New
India Assurance Co. Ltd. Vs. Harshadbhai Amrutbhai Modhiya & Anr [2006] Insc
248 (28 April 2006)
S.B.
Sinha
[Arising
out of S.L.P. (Civil) no.20126 of 2005] S.B. SINHA, J :
Leave
granted.
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.
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:
-
the law set out
in the Schedule or
-
at common law
However, therein a proviso has been added which reads as under:
"Provided
that the insurance granted hereunder is not extended to include:
-
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
-
any compensation
payable on account of occupational diseases listed in part 'C' of schedule III
of the W.C. Act, 1923." 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 SCC1] and L.R. Ferro Alloys Ltd. v. Mahavir
Mahto and Another [(2002) 9 SCC 450].
The
insurer is in appeal before us.
The
learned counsel appearing on behalf of the Appellant would submit that having
regard to the contract of insurance, the insurer was not liable to pay any
interest on the awarded sum.
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.
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.
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.
Section
5 provides for the method of calculating wages.
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 may deem necessary, that
no dependant exists, he shall repay the balance of the money to the employer by
whom it was paid. The Commissioner shall, on application by the employer,
furnish a statement showing in detail all disbursements made." Section 12
of the Act provides for the mode and manner of payment of compensation by a
principal employer and/ or his contractor. Section 17 of the Act nullifies
contracting out in the following terms:
"Contracting
out.Any contract or agreement whether made before or after the commencement of
this Act, whereby a workman relinquishes any right of compensation from the
employer for personal injury arising out of or in the course of the employment,
shall be null and void in so far as it purports to remove or reduce the
liability of any person to pay compensation under this Act." 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-`-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 employer, therefore, is
not prohibited in law.
In Ved
Prakash Garg (supra), this Court undoubtedly held that in terms of the contract
of insurance entered into by and between the employer and the insurer under the
provisions of the Motor Vehicles Act, 1988, which would also apply in a given
case to the claim under the provisions of the Workmen's Compensation Act, the
insurer would also be liable for payment of interest stating:
"A
conjoint reading of these provisions in the insurance policy shows that the
insurance company insured the employer-owners of the insured motor vehicles
against all liabilities arising under the Workmen's Compensation Act for which
statutory coverage was required under Section 95 of the Motor Vehicles Act,
1939 which is analogous to Section 147 of the present Motor Vehicles Act noted
earlier. Section 149 deals with "Duty of insurers to satisfy judgments and
awards against persons insured in respect of third-party risks".
The
moot question is whether the insurance coverage as available to the insured
employer- owners of the motor vehicles in relation to their liabilities under
the Workmen's Compensation Act on account of motor accident injuries caused to
their workmen would include additional statutory liability foisted on the
insured employers under Section 4-A(3) of the Compensation Act.
The
question posed for our consideration is required to be resolved in the light of
the aforesaid statutory schemes of the two interacting Acts. It is not in
dispute and cannot be disputed that the respondent-insurance companies
concerned will be statutorily as well as contractually liable to make good the
claims for compensation arising out of the employers' liability computed as per
the provisions of the Compensation Act. The short question is whether the
phrase "liability arising under the Compensation Act" as employed by
the proviso to sub-section (1) of Section 147 of the Motor Vehicles Act and as
found in proviso to clause (i) of sub-section (1) of Section II of the
insurance policy, would cover only the principal amount of compensation as
computed by the Workmen's Commissioner under the Compensation Act and made
payable by the insured employer or whether it could also include interest and
penalty as imposed on the insured employer under contingencies contemplated by
Section 4-A(3)(a) and (b) of the Compensation Act." Yet again in L.R.
Ferro Alloys Ltd. (supra), this Court opined that if an amount of compensation
is not deposited within a period of one month, the insurance company shall be
liable to reimburse the owner only the amount of compensation with interest therefrom
but not the penalty imposed on insurer employer for default of payment of
amount stating:
"The
only contention put forth before us is that the entire liability including
penalty and interest will have to be reimbursed by the insurance company and
this aspect has not been examined by the learned Single Judge in the High Court
and needs examination at our hands. In Ved Prakash Garg v. Premi Devi this
Court after examining the entire scheme of the Act held that payment of
interest and penalty are two distinct liabilities arising under the Act, while
liability to pay interest is part and parcel of legal liability to pay
compensation upon default of payment of that amount within one month.
Therefore, claim for compensation along with interest will have to be made good
jointly by the insurance company with the insured employer. But, so far as the
penalty imposed on the insured employer is on account of his personal fault the
insurance company cannot be made liable to reimburse penalty imposed on the
employer. Hence the compensation with interest is payable by the insurance
company but not penalty.
Following
the said decision and for the reasons stated therein, we modify the order made
by the High Court to that extent. The appeal is allowed in part
accordingly." We are, in this case, not concerned with a case where an
accident has occurred by use of a motor vehicle in respect whereof the contract
of insurance would be governed by the provisions of the Motor Vehicle Act,
1988.
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
volition. 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.
The
views taken by us find support from a recent judgment of this Court in P.J. Narayan
v. Union of India and Ors. [2004 ACJ 452] wherein it was held:
"1.
This writ petition is for the purpose of directing Insurance Company to delete
the clause in the Insurance Policy which provides that in case of compensation
under the Workmen's Compensation Act, 1923, the Insurance Company will not be
liable to pay interest. We see no substance in the writ petition. There is no
statutory liability on the Insurance Company. The statutory liability under the
Workmen's Compensation Act is on the employer. An insurance is a matter of
contract between the Insurance Company and the insured. It is always open to
the Insurance Company to refuse to insure. Similarly they are entitled to
provide by contract that they will not take on liability for inter est. In the
absence of any statute to that effect, insurance Company cannot be forced by
Courts to take on liabilities which they do not want to take on. The Writ
Petition is dismissed. No order as to costs." 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. In the facts and circumstances of the
case, there shall be no order as to costs.
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