REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6691 OF 2008 (Arising out of SLP(C) No. 22634 of 2007)

Kamla Chaturvedi ...Appellant

Versus

National Insurance Co. & Ors. ...Respondents

J U D G M E N T

DR. ARIJIT PASAYAT, J.

1. Leave granted.

2. Challenge in this appeal is to the judgment of a learned Single Judge

of  the  Madhya Pradesh  High Court,  Jabalpur  Bench,  allowing  the  Misc.

Appeal  filed  by  the  respondent  No.1  (hereinafter  referred  to  as  the

‘Insurance Company’). The controversy lies within a very narrow compass.

3. Challenge  in  the  Misc.  Appeal  before  the  High  Court  was  to  the

Award made by the Commissioner for Workmen’s Compensation, Labour

Court No.1 Gwalior (in short the ‘Commissioner’).   A sum of Rs.2,21,370/-

along with interest at the rate of 12% per annum was awarded. The liability

to make the payment was fixed on the Insurance company.  In appeal the

only  ground  raised  was  that  in  a  claim  arising  under  the  Workmen’s

Compansation Act, 1923 (in short the ‘Act’) interest is not payable by the

Insurance company as there was no contract by the insurer with the insured

with  regard  to  the  payment  of  interest.  High  Court  accepted  the  stand

placing reliance on a judgment of this Court in  New India Assurance Co.

Ltd. v.  Harshadbhai Amrutbhai Modhiya [2006(5) SCC 192].  It was held

that the direction for payment of interest by the insurance company was not

sustainable and it was held that the insurance company was not liable to pay

any interest and if so advised the amount of interest could be recovered by

the claimant from the employer.

4. Learned counsel for the appellant submitted that the High Court has

erroneously held that the Insurance company had no liability to pay.  On the

contrary learned counsel for the Insurance company has submitted that the

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decision  in  New  India  Assurance  Co.  Ltd.’s case  (supra)  has  a  clear

application to the facts of the case.   

5. In  New India  Assurance  Co.’s case  (supra)  this  Court  found  as  a

matter of fact that a contract itself provided that the interest and/or penalty

imposed on the insurer on account of his/her failure to make payment of

amount payable under the Act is not to be paid by the insurer.  This position

is clear from the paragraphs 3&4 of the judgment which read as follows:

“3. The two claim petitions came to be filed by the heirs  and  legal  representatives  of  the  deceased  driver and the cleaner under the Compensation Act before the Commissioner  for  Workmen’s  Compensation,  Rajgarh District,  Sirmur,  Himachal  Pradesh.  The  said applications  were  moved  presumably  by  exercising option  available  under  Section  167  of  the  Motor Vehicles Act which lays down that:

“167.  Notwithstanding  anything  contained  in the  Workmen’s  Compensation  Act,  1923  (8  of 1923) where the death of, or bodily injury to any person  gives  rise  to  a  claim  for  compensation under  this  Act  and  also  under  the  Workmen’s Compensation  Act,  1923,  the  person  entitled  to compensation  may  without  prejudice  to  the provisions of Chapter X claim such compensation under either of those Acts but not under both.”

Thus these two applications were in substitution and in place of otherwise legally permissible claims before the Motor Accidents Claims Tribunal functioning under the Motor Vehicles Act. In the said claim applications, the claimants  joined  the  appellant-employer  as  well  as

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Respondent  9-insurance company as respondents.  The Workmen’s  Commissioner  after  hearing  the  parties concerned computed the compensation available to the claimant-dependants of the deceased employees. So far as the claim put forward by the heirs of the deceased driver was concerned the Commissioner awarded a sum of Rs.88,968 as compensation. But as the compensation due was not paid either by the appellant-employer or by the  insurance  company  as  and  when  it  fell  due  the Commissioner  awarded  a  penalty  of  Rs. 41,984  with interest at the rate of 6% per annum from the date of the accident till the date of payment under Section 4-A(3) (a) and (b) of the Compensation Act. The entire amount of  Rs.88,968  with  penalty  of  Rs.41,984  and  interest thereon was held payable by the insurance company to the claimants jointly and severally with the appellant- employer.  The  said  amount  was  made  payable  by Respondent 9-insurance company on the basis that the insurance company had insured the appellant against his liability  to  meet  the  claims  for  compensation  for  the death  of  employees  dying  in  harness  giving  rise  to proceedings  against  the  insured  employer  under  the Compensation  Act.  Similarly  the  Commissioner awarded  a  sum  of  Rs.88,548  to  the  claimants  being legal  representatives  of  the  deceased  cleaner.  In addition to the said amount, penalty of Rs. 44,274 with interest  from the  date  of  the  accident  till  the  date  of payment  was  also  made  payable  by  Respondent  9- insurance company. 4. The claimants  were satisfied  with  the said  awards. Similarly  the  appellant-owner  was  also  satisfied  with the  said  awards.  However,  the  insurance  company carried the matter in appeals before the High Court and contended that the insurance company would be liable under the contract of insurance only to make good the claims for compensation so far as the principal amounts were concerned. But it could not have been made liable to pay the amounts of penalties with interest thereon as ordered  by  the  Workmen’s  Commissioner  as  these amounts  of  penal  nature  were  awarded  against  the insured owner on account of his personal default as per Section 4-A(3) of the Compensation Act and for such

