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CASE NO.:

Appeal (civil) 399 of 2004

PETITIONER:

National Insurance Co. Ltd.

RESPONDENT:

Keshav Bahadur and Ors.

DATE OF JUDGMENT: 20/01/2004

BENCH:

DORAISWAMY RAJU & ARIJIT PASAYAT

JUDGMENT:

J U D G M E N T

(Arising out of SLP (Civil) No. 12305/2002)

ARIJIT PASAYAT, J.

Leave granted.

National Insurance Company Limited (hereinafter

referred to as 'the insurer') questions legality of the

judgment of a Division Bench of the Jharkhand High Court

holding that the insurer has to pay the compensation of

Rs.72,000/- awarded to the legal representatives of one

Hasta Bahadur (hereinafter referred to as 'the deceased')

who lost his life in a vehicular accident on 5.6.1987. The

deceased was working as a Chowkidar of Hydel Project,

Sikidri. A claim petition was filed by his sons under

Section 110A of the Motor Vehicles Act 1939 (in short 'the

Act'). The Motor Vehicle Accidents Tribunal (hereinafter

referred to as 'the Tribunal') awarded compensation of

Rs.72,000/- along with interest @ 12% per annum. The amount

was directed to be paid within 60 days. It was further

directed that in case of failure to pay within 60 days, the

rate of interest would be 18%. The insurer questioned the

legality of the direction that the whole amount of

compensation was to be paid by the insurer; and the

direction regarding default rate of interest. According to

it, the liability was limited to Rs.50,000/- in terms of

Section 95(2)(b)(i) of the Act; and there was no legal basis

for the default rate. Though these points were specifically

urged before the Tribunal, no definite finding was recorded.

Similar was the situation so far as the High Court is

concerned. Though it dealt with the question of interest

and reduced the rate from 12%, as awarded by the Tribunal,

to 9% per annum, no finding was recorded regarding legality

of default rate.

Learned counsel for the appellant-insurer submitted

that the liability statutorily fixed in respect of third

party risk was at the relevant point of time Rs.50,000/-.

With reference to copy of the policy of insurance, which was

produced before the Tribunal and the High Court it is

pointed out that a sum of Rs.240/- was paid as the third

party insurance premium. The limits of liability were also

indicated in the following terms:

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"Limits of Liability:

(a) Limit of the amount of the Company's

liability under Section II-I (i) in

respect of any one accident.

Such amount as is necessary to meet

the requirements of the Motor Vehicles

Act, 1939.

(b) Limit of Amount of the Company's

Liability under Section II-I((ii) in

respect of any one claim or series of

claims arising out of the one event:

Rs.50,000/-"

In the Schedule of premium under the heading B.

"LIABILITY TO PUBLIC RISK" it was indicated to be Rs.

240/-. The stand in essence, therefore, is that when extra

premium, if any, is not paid, for any enhanced liability,

the statutorily fixed liability of Rs.50,000/- was the

maximum that could have been awarded and nothing beyond it.

It is also submitted that the High Court had directed

payment of the amount within a particular time with the

default stipulation of higher penal interest @ 18% p.a. It

took note of the fact that pursuant to the order dated

23.2.1998 insurer deposited Rs.50,000/- on 6.3.1998. It was

pointed out that neither the Tribunal nor the High Court

could have stipulated any penal interest as was done. The

High Court directed payment of the balance amount of

compensation with interest and had stipulated that in case

insurer does not pay the balance amount with interest at

the rate indicated in the judgment penal interest @ 18% was

to be paid. It was submitted that there is no provision for

any penal interest. The only provision relating to interest

is Section 110CC of the Act.

There is no response by the respondents in spite of

the service of notice.

