NEW DELHI: The Supreme Court has fixed liability to pay penalty on employer for delay in depositing compensation amount under the Employees’ Compensation Act, 1923, saying the law is a “social welfare law” to redress grievances of employees.
In a series of judgements, a bench of Justices Aravind Kumar and B P Varali said the Supreme Court emphasized the “liberal and purposive interpretation” of the law in favor of employees being a welfare legislation.
The bench delivered its ruling on an appeal filed by an insurance company, challenging the May 2025 order of the Delhi High Court.
The Supreme Court established that the insurance company was responsible for paying the fine imposed under Article 4A of the law.
“A perusal of the statement of objectives of the said legislation clearly shows that the said legislation is a social welfare law introduced by Parliament to redress the grievances of employees in case of accidents that may occur in or during work by promptly paying appropriate compensation..,” the Supreme Court said in its February 23 ruling.
She indicated that the employee, who was working as a commercial driver, died in February 2017 while driving the vehicle.
His legal heirs would have preferred to file a petition seeking compensation under the 1923 Act before the Commissioner of the Department of Labor, Delhi Government.
In November 2020, the Commissioner held that there was an “employer-employee” relationship and since the death occurred in and in the course of employment, the employer was liable to pay compensation to claimants.
The Commissioner set the amount of compensation at: $7,36,680 with interest.
Given that there was a valid insurance policy for the vehicle and that the accident had occurred during the policy period, the Commissioner granted the employer the compensation benefit which he was responsible for paying by claiming it from the insurance company.
The High Court noted that the Commissioner also issued a show cause notice not to impose a penalty not exceeding 50 per cent of the compensation amount on the employer for failure to pay compensation within a month.
Since the employer did not appear before the Commissioner and did not file a response to the show-cause notice, the latter in February 2021 imposed a 35 per cent penalty on the employer for delaying the deposit of the compensation amount within a reasonable period of time without any justification.
Later, the matter was taken to the Supreme Court, which passed the order in May last year.
The insurance company subsequently referred the case to the Supreme Court, aggrieved by the limited aspect of imposing liability to pay the fine under the law.
The Supreme Court observed that the insurer had undeniably admitted its liability to pay compensation and interest component under Section 4A of the Act, amounting to $7,36,680 plus interest from the date of death until repayment.
It said the current form of section 4A was the result of a replacement introduced into the main section by the Workers’ Compensation Act 1995, which came into effect on 15 September 1995.
“Therefore, when the law itself obligates the employer to make the payment within one month, such obligation cannot be considered to be subservient to any contractual obligation or to be in excess of the statutory obligation, as that would be tantamount to ignoring the legislative intent embodied in the said provision,” the bench said.
In allowing the appeal, it set aside the High Court’s order insofar as it imposed the liability to pay the fine on the insurance company.
The Supreme Court said, “The responsibility is placed on the employer, i.e. defendant No. 4 here, to pay the fine amount $2,57,838 as ordered by the taxpayer by order dated February 8, 2021, within a period of eight weeks from today.”
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