The High Court of Jammu & Kashmir and Ladakh has clarified that an insurance company's obligation to indemnify an employer under the Employees' Compensation Act, 1923, does not automatically extend to interest or penalties imposed under Section 4-A of the Act. The Court, comprising Justice Sanjay Parihar, held that such liability is contingent upon specific inclusion within the terms and conditions of the insurance policy, particularly when the policy expressly excludes coverage for interest and penalties.
The ruling emerged from an appeal filed by an insurance company challenging an award issued by the Assistant Commissioner, acting as the Commissioner under the Employees' Compensation Act, 1923. The Commissioner had awarded approximately ₹8.98 lakh as compensation to the dependants of a deceased casual labourer, Adil Rangzaib, and had also imposed liability for interest on the insurance company by invoking Section 4-A of the Act.
The deceased, Adil Rangzaib, met his demise in 2017 while engaged in cleaning operations at the inlet of a Dam Site at Salamabad. He slipped and fell into the dam during his duties, resulting in instantaneous death. An FIR was subsequently registered concerning the incident.
During the proceedings, the appellant insurance company contended that the deceased was not an employee of respondent No. 2, the contractor, but rather of respondent No. 1, NHPC. Crucially, the appellant argued that its liability, being contractual, was strictly limited by the terms of the insurance policy and did not encompass the payment of interest under Section 4-A of the Act. Conversely, respondent No. 1, NHPC, supported the impugned award, asserting that the Commissioner, after evaluating the evidence, had definitively found the deceased to be a labourer under respondent No. 2, the contractor, and covered by the insurance contract.
Court's Observations on Employment and Contractual Liability
The High Court meticulously examined the evidence on record. It noted that while the FIR indicated the deceased was working in connection with respondent No. 1, NHPC, the material presented before the Commissioner established that respondent No. 2, Farooq Ahmad Ganie, was the contractor who had engaged the deceased. The Court further observed that an insurance contract existed between respondent No. 2 and the appellant insurance company, covering twelve employees, each drawing a monthly wage of ₹8,000.
The Court rejected the appellant's assertion that the deceased was an employee of respondent No. 1, NHPC. The bench observed that the appellant's counsel could not effectively dispute the Commissioner's finding that the deceased's name appeared in the list of labourers engaged by respondent No. 2. The Court concluded that once it was established that the deceased was engaged by respondent No. 2 and that respondent No. 2's employees were covered under the appellant's insurance policy, the risk associated with the deceased's employment fell within the policy's coverage.
However, regarding the liability for interest and penalty, the High Court made a distinct observation. Justice Parihar stated that the insurance company cannot be held liable to indemnify the insured employer for such interest or penalty, especially when the policy terms explicitly exclude liability for any interest and/or penalty imposed due to the insured's failure to comply with the Act's requirements. The Court reiterated that the insurance company's liability is contractual and cannot be extended beyond the scope defined by the policy's terms and conditions.
The Court further elucidated that the liability to pay interest or penalty, as stipulated under Sub-Section 3 of Section 4-A of the Act, arises from the employer's omission to fulfil its statutory duty of providing compensation to the injured employee within one month from the date of the accident, as mandated by Section 4 of the Act. This statutory omission, the Court held, is distinct from the primary compensation liability covered by the insurance policy.
Consequently, the High Court partly allowed the appeal, affirming the insurance company's liability for the principal compensation amount but absolving it of the obligation to pay interest or penalty, in line with the contractual exclusions in the policy.