Section 4A(3)(b) Employees’ Compensation Act: Supreme Court Clarifies Employer’s Personal Liability

Case Name: New India Assurance Co. Ltd. v. Rekha Chaudhary & Others

Citation: 2026 INSC 177; Civil Appeal No. 174 of 2026

Date of Judgment/Order: 23 February 2026

Bench: Hon’ble Mr. Justice Aravind Kumar and Hon’ble Mr. Justice Prasanna B. Varale

Held: The Supreme Court held that the liability to pay penalty under Section 4A(3)(b) of the Employees’ Compensation Act, 1923 rests exclusively on the employer and cannot be fastened upon the insurance company. While an insurer is liable to indemnify the employer for the compensation and interest payable under the Act, penalty imposed for delay in payment of compensation arises from the employer’s personal fault or negligence in failing to discharge the statutory obligation within one month from the date it fell due. Consequently, such penal liability cannot be transferred to or indemnified by the insurer.

Summary: The case arose from the death of a commercial driver who collapsed while driving his employer’s vehicle during the course of employment in February 2017. His legal heirs filed a claim before the Commissioner under the Employees’ Compensation Act. The Commissioner awarded compensation of Rs. 7,36,680 with interest at 12% per annum and imposed a penalty of 35% of the compensation on the employer for failure to pay the compensation within the statutory period prescribed under Section 4A. Since the vehicle was insured with the appellant insurance company, the employer sought indemnification under the policy. In appeal, the Delhi High Court modified the Commissioner’s order and held the insurer liable not only for compensation and interest but also for the penalty. The insurance company challenged this limited aspect before the Supreme Court. The Court examined the scheme and legislative history of Section 4A, noting that the 1995 amendment structurally separated compensation and interest from penalty within the provision, thereby reflecting legislative intent that penalty should operate as a deterrent against employer default. The Court emphasized that penalty arises due to the employer’s failure to comply with the statutory obligation of timely payment and therefore constitutes a personal liability. Relying on the earlier decision in Ved Prakash Garg v. Premi Devi and subsequent precedents, the Court reiterated that insurers are liable to indemnify only compensation and interest but not the penalty imposed for delay in payment.

Decision: The appeal was allowed, the Delhi High Court’s judgment was set aside to the extent it fastened liability for payment of penalty under Section 4A(3)(b) of the Employees’ Compensation Act on the insurance company, and the employer was directed to pay the penalty amount of Rs. 2,57,838 within eight weeks, while the insurer’s liability to pay compensation and interest remained undisturbed.