The Legal Heirs Of The Deceased Employee Will Be Entitled To Interest On Arrears Of Employees’ Compensation Payable By The Employer From The Date Of The Incident  

Posted On - 1 October, 2022 • By - Manisha Singh

Case: Shobha v. Chairman AIR 2022 SC 1410  

Summary  

This case was filed in response to the decision of the High Court of Judicature at Bombay, Bench at Aurangabad, in First Appeal No. 3008 of 2017, wherein the HC had held that the legal heirs of the deceased employee will be entitled to interest on arrears of employees’ compensation payable to them from the date after the expiry of the period of one month from the date of the order passed by the Commissioner, i.e., 25th January 2017.    

The Supreme Court (SC) held that the liability to pay compensation would arise from the date on which the deceased died for which he is entitled to compensation, and thus, the liability to pay interest on the amount of compensation shall be from the date of incident and not from the date of the order passed by the Commissioner under Section 4 of the Employee’s Compensation Act, 1923.  

Issue Raised  

Is the order passed by the High Court directing the employee to pay the interest on the amount of compensation leviable under Section 4A(3)(a) from the date of the order passed by the Commissioner (25th January 2017) sustainable?  

Judgment  

The Supreme Court held that the impugned judgment and order passed by the High Court insofar as awarding the interest at 12% p.a. after the period of one-month expiry from 25th January 2017, is quashed and set aside and that the appellants (the original claimants) shall be entitled to the interest at 12% p.a. on the amount of compensation as awarded by the Commissioner from the date of the incident, i.e., 29th November 2009.  

Analysis  

  • Section 4A(3)(a) would impose the obligation to pay interest on the amount of compensation due and payable and Section 4A(3)(b) would impose the penalty. Under Section 4A(3)(a), the employer must pay simple interest on the arrears at a rate of 12% p.a. or a higher rate not exceeding the maximum lending rate of any scheduled bank indicated on the amount due.  
  • Compensation under Section 4 shall be paid as soon as it becomes due, per Section 4A(1). As a result, the sum of compensation is said to fall due immediately on the death of the deceased. Thus, the duty to pay compensation would begin immediately upon the occurrence of the incident.  
  • Conclusively, the liability to pay compensation would arise from the date of the incident for which the heirs are entitled to compensation, and the liability to pay interest on the amount of compensation would arise from the date of the incident rather than the date of the Commissioner’s order.