Employees Compensation Act | Insurance Company Not Liable To Indemnify Penalty Imposed On Employer Under Section 4-A(3)(b): Himachal Pradesh High Court

"So far as additional amount of compensation by way of penalty imposed on the insured employer by the Workmen’s Commissioner under Section 4-A(3)(b) is concerned, however, the insurance company would not remain liable to reimburse the said claim and it would be the liability of the insured employer alone." Himachal Pradesh High Court, in a ruling dated September 7, 2026, has clarified the scope of an insurer's liability under the Employees Compensation Act, holding that an insurance company cannot be directed to pay the penalty imposed on an employer for failure to deposit compensation in time.

Justice Sushil Kukreja, while adjudicating cross-appeals, reiterated that while the insurer must indemnify the principal compensation and interest, the penal component under Section 4-A(3)(b) remains the exclusive liability of the employer.

The case originated from a tragic motor vehicle accident on January 20, 2020, involving a vehicle insured by Tata AIG General Insurance. The driver, Ten Singh, died during the course of his employment. The Commissioner under the Employees Compensation Act had initially awarded compensation to the dependents, including a component of 50% penalty to be paid by the insurance company. Both the claimants and the insurer challenged the award before the High Court.

The primary legal issues before the court were whether the insurance company is statutorily liable to indemnify the penalty imposed under Section 4-A(3)(b) of the Act, and the determination of the quantum of compensation based on the deceased's monthly income. The court was further tasked with apportioning the liability between the insurer and the employer in light of the settled legal position regarding statutory penalties.

Court Clarifies Insurer's Statutory Liability

The High Court relied on the authoritative pronouncement of the Supreme Court in Ved Prakash Garg vs. Premi Devi & others, affirming that the insurance company's liability is restricted to the principal compensation amount and the interest thereon, as envisaged under Section 3 and Section 4-A(3)(a) of the Act. The court underscored that the legislative intent behind the penalty provision is to penalize the employer for default, which cannot be shifted to the insurer.

Penalty Obligation Rests Solely With Employer

The Bench observed that the Commissioner below had erred in directing the insurance company to pay the penalty. Consequently, the court exonerated the insurance company from the liability of paying the penalty amount. Emphasizing the distinction between compensation and penalty, the court held that the punitive consequences of failing to deposit the compensation amount fall squarely upon the employer's shoulders.

Consensual Resolution On Compensation Quantum

During the proceedings, the parties arrived at a consensus to fix the income of the deceased at Rs. 8,000 per month for the purpose of calculating compensation. Based on the age of the deceased (25 years) and the relevant schedule under the Act, the court re-calculated the total compensation to Rs. 13,11,205. Additionally, the court, with the consent of the parties, reduced the penalty to be paid by the employer from 50% to 20% of the compensation amount.

The High Court modified the award, directing that the total compensation of Rs. 14,84,733 (inclusive of the reduced penalty) be settled with the insurer paying the principal amount and the employer paying the penalty of Rs. 1,73,528. The court further ordered the apportionment of the compensation among the widow, son, and mother of the deceased in the ratio of 50%, 25%, and 25% respectively.

Date of Decision: 07 September 2026