MV Compensation: SC Clarifies Employer vs. Insurer in Delayed Compensation Claims!

In a significant ruling, the Supreme Court of India in Shanti & Ors. v. National Insurance Company (2025 INSC 234) addressed the issue of interest payable under the Employee’s Compensation Act, 1923. The case revolved around whether the liability to pay interest on delayed compensation should fall solely on the employer or extend to the insurance company as well.

What's The Matter?

The claim arose after the death of an individual employed as a cleaner in a truck owned by his father. The claimants, including the deceased's mother and siblings, sought compensation along with interest for the delay in payment. The Insurance Company resisted liability for interest, arguing that any default on timely payment should be attributed to the employer and not the insurer.

The Court analyzed Section 4A(3) of the Employee’s Compensation Act, which mandates that if an employer fails to pay compensation within one month from the date it falls due, the employer is liable to pay interest at 12% per annum or a higher rate not exceeding the maximum lending rate prescribed for scheduled banks.

Sec.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 the1[employee], as the case may be, without prejudice to the right of the 1[employee] to make any further claim.

3[(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) direct that the employer shall, in addition to the amount of the arrears, pay simple interest thereon at the rate of twelve per cent. per annum or at such higher, rate not exceeding the maximum of the lending rates of any scheduled bank as may be specified by the Central Government by notification in the Official Gazette, on the amount due; and

(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:

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.

Explanation.--For the purposes of this sub-section, "scheduled bank" means a bank for the time being included in the Second Schedule to the Reserve Bank of India Act, 1934.

4[(3A) The interest and the penalty payable under sub-section (3) shall be paid to the 1[employee] or his dependant, as the case may be.]

What Happened in Court?

The appellants contended that since the Insurance Company was responsible for paying the compensation, the statutory mandate for interest should also be enforced against it. The Insurance Company, however, argued that it should not bear the burden of interest, as the delay was due to the employer’s failure to notify and comply with payment obligations. Furthermore, the insurer claimed that no intimation about the accident was given to it and, therefore, it should not be penalized for the employer’s default.

4.The learned Standing Counsel for the respondent Insurance Company refutes the claim, on the contention that the insurer is not liable to indemnify the insured for the default committed by the insured. It is pointed out that in the present case the owner of the vehicle, was the father of the deceased and the contention was that the deceased was employed as a cleaner in the truck owned by the father. The mother and the other siblings were the claimants. There is a specific contention taken by the Insurance Company that there was no intimation about the accident, given to the Insurance Company. It is submitted that even if the liability is mulcted on the Insurance Company, they are entitled to recover the interest awarded, from the insured; since there is no question of indemnification of a default committed by the employer.

5 .at the outset, we have to find that there is a mandate in so far as payment of 12 % interest if there is a default committed in making the provisional payment. We cannot but notice that under Section 4A(3), the interest liability arises on default of the employer, in paying the admitted compensation due under the Act within one month from the date it fell due and if there is such default, necessarily interest shall run at the rate provided.

That the interest runs from the date of the accident is declared by this Court in Pradeep Narain Singh

Deo vs. Srinivas Sabate1 and North East Karnataka Road Transport Corporation vs. Sujatha2.

6. That the interest statutorily provided is 12 % comes out from the provision itself. The discretion is only in so far as awarding a higher rate of interest; exceeding the prescribed lending rates applicable to scheduled banks. The discretion is only in so far as applying a higher rate, ensuring that it does not exceed the lending rate prescribed for scheduled banks. Hence 12 % simple interest per annum necessarily has to be applied. The

legislative intent is very clear insofar as Subclause (b) of Section 4A(3) conferring a discretion on the

Commissioner/Authority to impose a penalty not exceeding 50 % of the amounts awarded while no such discretion is available under clause (a). In the instant case, the Commissioner has awarded only

40 % penalty.

7. The question of whether the son’s employment in the father’s vehicle can inure to the benefit of the legal representatives, to raise a claim for compensation under the Act, cannot now be agitated. The claim petition was once dismissed on that ground and the claimants had approached the High Court. Annexure P1 appellate order found the claim to be maintainable and directed a fresh consideration based on the evidence led, as to the

employeremployee relationship. The Commissioner under the Act has considered the evidence and

found the employer employee relationship to be in existence leading to the award of compensation with

6 % interest per annum and also a further 40 % as penalty for the default committed.

What Court Said?

The Supreme Court ruled that interest at 12% per annum is a statutory requirement under Section 4A(3) and that discretion available to the Commissioner is only in awarding a higher rate, ensuring that it does not exceed the prescribed lending rate of scheduled banks.

The Court further clarified that while the employer is primarily responsible for timely compensation, the insurer cannot evade its liability when an award has already been passed against it. Given that the Insurance Company had not filed an appeal against the order directing it to pay interest, it could not later claim exemption from liability or seek recovery from the employer.

By modifying the previous award, the Supreme Court reaffirmed that interest would be payable at 12% per annum from the date of the accident. This decision underscores the principle that statutory provisions regarding interest must be adhered to strictly, preventing unnecessary litigation and ensuring claimants receive timely compensation. The ruling sets a critical precedent that ensures victims or their families are not deprived of their rightful dues due to procedural delays or legal technicalities.

8. We have to notice specifically that the Insurance Company was impleaded in the claim petition and the direction was also to the nonapplicant No.2; the Insurance Company, to pay the compensation, interest and penalty. There is no appeal filed by the Insurance Company against the said order and hence, there cannot be any claim raised as of now; for recovery of the interest amounts it is made liable under the award. The award of 6 % interest itself was confirmed by the High Court, in an appeal filed by the claimants; which appeal sought award of interest from the date of accident and also enhancement of the rate, the enhancement being declined. There was no appeal or cross appeal filed by the Insurance Company against the 6% interest awarded and in that circumstance, in a further appeal by the claimants filed before this Court, the Insurance Company can neither wriggle out of its liability to pay the interest amount as flowing from the award nor can it claim

recovery from the insured.

This judgment serves as a crucial reminder for employers and insurers alike that statutory interest is not a discretionary penalty but an inherent part of the compensation mechanism designed to protect workers and their families. By ensuring that statutory interest is enforced uniformly, the Supreme Court has strengthened the principles of fairness and accountability in compensation law, setting a significant legal precedent for future cases.