IMPORTANT POINT
Contracting out, so far as reimbursement of amount of interest in a policy taken under Workmen’s Compensation Act is concerned, is not prohibited by statute.

Headnote:Workmen’s Compensation Act, 1923—Sections 3 and 17—Employer’s liability to pay compensation in event of a workman suffering personal injury by an accident arising out of and in the course of employment—Insured-employer had insurance, policy and policy excluded the liability of insurer towards interest and penalty—Question whether interest was payable by insurer while indemnifying insured the amount of compensation awarded against him under the Act? No—Workman was employed as sales man by insured—Respondent No. 1 and he met with accident—Workmen’s compensation Court awarded a sum of Rs. 2,25,220/- with interest at 9% p.a. from date of filing of application till realisation—Appellant was directed to pay said amount—High Court upheld the award and direction—Appeal—Act did not provide for any restriction in the matter of contracting out by employer vis-a-vis insurer—Contracting out as regards payment of interest by employer was not prohibited in law—Impugned judgment could not be sustained so far it made appellant liable for interest also.
       As per S.B. Sinha, J.
       Held : By reason of the provisions of the Act, an employer is not statutorily liable to enter into a contract of insurance. Where, however, a contract of insurance is entered into by and between the employer and the insurer, the insurer shall be liable to indemnify the employer. The insurer, however, unlike under the provisions of the Motor Vehicles Act does not have a statutory liability. Section 17 of the Act does not provide for any restriction in the matter of contracting out by the employer vis-a-vis the insurer. The terms of a contract of insurance would depend upon the volition of the parties. A contract of insurance is governed by the provisions of the Insurance Act. In terms of the provisions of the Insurance Act, an insured is bound to pay premium which is to be calculated in the manner provided for therein. With a view to minimize his liability, an employer can contract out so as to make the insurer not liable as regards indemnifying him in relation to certain matters which do not strictly arise out of the mandatory provisions of any statute. Contracting out, as regards payment of interest by an employers, therefore, is not prohibited in law.(Paras 14 & 15)
       As indicated hereinbefore, a contract of insurance is governed by the provisions of 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 for their own violation. The Act does not contain a provision like Section 147 of the Motor Vehicles Act. Where a statute does not provide for a compulsory insurance or the extent thereof, it will bear repetition to state, the parties are free to choose their own terms of contract. In that view of the matter, contracting out, so far as reimbursement of amount of interest is concerned, in our opinion, is not prohibited by a statute.(Para 19)
       For the reasons aforementioned, the impugned judgment cannot be sustained. It is set aside accordingly. The appeal is allowed. The Appellant is not liable for the interest. However, we make it clear that the employer shall be liable to pay the amount of interest to the claimant.(Para 21)

JUDGMENT

S.B. Sinha, J.—Leave granted.

2. Whether interest is payable by an insurer while indemnifying the insured the amount of compensation awarded against him under the Workmen’s Compensation Act, 1923 (for short “the Act”) is the question involved in this appeal which arises out of a judgment and order dated 10.05.2005 passed by the High Court of Judicature of Gujarat, Ahmedabad in First Appeal No. 1061 of 2005.

3. Before adverting to the contentions raised by the parties herein, we may notice the contract of insurance. By reason of the said contract, the insurer has made itself liable to reimburse the insured if during the period of insurance any employee in his immediate service sustained personal injury by accident or disease arising out of and in the course of employment by the insured in the business wherefor he would be liable to pay compensation either under:

(i)the law set out in the Schedule or

(ii)at common law

4. However, therein a proviso has been added which reads as under:

“Provided that the insurance granted hereunder is not extended to include:

(i)any interest and/or penalty imposed on the insured on account of his/her failure of comply with the requirements laid down under the W.C. Act, 1923 and

(ii)any compensation payable on account of occupational diseases listed in part ‘C’ of schedule III of the W.C. Act 1923.”

5. Sanjay Amrutbhai Modhiya was a sales man employed by the insured - Respondent No. 1. He met with an accident on 24.8.1996. His heirs and legal representatives filed an application for grant of compensation before the Workmen’s Compensation Court, Godhra claiming a sum of Rs. 2,25,220/-. The Appellant herein raised a contention as regards its limited liability in terms of the contract of insurance. By an order dated 1.6.2004, the Commissioner of Workmen’s Compensation awarded a sum of Rs. 2,25,220/- with 9% interest thereon from the date of filing of application till realization in favour of the claimants. A direction was also issued to the Appellant to pay the said amount. The appeal thereagainst was preferred by the Appellant in terms of Section 30 of the Act which by reason of the impugned judgment has been dismissed relying on or on the basis of the decisions of this Court in Ved Prakash Garg v. Premi Devi and Others [(1997) 8 SCC 1] and L.R. Ferro Alloys Ltd. v. Mahavir Mahto and Another [(2002) 9 SCC 450].

6. The insurer is in appeal before us.

7. The learned counsel appearing on behalf of the Appellant would submit that having regard to the contract of insurance, the insurer was not hable to pay any interest on the awarded sum.

8. Mr. Shridhar Y. Chitale, learned counsel appearing on behalf of the Respondent, besides disputing this position, would submit that even if the insurer is not liable, the First Respondent would be liable therefor.

9. Section 3 of the Act provides for the employer’s liability to pay compensation in the event a workman suffers personal injury by an accident arising out of and in the course of his employment. The amount of compensation is required to be calculated in accordance with the provisions contained therein.

10. Section 4 of the Act provides for the mode and manner in which the amount of compensation is to be calculated. While so calculating, the Workmen’s Compensation Court is required to take into consideration the factors enumerated therein.

11. Section 5 provides for the method of calculating wages.

12. Section 8 stipulates the manner in which the amount of compensation would be distributed. Sub-section (4) of Section 8 reads as under:

“4) On the deposit of any money under sub-section (1), as compensation in respect of a deceased workman the Commissioner shall, if he thinks necessary, cause notice to be published or to be served on each dependant in such manner as he thinks fit, calling upon the dependants to appear before him on such date as he may fix for determining the distribution of the compensation. If the Commissioner is satisfied after any inquiry which he ma

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2006 Supreme(SC) 415

IMPORTANT POINTContracting out, so far as reimbursement of amount of interest in a policy taken under Workmen’s Compensation Act is concerned, is not prohibited by statute.

Cases Referred (4)

IMPORTANT POINT
Contracting out, so far as reimbursement of amount of interest in a policy taken under Workmen’s Compensation Act is concerned, is not prohibited by statute.