SC: Employers must pay late payment penalties from their own pockets

NEW DELHI: Holding that welfare legislation enacted to extend benefits to a class of society should be given a “liberal and purposive interpretation” in favor of the beneficiaries, the Supreme Court said employers must pay penalty for late payment under the Employees’ Compensation Act even if the amount of compensation in case of an accident is covered by insurance.A bench of Justices Aravind Kumar and PB Varale said the Supreme Court in several decisions had emphasized the liberal interpretation of the law in favor of employees and placed the liability for payment of penalty under Section 4A(3)(b) (relating to compensation) on the employer.The SC passed the order on the basis of a plea filed by New India Insurance Company against the Delhi High Court ruling that in case of delay in payment of compensation, the penalty has to be paid by the company and not the employer. The Supreme Court set aside the High Court order.“A careful reading of the statement of objects of the legislation makes it clear that the legislation is a social welfare enactment introduced by Parliament to address the grievances of employees in connection with accidents that may occur at or in the course of employment by promptly paying adequate compensation to enable the employee or his family to meet the employee’s medical expenses in the event of injury or to maintain his livelihood in the event of the employee’s death,” the bench said.In this case, an employee died while driving his employer’s vehicle in February 2017. The family of the deceased approached the Labor Commissioner for help in July because compensation was not paid in accordance with the law. The Commissioner awarded compensation of Rs 7.36 lakh (including 12% interest) and imposed a penalty of 35% (Rs 2.57 lakh) on the employer for late payment. Since the vehicle has valid insurance, the compensation amount, except for fines, will be paid by the insurance company.However, the Delhi High Court said the penalty amount should also be paid by the insurance company and not the employer.While setting aside the Supreme Council’s order, the bench said the law was amended in 1995 to separate the penalty component from the compensation and interest components. The legislative intent behind splitting the penalty component is to address the larger dilemma of alleviating the burden on insurance companies, which adversely affects insurance companies as the obligation to pay penalties is not even a natural corollary of their obligations, the report said.“The employer’s reluctance to pay the compensation and interest promptly within the stipulated period of one month from the date of due date resulted in the imposition of penalty on it, but since the penalty formed part of the compensation and interest and was forced to pay part of the penalty by joint representation with the indemnifier (insurance company), the possibility of the employer depositing the compensation within one month did not exist and, therefore, the employer was obliged to deposit the compensation within one month. The period – one month – was superfluous and the penalty that came with it was a dead letter,” it said.