The liability of the insurer is limited as indicated

in Section 95 of the Act. But it is open to the insured to

make payment of additional higher premium and for insurer

to accept higher risk covered in respect of third party

also. But in the absence of any such clause in the

insurance policy, and proof of payment of additional

premium the liability of the insurer cannot be unlimited in

respect of third party and it is limited only to the

statutory liability. A three-Judge Bench of this Court in

New India Assurance Company Limited v. Shanti Bai (1995 (2)

SCC 539) held as follows:

"(i) a comprehensive policy which has been

issued on the basis of the estimated value

of the vehicle does not automatically result

in covering the liability with regard to

third-party risk for an amount higher than

the statutory limit,

(ii) that even though it is not permissible

to use a vehicle unless it is covered at

least under an "Act only" policy, it is not

obligatory for the owner of a vehicle to get

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it comprehensively insured, and

(iii) that the limit of liability with

regard to third-party risk does not become

unlimited or higher than the statutory

liability in the absence of specific

agreement to make the insurer's liability

unlimited or higher than the statutory

liability."

In case insurer-appellant not taking any higher

liability by accepting higher premium, the liability is

neither unlimited nor higher than the statutory liability

fixed under Section 95(2) of the Act. Even if a vehicle is

the subject matter of comprehensive insurance and a higher

premium is paid on that score, limits of the liability with

regard to third party risk does not become unlimited or

higher beyond the statutory liability fixed. For this

purpose, a specific agreement has to be arrived at between

the insured and the insurer and separate premium has to be

paid in respect of additional amount of liability

undertaken by the insurer in that regard. This position

was highlighted by this Court in National Insurance Co.

Ltd. v. Jugal Kishore (1988 (1) SCC 626). In New India

Assurance Co. Ltd. v. C.M. Jaya and others (2002 (2) SCC

278) a Constitution Bench approved the view taken in Shanti

Bai (supra) and Jugal Kishore (supra). It was held that in

case of insurer not taking any higher liability by

accepting higher premium for payment of compensation to

third party, the insurer would be liable to the extent

limited under Section 95(2) of the Act and would not be

liable to pay the entire amount of compensation awarded.

The inevitable conclusion on the factual backgrounds

is that the liability of the insurer-appellant is limited

to Rs.50,000/-. The residual question is whether there

could be any stipulation of penal rate of interest as done

by the Tribunal and affirmed by the High Court. So far as

the higher rate of interest stipulation is concerned, it is

to be noted that grant of interest under Section 110CC of

the Act (corresponding to Section 171 of the Motor Vehicles

Act, 1988) (in short the 'new Act') is discretionary. The

purpose for award of interest is to put pressure on the

relevant person not to delay in making the payment; and, to

compensate the victim or his dependents at least to some

extent for such delay as may occur, by way of interest. In

determining the quantum of interest awardable under the

relevant Section, the Tribunal acting under Section 110 of

the Act corresponding to Section 166 of the new Act can

derive direct guidance from Section 34 of the Code of Civil

Procedure, 1908 (in short the 'CPC'). In fact, the

provisions require payment of interest in addition to

compensation already determined. Even though the expression

'may' is used, a duty is laid on the Tribunal to consider

the question of interest separately with due regard to the

facts and circumstances of the case. The provision is

discretionary and is not and cannot be bound by rules. In

the words of Lord Cairns, L.C. in Julius v. Bishop of

Oxford (1880 (5) AC 214), "But there may be something in

the nature of the thing empowered to be done, something in

the object for which it is to be done, something in the

conditions under which it is to be done, something in the

title of person or persons for whose benefit the power is

to be exercised, which may couple the power with a duty,

and make it the duty of the person in whom the power is

reposed to exercise that power when called upon to do so".

This classic observation has been quoted with approval by

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this Court in several cases. (See Commissioner of Police v.

Gordhandas Bhanji (AIR 1952 SC 16 and S.P. Gupta and Ors.

v. President of India and Ors. (AIR 1982 SC 149). In

Halsbury's Laws of England, 4th Edn., Vol.I, it has been

observed:-

Para 28: Duty and discretion.

xxx xxx xxx

"A statutory discretion is not,

however, necessarily or, indeed, usually

absolute; it may be qualified by express and

implied legal duties to comply with

substantive and procedural requirements

before a decision is taken whether to act

and how to act. Moreover, there may be a

discretion whether to exercise a power, but

no discretion as to the mode of its

exercise; or a duty to act when certain

conditions are present, but a discretion how

to act. Discretion may thus be coupled with

duties".

