Insurer Liable for Entire Compensation with 12% Interest, But Not Penalty Under Section 4A: Gujarat High Court Clarifies Apportionment in Fatal Workman Accident Case

“Penalty Is Employer’s Personal Fault—Insurer’s Liability Extends Only to Compensation and Interest”, In a crucial ruling for motor accident compensation litigation, the Gujarat High Court decisively held that the insurance company is fully liable to pay compensation and statutory interest under the Workmen’s Compensation Act, 1923, but cannot be saddled with the penalty for delayed payment, which arises from the employer’s personal default.

Justice M.K. Thakker ruled that the previous direction of the Commissioner, which had held the employer and insurer jointly and severally liable for ₹8,52,160/- compensation with 9% simple and 7% compound interest, was legally erroneous. The High Court modified the award by holding that the insurance company alone is liable to pay ₹8,47,160/- along with 12% interest, as mandated under Section 4A(3)(a) of the Act.

“The penalty under Section 4A(3)(b) cannot be foisted on the insurance company—it arises out of the personal fault of the employer in unjustifiably delaying payment,” the Court observed while partially allowing the appeal filed by the deceased’s widow and children.

Commissioner’s Joint Liability Direction Set Aside—Court Says "Interest is Statutory, Not Penal"

The dispute originated from the award passed by the Commissioner in Workmen Compensation (Non-Fatal) Case No. 4 of 2015, where the claimants—wife, children, and parents of the deceased—had approached the authority seeking compensation after the fatal accident that occurred on 18 May 2014. While the Commissioner allowed the claim, he apportioned liability between the employer and the insurer and awarded a lower rate of interest than what is prescribed under the Act.

The appellants, represented by Advocate Mr. Mohsin M. Hakim, challenged this apportionment and interest calculation, citing binding precedents from the Supreme Court. “It is settled that interest under Section 4A(3)(a) forms part of the statutory liability of the insurer—only penalty remains outside their scope,” argued Mr. Hakim, relying on Ved Prakash Garg v. Premi Devi (1997) 8 SCC 1, Kamla Chaturvedi v. National Insurance Co. (2009) 1 SCC 487, and New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya (2006) 5 SCC 192.

On the other hand, Advocate Mr. Krunal R. Saksena, appearing for the insurance company, defended the Commissioner’s findings, claiming that the apportionment was justified under the scheme of the Act. However, the High Court found no merit in this argument.

Justice Thakker specifically highlighted the interpretation given in Ved Prakash Garg, observing, “Interest payable on the principal amount, if not paid when it fell due, is not considered by the Legislature to be a penalty. It is a statutory elongation of the liability of the employer to make good the principal amount of compensation.”

Referring to the statutory amendment of Section 4A(3) post-1995, the Court held, “A simplicity default in payment of compensation within the time of one month from the date it fell due would automatically attract the provision of simple interest under Section 4A(3)(a) at the rate of 12%.”

Insurance Company Cannot Escape Liability for Interest—Binding Nature of Supreme Court Judgments Reaffirmed

The Court also relied on Kamla Chaturvedi where the Apex Court had categorically ruled, “The liability to pay interest forms an integral part of the legal obligation to pay compensation upon default in making such payment within one month.”

Further reaffirming the position from New India Assurance Co. v. Harshadbhai, the High Court reiterated, “While the insurer is liable to satisfy the compensation along with interest, it is not liable to pay the penalty, which is solely attributable to the employer’s failure to comply.”

In clear terms, the Court concluded, “Penalty is not a part of the liability covered under Section 147 of the Motor Vehicles Act or the standard insurance policy—it is imposed on the employer due to their personal fault after opportunity of hearing.”

Insurance Company Made Solely Liable for ₹8.47 Lakhs with 12% Interest

In allowing the appeal, Justice Thakker modified the award to the following extent:

“Respondent No.2–Insurance Company shall be liable to pay the amount of compensation, i.e. ₹8,47,160/- along with interest at the rate of 12%. The remaining part of the judgment and order shall remain unaltered.”

This clarification brings critical relief to claimants in fatal motor accident cases, ensuring that insurers must honour their full statutory obligation, while protecting them from being made liable for penalties that arise from employer misconduct.

The decision is poised to guide litigation in compensation claims under the Workmen’s Compensation Act where insurance coverage intersects with employer liability, especially in cases of fatal workplace accidents involving vehicles.

Date of Decision: 14 November 2025