Supreme Court Increases Interest Rate in Employee Compensation Case: Shanti & Ors. vs. National Insurance Company (2025)

Date of the Judgment: February 17, 2025
Citation: 2025 INSC 234
Judges: Justice Sudhanshu Dhulia, Justice K. Vinod Chandran

When an employee suffers an accident, are they entitled to a fair interest rate on their compensation? The Supreme Court of India addressed this critical question in a recent case concerning the interest payable under the Employee’s Compensation Act of 1923. The court clarified the statutory mandate regarding interest rates, ensuring that employees receive just compensation without undue delay. The judgment was delivered by a bench comprising Justice Sudhanshu Dhulia and Justice K. Vinod Chandran.

Case Background

The case arose from a claim filed by the legal representatives of a deceased employee against the National Insurance Company. The employee, working as a cleaner in a truck owned by his father, died in an accident. The claimants, including the employee’s mother and siblings, sought compensation under the Employee’s Compensation Act, 1923.

Initially, the claim petition was dismissed, but the High Court overturned this decision, directing a fresh consideration of the employer-employee relationship based on presented evidence. The Commissioner under the Act then awarded compensation, along with 6% interest per annum and a 40% penalty for the default committed.

The Insurance Company contested the interest rate, arguing that they should not be liable for the insured’s default in making provisional payments as mandated by Section 4A(2) of the Employee’s Compensation Act, 1923. They also claimed lack of intimation about the accident.

Timeline

Legal Framework

The Supreme Court’s decision hinged on the interpretation of Section 4A of the Employee’s Compensation Act, 1923. This section deals with the payment of compensation and the consequences of default by the employer.

Section 4A(2) mandates that an employer, when disputing liability, must make a provisional payment based on the extent of the liability. This payment should be deposited with the Commissioner or disbursed to the employee or their legal representatives.

Section 4A(3) states the consequences of failing to pay compensation within one month from the date it fell due. It stipulates that the employer shall pay simple interest at the rate of 12% per annum, in addition to the arrears. The section also allows for a penalty not exceeding 50% of the awarded amount.

“Section 4A(3A) provides that on default to pay the compensation within one month from the date it fell due, the employer shall pay, in addition to the amount of arrears, simple interest at the rate of 12 % per annum or at such higher rate not exceeding the maximum lending rate prescribed for scheduled banks by sub-clause (a) and sub-clause(b) further provides a penalty not exceeding 50 % of such award amounts.”

Arguments

Arguments by the Appellants (Claimants):

• The learned counsel for the appellants contended that there is a statutory mandate to award interest under Sub-section 3(a) @ 12% per annum.
• The discretion conferred on the Commissioner is only to the extent of granting a higher rate, which again should not exceed the lending rate specified for scheduled banks.

Arguments by the Respondent (National Insurance Company):

• The learned Standing Counsel for the respondent-Insurance Company refuted the claim, contending that the insurer is not liable to indemnify the insured for the default committed by the insured.
• There was no intimation about the accident given to the Insurance Company.
• Even if the liability is mulcted on the Insurance Company, they are entitled to recover the interest awarded from the insured since there is no question of indemnification of a default committed by the employer.

Issues Framed by the Supreme Court

1. The only question raised in the appeal is as to the interest payable under the Employee’s Compensation Act 1923.

Treatment of the Issue by the Court

Authorities

The court considered the following cases:

• Pradeep Narain Singh Deo vs. Srinivas Sabata, (1976) 1 SCC 289, Supreme Court of India: This case was cited to support the declaration that interest runs from the date of the accident.
• North East Karnataka Road Transport Corporation vs. Sujatha, (2019) 11 SCC 514, Supreme Court of India: This case was also cited to support the declaration that interest runs from the date of the accident.

Judgment

The Supreme Court allowed the appeal, modifying the award to reflect an interest rate of 12% per annum from the date of the accident. The court emphasized the statutory mandate for this interest rate under the Employee’s Compensation Act, 1923.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Pradeep Narain Singh Deo vs. Srinivas Sabata, (1976) 1 SCC 289: The court relied on this authority to affirm that interest runs from the date of the accident.
• North East Karnataka Road Transport Corporation vs. Sujatha, (2019) 11 SCC 514: The court relied on this authority to affirm that interest runs from the date of the accident.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the statutory provisions of the Employee’s Compensation Act, 1923, particularly Section 4A(3), which mandates a 12% interest rate in case of default. The court also considered prior legal precedents that established the accrual of interest from the date of the accident. The absence of an appeal by the Insurance Company against the initial order further solidified the court’s stance.

Key Takeaways

• Increased Interest Rate: Employees are entitled to a 12% interest rate on compensation from the date of the accident.
• Statutory Mandate: The 12% interest rate is a statutory requirement under the Employee’s Compensation Act, 1923.
• Insurer’s Liability: Insurance companies can be held liable for interest payments if they are impleaded in the claim and do not appeal adverse orders.

Development of Law

The ratio decidendi of this case is that the interest rate for compensation under the Employee’s Compensation Act, 1923, is mandated to be 12% per annum from the date of the accident. This clarifies the statutory requirement and ensures that employees receive fair compensation without delay.

Conclusion

The Supreme Court’s judgment in Shanti & Ors. vs. National Insurance Company clarifies the interest payable under the Employee’s Compensation Act, 1923. By increasing the interest rate to 12% per annum from the date of the accident, the court has reinforced the statutory mandate and ensured fairer compensation for employees.