The Court observed that the liability of the Insurance Company, being contractual in nature, is confined to the extent covered under the terms and conditions of the insurance policy and cannot be extended beyond the same.

The Court was hearing an appeal filed by an Insurance Company challenging the award passed by the Assistant Commissioner vested with the powers of Commissioner under the Employees' Compensation Act, 1923, whereby compensation of approximately Rs 8.98 lakh was awarded in favour of the dependants of the deceased, Adil Rangzaib, who was engaged as a casual labourer by respondent No. 2-Contractor. The appellant was also saddled with liability towards interest by invoking Section 4-A of the Act.

A Bench of Justice Sanjay Parihar, while partly allowing the appeal, observed,

"The Insurance Company cannot be held liable to indemnify the insured employer in respect of such interest or penalty, particularly when the terms of the insurance policy expressly exclude liability for any interest and/or penalty imposed upon the insured on account of failure to comply with the requirements of the Act of 1923. The liability of the Insurance Company, being contractual in nature, is confined to the extent covered under the terms and conditions of the insurance policy and cannot be extended beyond the same."

The Court further observed,

"The liability to pay interest or penalty as envisaged under Sub Section 3 of section 4-A of the Act arises on account of omission made by the employer to fulfil its statutory duty of compensating the injured employee by affording him the compensation in terms of section 4 of the Act within a period of one month from the date of accident."

Rangzaib, died in 2017 while engaged in the work of cleaning trash at the inlet of the Dam Site at Salamabad. The deceased, along with other labourers, was performing his routine duties when he slipped and fell into the dam, resulting in his death on the spot. An FIR was registered in respect of the occurrence.

The appellant-Insurance Company contended that the deceased was not borne on the rolls of respondent No. 2 and was instead an employee of respondent No. 1-NHPC. It was further contended that having regard to the terms and conditions of the insurance policy, the liability of the appellant could extend only to the extent covered by the contract of insurance and could not encompass liability towards payment of interest under Section 4-A of the Act.

Respondent No. 1-NHPC supported the impugned award, submitting that the Commissioner, on appreciation of evidence, had returned a categorical finding that the deceased was working as a labourer under respondent No. 2-Contractor and was covered under the contract of insurance.

Court's Observation

The Court examined the material on record and noted that the deceased died while engaged in work at the Dam Site. The Court observed that though the FIR indicated that the deceased was working in connection with the establishment of respondent No. 1-NHPC, the material before the Commissioner established that respondent No. 2-Farooq Ahmad Ganie was the contractor under whom the deceased had been engaged.

The Court also noted that there existed a contract of insurance between respondent No. 2 and the appellant-Insurance Company, covering twelve employees drawing monthly wages of Rs 8,000 each.

The Court rejected the appellant's contention that the deceased was an employee of respondent No. 1-NHPC. The Court observed,

"When confronted with the finding recorded by the Commissioner that the name of the deceased figured in the list of labourers engaged by respondent No. 2, learned counsel for the appellant could not successfully controvert the said factual position."

The Court further held,

"Once it stands established that the deceased was engaged as a labourer by respondent No. 2-Faroog Ahmad Ganie, Contractor, and that the employees engaged by respondent No. 2 were covered under the policy of insurance issued by the appellant, the risk arising out of the employment of the deceased would necessarily fall within the coverage of the insurance contract, subject, of course, to its terms and conditions."

On the issue of interest under Section 4-A of the Act, the Court relied upon the judgment of a Coordinate Bench in Mohd Abdullah v. Trumbo Cements Industry Limited and Another, MA No. 155/2007. The Court noted that the Coordinate Bench had held that the liability to pay interest or penalty under Section 4-A(3) arises on account of the employer's omission to fulfil its statutory duty of compensating the employee within one month from the date of accident.

The Court recorded,

"Unless there is a specific contract of insurance between the employer and the insurer, that the insurer would indemnify the employer in respect of interest and penalty also, no liability can be fastened on the insurer to indemnify the employer for the amount of interest and penalty that may become payable by the employer for committing a default in making the payment of compensation due under the Act within one month from the date of accident."

Accordingly, the High Court partly allowed the appeal, holding that the Commissioner erred in fastening upon the appellant-Insurance Company the liability to pay the interest component of the award. The Court directed that the said liability be borne by the employer, respondent No. 2.

Case Title: New India Assurance Company Limited v. General Manager, NHPC and Others

Citation: 2026 LiveLaw (JKL) 326

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