Partly allowed

Sheela Devi v. Oriental Insurance Company Limited

Supreme Court17 Apr 20252025 INSC 5162025 INSC 516

Case brief

AI extract

What is this about?

The Supreme Court held that the Employer alone is liable for the statutory penalty under the Employees' Compensation Act, not the Insurer. It reasoned that the High Court failed to give reasons for reducing the penalty and modified the penalty rate to 30% while directing the Insurer to recover it from the Employer.

What did the court decide?

Appeal allowed in part; statutory penalty fixed at 30% of the compensation amount; Insurer directed to recover penalty from Employer.

What the court decided

Sheela Devi versus Oriental Insurance… — Pension and Retirement Benefits | Supreme Court (2025)

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NON-REPORTABLE

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2025 INSC 516

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IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

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CIVIL APPEAL NOS. OF 2025
(@ SLP(C) NOS. 21558-21559 OF 2018)

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SHEELA DEVI & ANR. APPELLANT(S)

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VERSUS

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ORIENTAL INSURANCE COMPANY

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LIMITED & ANR. RESPONDENT(S)

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J U D G M E N T

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J.K. MAHESHWARI, J.

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1. Leave granted.

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Assailing the impugned orders dated 26.12.2017

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& 28.03.2018 of the High Court of Himachal Pradesh

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at Shimla in F.A.O. No. 516 of 2017 & C.R.P. No. 13

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of 2018 the present appeals have been filed by the
Claimants.

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In an employees’ compensation claim filed by the

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parents of the deceased employee because of untimely Signature Not Verified Digitally signed by NIDHI AHUJA Date: 2025.04.21 17:10:09Reason: IST d eath of their 24-year-old son due to motor accident

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during the course of employment with Respondent No.

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2 – Employer, the Employees Compensation

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Commissioner, vide its order dated 05.08.2016 had
awarded compensation of Rs. 6,55,410/- along with

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interest @ 12% p.a. from the date of filing of the
claim petition till realization and in addition
statutory penalty under Section 4A(3)(b) of the
Employees’ Compensation Act, 1923 (for short “Act”)
amounting to 50% of the award (Rs. 3,27,705/-). The
Commissioner fixed the liability to pay the entire
amount upon the Respondent No. 1 – Insurer.

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Challenging the order dated 05.08.2016, the Respondent No. 1 – Insurer filed F.A.O. No. 516/2017. By passing the impugned order, the High Court has reduced the compensation amount to Rs. 4,36,940/along with interest @ 12% p.a. from the date of elapsing of one month from the accident and reduced the statutory penalty to Rs. 30,000/-. Additionally,

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the High Court fixed the liability to pay the
statutory penalty amount solely upon the Respondent
No. 2 – Employer.

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In the present appeals, the Appellants –

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Claimants are not challenging the reduction of the
compensation amount, rather they are aggrieved by
the reduction of the penalty from 50% of the award
to a fixed amount of Rs. 30,000/-.

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The Appellants have submitted that the entire amount as awarded by the Commissioner had already been paid, and the award had been executed to finality by the Respondent No. 2 – Insurer, which

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had paid the amount to the Appellants prior to filing
of the appeal before the High Court. As such, it is

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submitted that at this stage, recovery of the
difference between the amount as awarded by the
Commissioner and the reduced amount awarded by the
High Court should not be directed from the
Appellants. It is also argued that the first appeal
was disposed of by the High Court at the pre-
admission stage without granting an opportunity to
the Appellants to file a counter affidavit.

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Respondent No. 1 – Insurer has submitted that the statutory penalty amount under Section 4A of the Act is discretionary in nature and therefore the reduction of the amount of penalty by the High Court 3

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requires no interference from this Court. Relying
upon the judgement of this Court in Ved Prakash Garg

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Vs. Premi Devi and Ors.(1997) 8 SCC 1, it has been

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argued by the Insurer that the liability for payment
of penalty amount has rightly been fixed by the High
Court on the Respondent No. 2 – Employer.

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Similarly, Respondent No. 2 – Employer has also argued that the statutory penalty amount is

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discretionary in nature, and its reduction by the
High Court in exercise of discretion warrants no
interference by this Court.

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Heard the learned counsel for the parties and perused the material available on record.

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It is a settled law that the statutory penalty

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which is imposed upon the employer under Section
4A(3)(b) of the Act is not to be indemnified by the

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Insurer. In Ved Prakash Garg (Supra), this Court has
held that the Insurance Company shall compensate the
Insured-Employer for the principal amount of

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compensation as well as interest thereon, however,

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in case any additional amount of compensation is

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awarded by the Commissioner by way of penalty, the
same would be the liability of the insured-employer
alone and not of the insurance company. The decision
in Ved Prakash Garg (Supra) has been followed in L.R.