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default on the part of the insured the insurance company was  not  liable  to  reimburse  the  insured.  As  noted earlier,  the said contention of Respondent  9-insurance company appealed to the High Court. The appeals were allowed and the awards of the Commissioner under the Compensation Act insofar as they fastened the liability to  pay  the  penalty  and  interest  on  the  insurance company  were  set  aside.  The  amounts  deposited  in excess  by the insurance  company were  ordered  to  be refunded  to  it  while  the  remaining  amounts  were ordered to  be paid to  the claimants.  It  was,  however, clarified that the claimants shall be at liberty to recover the amount of penalty and interest  in accordance with law from the employer, appellant herein.”

6. In Ved Prakash Garg v. Premi Devi and others [1997(8) SCC 1] this

court  observed that  the Insurance Company is  liable  to  pay not  only the

principal amount of compensation payable by the insurer employer  but also

interest thereon if ordered by the Commissioner to be paid by the insured,

employee.   Insurance  company is  liable  to  meet  claim for  compensation

along with interest as imposed on insurer employer by the Act on conjoint

operation of Section 3 and 4(A)(3)(a) of the Act. It was, however, held that

it  was the liability of the insured employer alone in respect  of additional

amount of compensation by way of penalty under Section 4(A)(3)(b) of the

Act.  In  New India Assurance Co.’s case (supra) and  Ved Prakash Garg’s

case (supra) was distinguished on facts.  It was observed that in the said

case  the  court  was  not  concerned  with  a  case  where  an  accident  had

occurred  by  use  of  motor  vehicle  in  respect  whereof  the  Contract  of

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Insurance will  be governed by the provisions of the Motor Vehicles Act,

1988 (in short the ‘M.V. Act’).  A contract of Insurance is governed by the

provisions of the Insurance Act, 1938 (in short the ‘Insurance Act’), unless

the said contract is governed by the provisions of a statute.  The parties are

free to enter into a contract as per their own volition.  The Act does not

contain a provision like Section 148 of the MV Act where a statute does not

provide for a compulsory insurance or accident thereof. The parties are free

to choose their terms of contract.  In that view of the matter contracting out

so  far  as  the  reimbursement  of  amount  of  interest  is  concerned  is  not

prohibited by a statute.  This position have been reiterated in P.J. Narayan v.

Union of  India  and others [2006 (5)  SCC 200].   In  the  instant  case  the

position is different.  The accident in question arose on account of vehicular

accident and provisions of MV Act are clearly applicable. We have gone

through the policy of insurance and we find that no such exception as was

the case in New India Assurance Co.’s case was stipulated in the policy of

insurance.  Therefore, the Insurance Company is liable to pay the interest.

7. The further question arises as to from which date it would be paid.  

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8. In  National  Insurance co. Ltd. v.  Mubasir  Ahmed & Anr. [2007(2)

SCC 349] it was, inter alia, held as follows:

“Interest  is  payable  under  Section  4-A(3)  if  there  is default in paying the compensation due under this Act within one month from the date it fell due. The question of  liability  under  Section  4-A was dealt  with  by this Court  in  Maghar Singh v.  Jashwant  Singh [(1998)  9 SCC 134]. By amending Act 30 of 1995, Section 4-A of the  Act  was  amended,  inter  alia,  fixing  the  minimum rate  of  interest  to  be  simple  interest  @  12%.  In  the instant  case,  the  accident  took  place  after  the amendment and, therefore, the rate of 12% as fixed by the  High  Court  cannot  be  faulted.  But  the  period  as fixed by it is wrong. The starting point is on completion of  one  month  from  the  date  on  which  it  fell  due. Obviously it  cannot be the date of accident.  Since no indication is there as to when it becomes due, it has to be taken to be the date of adjudication of the claim. This appears to be so because Section 4-A(1) prescribes that compensation under Section 4 shall be paid as soon as it falls due. The compensation becomes due on the basis of  adjudication  of  the  claim  made.  The  adjudication under Section 4 in some cases involves the assessment of  loss  of  earning  capacity  by  a  qualified  medical practitioner.  Unless  adjudication  is  done,  question  of compensation  becoming  due  does  not  arise.  The position  becomes  clearer  on  a  reading  of  sub- section (2) of Section 4-A. It provides that provisional payment  to  the  extent  of  admitted  liability  has  to  be made when employer does not  accept  the liability for compensation  to  the  extent  claimed.  The  crucial expression is “falls due”. Significantly, legislature has not  used  the  expression  “from the  date  of  accident”. Unless  there  is  an  adjudication,  the  question  of  an amount falling due does not arise.

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9. In view of what has been stated in Mubasir Ahmed’s case (supra) the

liability for interest would be in terms of what has been stated in paragraph

9 of the judgment.

10. The appeal is allowed to the aforesaid extent. There shall be no order

as to costs.

    …………......................................J.   (Dr. ARIJIT PASAYAT)

……………..................................J. (Dr. MUKUNDAKAM SHARMA)

New Delhi, November 18, 2008  

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