IMPORTANT POINT
Once the Tribunal in exercise of discretion has awarded interest on compensation amount, there is no scope for retrospective enhancement for default in payment of compensation.

Headnote:(i) Motor Vehicles Act, 1939-Section 95(2)(b)(i)-Tribunal awarded compensation of Rs. 72,000/- with interest and held Insurance Co. liable for whole amount-High Court upheld the award-Appeal-Motor vehicle accident took place on 5-6-1987-Statutory fixed liability of Insurance Co. was Rs. 50,000/- in respect of third party risk-No extra premium had been paid for any enhanced liability-Liability of Insurance Co. was to be held limited to Rs. 50,000/-.
       Held : 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. (Para 6)
       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. (Paras 7 and 8)
       (ii) Motor Vehicles Act, 1988-Section 171-Award of interest on compensation amount-Penal rate of interest ordered by Tribunal and High Court if award amount was not paid within 60 days-Sustainability-Grant of interest is discretionary-Purpose-No scope for retrospective enhancement of interest for default in payment of compensation.
       Held : 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. (Para 14)

JUDGMENT

Arijit Pasayat, J.-Leave granted.

2. 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.

3. 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:

"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/-."

4. 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 not 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 in Section 110CC of the Act.

5. There is no response by the respondents in spite of the service of notice.

6. 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 t

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2004 Supreme(SC) 67

IMPORTANT POINTOnce the Tribunal in exercise of discretion has awarded interest on compensation amount, there is no scope for retrospective enhancement for default in payment of compensation.

Cases Referred (6)

IMPORTANT POINT
Once the Tribunal in exercise of discretion has awarded interest on compensation amount, there is no scope for retrospective enhancement for default in payment of compensation.