Employee’s Compensation Act| Interest Liability Arises on Default Of Employer, 12% Simple Interest Per Annum Has to Be Applied: SC
The appeal before the Apex Court questioned the interest awarded under the Employee’s Compensation Act, 1923.
The Supreme Court observed that under Section 4A(3) of the Employee’s Compensation Act, 1923, 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 would run at the rate provided which is 12 %.
The appeal before the Apex Court was filed by the appellants challenging the interest awarded under the Employee’s Compensation Act, 1923.
The Division Bench comprising Justice Sudhanshu Dhulia and Justice K. Vinod Chandran said, “That the interest statutorily provided is 12 % comes out from the provision itself.”
Arguments
It was the case of the appellants that there is a statutory mandate to award interest under Subsection 3(a) @ 12 % per annum and the discretion conferred on the Commissioner is only to the extent of granting a higher rate, which again should not exceed the lending rate specified for scheduled banks.
The Insurance Company’s argument was that when there is a default in complying with Section 4A (2); mandating the employer, disputing a liability, to make provisional payment based on the extent of liability, which payment has to be either deposited with the Commissioner or disbursed to the employee or legal representatives, the additional liability incurred on such failure cannot be mulcted on the insurer. It was also pointed out by the Respondent that 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.
Reasoning
The Bench, at the outset, noted, "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." It was also reiterated by the Bench that the interest runs from the date of the accident.
“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”, it said while also adding, “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)."
The Apex Court noted that 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, couldn’t be agitated. The claim petition was once dismissed on that ground and the claimants had approached the High Court and a direction was passed for a fresh consideration based on the evidence led, as to the employer-employee 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.
The Bench made it clear 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 the accident and also the enhancement of the rate, the enhancement being declined. “There was no appeal or crossappeal 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”, it mentioned.
Finding the claim of the appellants to be substantiated by the statutory provision, the Bench allowed the appeal and modified the award insofar as the rate of interest @ 12 % per annum from the date of the accident.
Cause Title: Shanti & Ors. v. National Insurance Company (Neutral Citation: 2025 INSC 234)