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Ferro Alloys Ltd. v. Mahavir Mahto, (2002) 9 SCC 450

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holding that the Insurer is liable to indemnify the
owner only for the compensation along with interest
thereon and not the penalty imposed on the employer

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for default in payment of amount within one month
from the date of incident. In view of the above, the
direction of the High Court, fixing the liability to
pay statutory penalty on the Employer only, requires
no interference from this Court.

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consideration, therefore, is whether the High Court
was justified in interfering with the penalty amount

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directed by the Commissioner to be 50% of the award
amount under Section 4A(3)(b) of the Act and reducing
it to a fixed amount of Rs. 30,000/-.

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12)For us in order to answer this question, Section

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4A of the Act is relevant and is reproduced hereunder

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for ready referral:

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“4A. Compensation to be paid when due
and penalty for default. –

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(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 theemployee, as the case may be,
without prejudice to the right of
the employee to make any further claim.
(3)Whereanyemployer is in default in
payingthecompensation dueunder this
Act within one month from thedate it
fell due,theCommissioner shall-

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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

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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:

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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.

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

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13)It is clear from reading Section 4A(3)(b) that
in case where the Employer has defaulted in payment
of compensation due under the Act within one month
from the date it fell due and the Commissioner is of
the opinion that there is no justification for the

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delay, the employer shall be directed to pay a
further sum to the maximum of 50% of the award

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amount, by way of penalty. Therefore, the necessary

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pre-requisite for imposing the statutory penalty
under Section 4A(3)(b) is that the employer must
default in payment of compensation due and the
Commissioner must reach the conclusion that the non-
payment is not justifiable.

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14)From a bare perusal of the impugned order, it
can be observed that the High Court has not given

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any reason as to why the penalty amount as directed
by the Commissioner was directed to be reduced to a

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lumpsum amount of Rs. 30,000/-. The Commissioner had

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come to a specific finding of fact that the

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Respondent No. 2 – Employer had not paid any amount

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to the Claimants at the time of injury nor had paid

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anything when the claim was filed by the Appellants.

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Such a finding of fact by the Commissioner could not
have been interfered with by the High Court in the
First Appeal without a finding to the contrary that
the Respondent No. 2 – Employer had indeed paid at
least some amount due to the family of the deceased

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employee within a period of one month from the date
of accident.

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15)In view of the above, and in the peculiar facts
and circumstances of this case, in order to meet the
ends of justice, we direct that the statutory penalty

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under Section 4A(3)(b) of the Act shall be fixed at

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30% of the compensation amount. The order of the High
Court is modified to that extent without disturbing

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the finding of the High Court on the compensation

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and interest thereon awarded under Section 4A(3)(a)

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of the Act as well as the fixation of liability to

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pay the penalty amount on the Respondent No. 2 –

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Employer. In the present case, since the compensation

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amount as per the Commissioner’s award of Rs.

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6,55,410/- has been reduced to Rs. 4,36,940/- by the

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High Court, 30% penalty thereon shall amount to Rs.

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1,31,082/- for which the Respondent No. 2 - Employer

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alone shall be liable to pay.

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16)In the interest of justice, the entire amount
receivable by the Appellants shall be paid by the
Respondent No. 1 – Insurer who shall recover the
penalty amount of Rs. 1,31,082 from the Respondent
No. 2 – Employer.

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17)Since the quantification of the award passed by
the High Court has not been assailed by the
appellants and the award passed by the Commissioner
has been satisfied including the amount of penalty
of 50% by the insurer, therefore, the excess amount
of award as well as the penalty is required to be
repaid by the appellants also.

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18)In view of the discussions made in para 16 & 17

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above, these appeals are allowed in part and disposed
of with the following directions: -

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(i)In terms of para 16, the Insurer shall
recover Rs. 1,31,082/- from the Respondent
No. 2 – Employer;

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compensation and penalty from the

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Appellants;

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(iii)The Respondent No. 1 – Insurer is at liberty

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to take recourse of law as permissible.

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19) Pending applications, if any, shall be disposed

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of.

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…………………………………………………,J.

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[J.K. MAHESHWARI]

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…………………………………………………,J.

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 [ARAVIND KUMAR]

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New Delhi;

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April 17, 2025.

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Sheela Devi v. Oriental Insurance Company Limited

Case brief

What is this about?

What did the court decide?

What the court decided

Sheela Devi v. Oriental Insurance Company Limited

Case brief

What is this about?

What did the court decide?

What the court decided

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