The Supreme Court ruled that employers can be held personally responsible for penalties imposed due to delays in payment of employee compensation, clarifying that such liability cannot be transferred to insurance companies.
The ruling came while hearing an appeal filed by New India Assurance Company Limited, which had challenged a decision of the Delhi High Court that placed the responsibility of paying a penalty on the insurer in a compensation dispute.
A bench comprising Justices Justice Aravind Kumar and Justice P. B. Varale observed that penalties arising from delayed payment of compensation under the Employees’ Compensation Act, 1923, are the result of the employer’s failure to comply with statutory timelines. As such, the court held that this liability cannot be shifted to the insurer through contractual arrangements, reported Business World.
The case originated after a compensation commissioner ordered the payment of Rs. 7.36 lakh along with 12% interest to the claimant. In addition, a penalty of about Rs. 2.57 lakh, equivalent to 35% of the compensation, was imposed on the employer for failing to deposit the amount within the prescribed one-month period.
While the insurer accepted liability for the compensation and interest components, it contested the penalty. The Supreme Court agreed with this position and overturned the Delhi High Court’s earlier order that had made the insurer responsible for the penalty amount.
The bench emphasised that the penalty provision under the law is intended to ensure the timely payment of compensation and to hold employers accountable for delays. The court therefore directed the employer to pay the penalty amount within eight weeks.
The judgment reinforces the principle that penalties for delayed compensation under labour welfare legislation must be borne by the employer personally, strengthening accountability in cases involving employee compensation.
