Insurer Not Liable for Penalty Under Employees’ Compensation Act

Case Details: New India Assurance Co. Ltd. vs. Rekha Chaudhary - [2026] 183 taxmann.com 680 (SC)

Judiciary and Counsel Details

Aravind Kumar & Prasanna B. Varale, JJ.
Salil Paul, Sahil Paul, Sandeep Dayal, Ms Kanupriya Mehta, Ms Jyoti, Advs. & Ms Manjeet Chawla, AOR for the Appellant.
Ashish Pandey, AOR for the Respondent.

Facts of the Case

In the instant case, the deceased employee was a commercial driver employed by the respondent 4/employer. The deceased collapsed and died while driving the employer’s insured vehicle.

The Respondents 1 to 3, legal heirs of the deceased, filed a claim petition before the Commissioner. The Commissioner found an employer-employee relationship, held that death occurred during and in the course of employment, and fixed compensation at about Rs. 7.37 lakhs along with 12% interest from the date of the incident.

It was noted that the vehicle was covered by a valid commercial vehicle insurance policy issued by the appellant-insurance company. Further, the Commissioner allowed the respondent no. 4 to secure indemnification of compensation from the insurer and issued a show-cause notice to the respondent no. 4 proposing a penalty under Section 4A(3)(b) of the Employees’ Compensation Act, 1923, for default in payment within one month of the amount falling due.

Further, it was noted that, as the employer neither appeared nor replied, the Commissioner imposed a 35% penalty of about Rs. 2.58 lakhs on the employer for the delay without justification.

The claimants appealed to the High Court, seeking an enhancement of compensation and challenging the fixation of primary liability on the employer rather than on the insurer. The High Court declined enhancement but set aside the Commissioner’s orders to the extent they imposed primary liability on the employer and fastened liability for compensation, interest, and penalty on the appellant–insurer. Thereafter, an appeal was made before the Supreme Court.

Supreme Court Held

The Supreme Court observed that the liability to pay a penalty under Section 4A(3)(b) of the Employees’ Compensation Act, 1923, is solely on the employer and cannot be fastened upon the insurer.

Further, the Supreme Court observed that the High Court erred in directing the appellant-insurer to bear a penalty in addition to compensation and interest.

The Supreme Court held that the impugned order was to be set aside to the extent it imposed liability to pay a penalty on the appellant-insurer, and that said liability was to be fastened upon the employer.

List of Cases Reviewed

Order of the Delhi High Court in F.A.O No. 147 of 2021 dated 21.05.2025 (para 25) set aside
Ved Prakash Garg v. Premi Devi 1997 taxmann.com 2061 (SC)/1997 (8) SCC 1 (para 23) followed