Court Holds 12% Statutory Interest Mandatory Under Employees’ Compensation Act; Insurance Company Liable to Pay Award

A bench of Justices Sudhanshu Dhulia and K. Vinod Chandran heard an appeal concerning the rate of interest payable under Section 4A(3) of the Employees’ Compensation Act, 1923 and the liability of the insurer where an employer defaulted in making provisional or admitted payments. The appeal arose from a claim petition for compensation for a deceased cleaner and challenged the interest and penalty components of the Commissioner’s award and subsequent orders of the High Court.

The Court allowed the appeal and held that statutory interest at 12% per annum was mandatorily payable where the employer defaulted in discharging admitted compensation, with the discretion available to the authority only to award a higher rate not exceeding the maximum lending rate prescribed for scheduled banks. The Court noted precedent that “the interest runs from the date of the accident.” The Court, in its reasoning, observed: “That the interest statutorily provided is 12 % comes out from the provision itself. The discretion is only in so far as awarding 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. The legislative intent is very clear insofar as Sub clause (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 Court further recorded that the insurer, having been impleaded and directed to pay under the award, could not avoid liability where it had not preferred an appeal: “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.”

Background The dispute arose when a worker died while employed as a cleaner in a truck owned by his father. The deceased’s mother and siblings filed a claim petition under the Employees’ Compensation Act. The claim was initially dismissed but an appellate order (Annexure P1) found the petition maintainable and remanded for fresh consideration of the employer-employee relationship. The Commissioner found the relationship to exist, awarded compensation, imposed simple interest at 6% per annum and a 40% penalty for default. The National Insurance Company, impleaded as a respondent and directed in the award to pay compensation, interest and penalty, contended that it was not liable to indemnify the insured for the employer’s default and that it could, in any event, recover any interest paid from the insured. The High Court confirmed the award of 6% interest. On further appeal, this Court examined whether the statutory scheme mandated 12% interest under Section 4A(3)(a) where there was default in paying admitted compensation and whether the insurer could be absolved of that liability. Relying on earlier decisions that interest runs from the date of the accident (Pradeep Narain Singh Deo v. Srinivas Sabate; North East Karnataka Road Transport Corporation v. Sujatha), the Court held that 12% simple interest per annum was the statutory minimum and modified the award to direct interest at 12% from the date of the accident. The appeal was allowed and the award was so modified; no interim directions survived. The Court also noted that the Commissioner had awarded a 40% penalty within the statutory ceiling of 50%.

Case No.: CIVIL APPEAL NO.2586 OF 2025 (@SLP (C) No.1530 of 2022); 2025 INSC 234 Case Title: Shanti & Ors. v. National Insurance Company Appearances: For the Petitioner(s): Not indicated in the judgment For the Respondent(s): Not indicated in the judgment