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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