New India Assurance Co Ltd vs. Rekha Chaudhary

REPORTABLE
2026 INSC 177


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)

J U D G M E N T

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
Employees Compensation Act, 1923 (hereinafter referred to as “ EC Act ”)
Digitally signed by
RASHI GUPTA
Date: 2026.02.23
17:15:18 IST
Reason:
upon the Appellant - New India Assurance Company Limited (for short
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‘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
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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,
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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
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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.
1
Premi Devi 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
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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
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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
2
Co. Ltd. , 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 ;
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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
th
1995) which came into force 15 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:

11

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
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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
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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
3
Limited & Another 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)
4
has been followed in L.R. Ferro Alloys Ltd. v. Mahavir Mahto
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;
rd
FEBRUARY 23 , 2026.

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