Safiya Malik

The Supreme Court has ruled that compensation awarded under the Employee’s Compensation Act, 1923, must carry a statutory interest of 12% per annum from the date of the accident in cases of delayed payment. The court rejected the National Insurance Company’s contention that it was not liable for the statutory interest and affirmed that the insurer could not seek recovery of interest from the insured. The appeal arose from a dispute over the applicability of interest and penalties under Section 4A of the Employee’s Compensation Act, following the death of an employee in a road accident.

The appeal was filed by Shanti and others, the legal representatives of the deceased employee, challenging the interest awarded in a compensation claim. The claim arose from an accident involving a truck owned by the deceased’s father, in which the deceased was employed as a cleaner. The claimants had initially filed for compensation under the Employee’s Compensation Act, which was dismissed on the grounds that the deceased’s employment in the truck did not establish an employer-employee relationship. However, the High Court later held that the claim was maintainable and remanded the matter for fresh consideration.

Upon reconsideration, the Commissioner for Employee’s Compensation awarded compensation along with 6% interest per annum and imposed a 40% penalty for delayed payment under Section 4A(3) of the Act. The liability to pay compensation, interest, and penalty was imposed on the National Insurance Company, which was impleaded in the proceedings. The claimants, dissatisfied with the interest awarded, filed an appeal seeking an increase in the rate and application of interest from the date of the accident. The High Court upheld the 6% interest but denied enhancement.

The insurance company contested its liability to pay interest, arguing that the employer was responsible for any default in payment under Section 4A(3). It contended that since it had not been notified of the accident, it could not be held liable for statutory interest and penalties arising from the employer’s failure to make timely payments. The insurer further asserted that if it were required to pay interest, it should be entitled to recover the amount from the insured.

The Supreme Court, addressing the statutory provisions, held that "there is a mandate insofar as payment of 12% interest if there is a default committed in making the provisional payment." The court recorded 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."

Referring to precedents, the court relied on Pradeep Narain Singh Deo v. Srinivas Sabate and North East Karnataka Road Transport Corporation v. Sujatha, which established that interest on compensation under the Act accrues from the date of the accident. The court observed that the legislative intent under Section 4A(3) of the Act was clear in ensuring that employees or their dependents are compensated with statutory interest in cases of delay.

The court further noted that "the interest statutorily provided is 12% as per the provision itself. The discretion is only in so far as awarding a higher rate of interest, ensuring that it does not exceed the lending rate prescribed for scheduled banks." It rejected the insurance company’s argument that it could recover the interest from the insured, stating that there was no such provision under the Act permitting the insurer to pass on the liability.

The judgment also examined the role of penalties under Section 4A(3)(b), which allows the Commissioner to impose a penalty not exceeding 50% of the awarded amount in cases of default. In the present case, a 40% penalty had been imposed, which the court found to be within the statutory framework.

The Supreme Court ruled that "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." The court further held that "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."

Accordingly, the Supreme Court modified the award by directing that the interest on compensation be increased to 12% per annum from the date of the accident.

Case Title: Shanti & Ors. v. National Insurance Company
Case Number: Civil Appeal No. 2586 of 2025
Bench:  Justice Sudhanshu Dhulia and Justice K. Vinod Chandran 

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