SC: Employer has to pay penalty from his pocket for delay in pay

NEW DELHI: Holding that a welfare legislation, enacted to extend benefit to a certain section of society, should be given a "liberal and purposive interpretation" in favour of beneficiaries, Supreme Court has said an employer has to pay penalty from his pocket for delay in payment under the Employees' Compensation Act, even if the compensation amount - in case of accident - was covered under insurance.

A bench of Justices Aravind Kumar and P B Varale said that SC in multiple decisions has stressed upon the liberal interpretation of the law in favour of employees and fastened the liability of paying the penalty component under Section 4A(3)(b) - pertaining to compensation - to the employer.

SC passed the order on a plea filed by New India Assurance Company against the Delhi high court ruling that penalty had to be paid by the company and not the employer in case of delay in payment of compensation. The apex court set aside the high court's order.

"The perusal of the statement of objects of the legislation makes it crystal clear that the legislation is a social welfare statute brought in by Parliament to redress grievances of employees in case of accidents that may occur in or during the course of employment by payment of adequate compensation expeditiously so as to enable the employee or his family to defray medical expenses of an employee in case of injury or sustain livelihood in case of death of an employee," the bench said.

In this case, an employee died while driving his employer's vehicle in Feb 2017 and the deceased's family approached the labour commissioner in July after compensation was not paid as per the law. The commissioner awarded compensation of Rs 7.36 lakh, with 12% interest, as compensation and imposed a penalty of 35% upon the employer - Rs 2.57 lakh - for delay in payment. As there was a valid insurance policy for the vehicle, the compensation amount was to be paid by the insurance company, except the penalty.

The Delhi High Court, however, said that penalty amount was also to be paid by the insurance company and not by the employer.

While setting aside the HC's order, the bench said the law was amended in 1995 by separating the penalty component from compensation and interest component. The legislative intent behind severing the penalty component was to address the larger predicament of easing the burden of the insurance companies, which were adversely impacted by the obligation to pay the penalty that was not even the natural corollary of their obligation, it said.

"The employers were reluctant to pay the compensation and interest expeditiously within the stipulated time of one month from the date it fell due, which resulted to levy of penalty upon them, but since the penalty formed part of compensation and interest component by virtue of expression together with the indemnifier (insurance company) was compelled to pay the component of penalty as well, as such, there remained no deterrence for the employers to deposit the compensation amount within a span of one month making the obligation of depositing the compensation within the time frame - one month - redundant and the consequent penalty a mere dead letter," it said.


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