The Supreme Court of India has ruled that employers must bear the penalty for delaying compensation payments under the Employees’ Compensation Act, 1923, describing the law as a “social welfare statute” aimed at protecting employees’ rights.
A bench comprising Justices Aravind Kumar and P.B. Varale held that the obligation to deposit compensation within one month is a statutory duty of the employer and cannot be shifted to the insurance company. The court emphasized that the Act must be interpreted liberally in favour of employees, as it is designed to provide timely relief in cases of workplace accidents.
The ruling came while hearing an appeal filed by an insurance firm against a May 2025 decision of the Delhi High Court, which had fastened the liability of paying a penalty under Section 4A of the Act on the insurer.
The case stemmed from the death of a commercial driver in February 2017 during the course of employment. In November 2020, the Labour Commissioner determined that an employer-employee relationship existed and awarded ₹7,36,680 as compensation along with interest. While the insurance company was directed to indemnify the compensation amount, the commissioner later imposed a 35% penalty on the employer for failing to deposit the amount within the prescribed time.
The Supreme Court clarified that although the insurer is liable to pay the compensation and interest under the policy, the statutory penalty for delay rests solely with the employer. The bench noted that Section 4A, as amended in 1995, clearly mandates payment within one month, reinforcing that statutory obligations cannot be overridden by contractual arrangements.
The verdict strengthens workers’ protections by ensuring that employers remain accountable for delays in fulfilling compensation duties.