Discretion, in general, is the discernment of what is

right and proper. It denotes knowledge and prudence, that

discernment which enables a person to judge critically of

what is correct and proper united with caution; nice

discernment, and judgment directed by circumspection;

deliberate judgment; soundness of judgment; a science or

understanding to discern between falsity and truth, between

wrong and right, between shadow and substance, between

equity and colorable glosses and pretences, and not to do

according to the will and private affections of persons.

When it is said that something is to be done within the

discretion of the authorities, that something is to be done

according to the rules of reason and justice, not according

to private opinion; according to law and not humour. It is

to be not arbitrary, vague, and fanciful, but legal and

regular. And it must be exercised within the limit, to

which an honest man, competent to the discharge of his

office ought to confine himself (Per Lord Halsbury, L.C., in

Sharp v. Wakefield, (1891) Appeal Cases 173). Also (See

S.G. Jaisinghani v. Union of India and Ors. (AIR 1967 SC

1427).

The word "discretion" standing single and unsupported

by circumstances signifies exercise of judgment, skill or

wisdom as distinguished from folly, unthinking or haste;

evidently therefore a discretion cannot be arbitrary but

must be a result of judicial thinking. The word in itself

implies vigilant circumspection and care; therefore where

the legislature concedes discretion it also imposes a heavy

responsibility.

"The discretion of a Judge is the law of tyrants; it

is always unknown. It is different in different men. It is

casual, and depends upon constitution, temper, passion. In

the best it is often times caprice; in the worst it is every

vice, folly, and passion to which human nature is liable,"

said (Lord Camden, L.C.J., in Hindson and Kersey (1680) 8

How, St. Tr.57.)

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If a certain latitude or liberty accorded by statute or

rules to a judge as distinguished from a ministerial or

administrative official, in adjudicating on matters brought

before him, it is judicial discretion. It limits and

regulates the exercise of the discretion, and prevents it

from being wholly absolute, capricious, or exempt from

review.

Such discretion is usually given on matters of

procedure or punishment, or costs of administration rather

than with reference to vested substantive rights. The

matters which should regulate the exercise of discretion

have been stated by eminent judges in somewhat different

forms of words but with substantial identity. When a

statute gives a judge a discretion, what is meant is a

judicial discretion, regulated according to the known rules

of law, and not the mere whim or caprice of the person to

whom it is given on the assumption that he is discreet (Per

Willes J. in Lee v Budge Railway Co., (1871) LR 6 CP 576,

and in Morgan v. Morgan, 1869, LR 1 P & M 644).

Though Section 110CC of the Act (corresponding to

Section 171 of the New Act) confers a discretion on the

Tribunal to award interest, the same is meant to be

exercised in cases where the claimant can claim the same as

a matter of right. In the above background, it is to be

judged whether a stipulation for higher rate of interest in

case of default can be imposed by the Tribunal. Once the

discretion has been exercised by the Tribunal to award

simple interest on the amount of compensation to be awarded

at a particular rate and from a particular date, there is

no scope for retrospective enhancement for default in

payment of compensation. No express or implied power in

this regard can be culled out from Section 110CC of the Act

or Section 171 of the new Act. Such a direction in the

award for retrospective enhancement of interest for default

in payment of the compensation together with interest

payable thereon virtually amounts to imposition of penalty

which is not statutorily envisaged and prescribed. It is,

therefore directed that the rate of interest as awarded by

the High Court shall alone be applicable till payment,

without the stipulation for higher rate of interest being

enforced, in the manner directed by the Tribunal.

The insurer cannot withhold the awarded amount

indefinitely. In the circumstances, we direct that interest

@ 9% per annum on the sum of Rs.50,000/- which is the

liability of the insurer; from the date of claim till

6.3.1998, be paid within a period of three months from

today, if not already paid or deposited before the

Tribunal/High Court. The appeal is allowed to the extent

indicated, without any order as to costs.