Insurer Notified Of Accident Within 30 Days Cannot Escape Liability For Statutory Interest Under Employees' Compensation Act: Madras High Court

"Appellant insurance company cannot wriggle out of its liability to indemnify the employer by paying the interest component, which is the statutory interest leviable under sub-section (3) to Section 4A of the Act," Madras High Court, in a significant ruling dated April 30, 2026, held that an insurance company is liable to indemnify an employer for the statutory interest component under the Employees' Compensation Act, 1923, provided it was notified of the accident within the stipulated period.

A single-judge bench of Justice K. Kumaresh Babu observed that while insurance is a contract of indemnity, the insurer cannot escape the statutory liability of interest if it fails to process the compensation despite receiving timely intimation of the workplace injury.

The case arose from a factory accident on June 3, 2018, where the claimant, Deepak Sharma, suffered a crushed right upper limb while working in a rolling room. The injury resulted in amputation and a total loss of earning capacity. The Commissioner for Employees' Compensation, Coonoor, awarded a compensation of Rs. 6,62,477 with 12% interest per annum from the date of the accident. The National Insurance Co. Ltd. challenged this order primarily on the ground that its policy terms excluded the payment of interest.

The primary question before the Court was whether an insurer is liable to pay the statutory interest under Section 4A(3)(a) of the Employees' Compensation Act when the insurance policy contains a clause excluding such liability. The Court also examined whether the appeal was maintainable under Section 31 of the Act, given that the insurer had only deposited the principal compensation amount and not the accrued interest.

Non-Deposit Of Interest Component Renders Appeal Technically Defective

The Court first addressed the maintainability of the appeal under Section 31 of the Employees' Compensation Act, 1923. It was noted that the appellant had produced a certificate of deposit only for the principal compensation amount, excluding the interest component calculated up to the date of filing the appeal. The Court observed that complying with the pre-condition of a full deposit is mandatory for maintaining an appeal.

However, the Bench refrained from dismissing the appeal on this technicality alone. Justice Kumaresh Babu noted that since the appeal had been admitted in 2021 and substantial questions of law had already been framed, it would be appropriate to decide the matter on its merits rather than striking it off for the procedural lapse in the deposit.

Scope Of Insurance As A Contract Of Indemnity

The appellant insurer argued that insurance is a contract of indemnity and that it had not undertaken the liability to pay interest under the specific terms of the policy. Relying on the Supreme Court's ruling in P.J. Narayan v. Union of India, the insurer contended that there is no statutory liability on the insurance company to pay interest unless it is specifically covered by the contract between the insurer and the employer.

The Court acknowledged that an insurer can generally refuse to undertake liabilities not supported by statute or contract. However, it contrasted this with the ruling in L.R. Ferro Alloys Ltd. v. Mahavir Mahto, where the Apex Court held that the liability to pay interest is "part and parcel" of the legal liability to pay compensation upon default. The Court emphasized that while a penalty is a personal fault of the employer, interest is a statutory consequence of the delay in payment.

Timely Notice Of Accident Prevents Insurer From Evading Interest Liability

Court Explains Interaction Between Policy Conditions And Statutory Interest

The Court closely examined Clause 5 of the insurance policy, which mandated that the insurer be informed of an accident within 30 days of its occurrence. In the present case, it was undisputed that the incident had been reported to the insurance company within just three days of the accident. This timely notice placed the burden on the insurer to act promptly to discharge the compensation claim.

The Bench observed that the exclusion of interest in an insurance policy can only be effectively invoked when the employer fails to provide the stipulated notice. Since the insurer was informed within the window prescribed by both the policy and the statute, it could not claim immunity from the statutory interest arising out of its own failure to disburse the amount on time.

"The condition prescribed for intimation within thirty days, which is also the period fixed by the statute to pay compensation to the workman, the appellant insurance company cannot wriggle out of its liability."

Distinguishing Precedents On Fact-Specific Basis

The insurer heavily relied on New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya to argue against the liability for interest. The High Court, however, distinguished this precedent, noting that the specific facts leading to the fixation of liability in that case were not broadly applicable to the "peculiar facts" of the present dispute. The Court held that when an insurer is duly notified and fails to act, the statutory mandate of Section 4A prevails.

The Court reiterated the principle established by a Larger Bench in Pratap Narain Singh Deo v. Srinivas Sabata, affirming that compensation falls due on the date the injury is caused. Since the insurer had notice but did not make good the compensation within the one-month statutory period, the liability for 12% simple interest under Section 4A(3)(a) was fully attracted and must be indemnified.

The High Court found no reason to interfere with the order of the Commissioner for Employees' Compensation. It affirmed that the insurer must pay the compensation of Rs. 6,62,477 along with 12% interest per annum from the date of the accident. The appeal was dismissed, and the insurer was held liable to fulfill the entirety of the award, including the interest component.

Date of Decision: 30 April 2026