J&K High Court: Insurer not automatically liable to indemnify employer for interest on delayed compensation payment

J&K High Court: Insurer not automatically liable to indemnify employer for interest on delayed compensation payment

The appeals were filed by four workers who sustained severe injuries during blasting operations on 26 July 2004

The Jammu and Kashmir & Ladakh High Court has ruled that under the Employee's Compensation Act, 1923, an insurance company cannot be asked to indemnify an employer for the interest and penalty payable for delayed payment of compensation.

A single Judge Bench of Justice Sanjeev Kumar held, "It is true that under the policy of insurance covering the injuries and death of the workmen working under the employer, the insurer undertakes to indemnify the employer in respect of any compensation payable to such injured/deceased workmen during the course of his employment. However, the contract to indemnify the employer in respect of compensation payment cannot ipso facto extend to the payment of interest and penalty that becomes due from the employer only in case he commits default in payment of compensation due within a period of one month."

The Court stated that unless there was a specific contract of insurance between the employer and the insurer that the insurer would indemnify the employer in respect of interest and penalty also, no liability could be fastened on the insurer.

The Judge was hearing the appeals filed by four workers who sustained severe injuries during blasting operations (directed by their employer) on 26 July 2004. The injuries resulted in permanent disabilities, rendering them unable to continue working. Seeking justice, the workers filed separate claim petitions under Section 3 of the Employees' Compensation Act.

The Commissioner of Workmen's Compensation had ruled in favor of the workers. It awarded a compensation amount of Rs.12,79,130 to be paid by the employer. It directed the United India Insurance Company Limited to deposit the amount as indemnification.

However, the Commissioner failed to address the issue of interest and penalty as mandated by Section 4-A of the Act, leading the workers to appeal before the high Court.

The appellants contended that the Commissioner erred in denying them the interest and penalty that was mandatory under the Act.

Justice Kumar highlighted that under the Act, the compensation becomes payable as soon as it is due on the date of the accident and not on the date when adjudicated by the Commissioner.

The Bench explained, “In case the employer commits a default in making the payment of compensation due under the Act within one month from the date it fell due, the Commission is under an obligation to direct the employer to pay in addition to the amount of compensation, the simple 12 percent interest 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 a notification in the official gazette.”

The Court noted that the Commissioner provided no explanation for not awarding the interest and penalty, thereby indicating an omission in its decision. It clarified that the responsibility for paying the interest and penalty was squarely with the employer unless there was a specific agreement between the employer and the insurance company.

The Bench held that the workers were entitled to receive a 12 percent per annum rate of interest from the day of the accident. However, given the absence of a determination by the Commissioner on the justification for the delayed payment, the Court refrained from imposing a penalty on the employer after almost 19 years.

However, the Judge stated, “I would like to put a lid on the litigation by providing that the employer, in addition to the interest, shall also be liable to pay a 10 percent penalty of the awarded amount.”