Employer’s Exclusive Liability for Penalty in Delayed Compensation under the Employees’ Compensation Act, 1923: Supreme Court

On 23^rd February 2026, the Supreme Court of India held that the employer must take full responsibility for penalties that arise from an employee’s late payments.

The ruling was delivered in New India Assurance Co. Ltd. Versus Rekha Chaudhary and Others, wherein a commercial driver died while driving for his employer, and after his death, his heirs applied to the Commissioner for a compensation award under the Employees' Compensation Act 1923 (“ECA”).

After reviewing the case, the Commissioner awarded ₹7.36 lakh in compensation plus interest at 12% per annum. In addition, as there had been a delay in the payment of compensation, the Commissioner issued a show-cause notice to the employer asking why there was such a delay. The employer did not reply or explain the delay, so the Commissioner imposed a penalty of 35% on the employer for non-payment of the compensation, based on Section 4A(3)(b) of the Act.

Although the employer’s vehicle was insured and the insurer accepted its liability to pay the principal compensation amount along with interest. However, it specifically challenged the direction to pay the penalty imposed for delayed payment. Despite this objection, the Delhi High Court directed the insurer to bear not only the compensation and interest but also the penalty. Aggrieved by this decision, the insurer approached the Apex Court.

The appellant insurer argued before the Supreme Court on the judgement of Ved Prakash Garg v. Premi Devi that the liability under Section 4A (3) (b) of the ECA is personal to an employer and arises from an employer’s own fault i.e., negligent or no payment of proper, timely compensation. Thus, an employer’s obligation to pay a penalty under this section cannot be transferred to an insurer. The insurer argued that, while it is obligated to indemnify an employer for compensation and statutory interest as provided by the policy, it is not responsible for punitive damages imposed upon an employer for its defaults.

In its judgement the Apex Court said an insurance company is not responsible if the employer makes a mistake. The Court stressed that the law says the employer must pay compensation within one month. This is a must, not an option. The Court noted that this duty cannot be ignored or made important because of an agreement between the employer and the insurer. If the employer and insurer make an agreement it would not work. The Court said this would go against what the lawmakers wanted to achieve with this rule. The employer must pay compensation. The insurance company is not responsible, for the employer’s mistake.

The Court further clarified that when the law expressly imposes a statutory liability on the employer, particularly in the nature of a penalty for delayed payment, such liability remains personal to the employer. A penalty under Section 4A(3)(b) is not merely an extension of compensation but a punitive consequence of non-compliance. Therefore, it cannot be fastened upon the insurer, whose role is limited to indemnifying the insured in accordance with the policy terms and not to absorb liabilities arising from the employer’s own breach of statutory duty.

Source: The judgement can be accessed at: