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Report No. 149

Chapter 11

Payment of Interest

11.1. Where compensation becomes payable to any person for the injury caused to his person or property or to the legal representatives of a person who has been killed in a motor vehicles accident, it is of utmost importance that the amount of compensation should be paid to the affected persons with the greatest expedition. Indeed, the amount of compensation payable under section 140 on a no-fault basis or the one payable in the case of a hit and run accident under section 161 should be paid or deposited in the Tribunal at once by the insurer or the authority administering the solatium fund under section 163.

However, with all the best will in the world and all possible attempts to expedite the relevant procedures, it is inevitable that there would be some delay in the payment of the compensation amounts in such cases. In cases where the aggrieved party has to approach the Tribunal constituted under the Act for the determination of the compensation due to him, more delay is inevitable.

There can be no doubt that the aggrieved party should be compensated for the loss and injury resulting to him by these administrative or judicial delays for which he is not responsible. The only manner in which he can be so compensated is by the payment of interest on the amount of compensation determined eventually as payable to him in respect of the period for which payment has been delayed.

11.2. Section 171 of the Act does indeed provide for this relief. It reads:

"Where any Claims Tribunal allows a claim for compensation made under this Act, such Tribunal may direct that in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in his behalf."1

Provision for payment of interest was made in the 1939 Act by the Amendment Act 56 of 1969 with effect from 2-9-1970 by inserting section 110CC which provided for the grant of interest by any Court or the Claims Tribunal at the time of allowing a claim for compensation and the same provision continues in the 1988 Act as wel1.2

1. This corresponds to sections 3(1) and (2) of the Interest Act, 1978 and section 34 of the Code of Civil Procedure, 1908.

2. Section 171 of the 1988 Act refers only to 'Claims Tribunal'. This, however, makes no real difference as a court hearing appeals from the order of the Claims Tribunal is also competent to grant like relief.

11.3. The following are the salient features of the provision:

(a) The grant of interest is in the discretion of the court. The court may award or refuse to award, interest, at its discretion;1

(b) The rate of interest is left to the discretion of the court. In practice it has been seen to fluctuate a widely over the years between 4 to 18% per annum;2

(c) The section contemplates that interest should start to run only from the date of the application at the earliest but the court has the discretion to award interest commencing from a later date;

(d) The provision seems to envisage a uniform rate3 of interest on the entire amount of compensation4; and

(e) Interest will run, apparently, till the date of actual payment.

1. It has, however, been held that this is a judicial discretion to be exercised reasonably in the light of the facts and circumstances of each case and that, if interest is not awarded, reasons for not awarding interest should be recorded. In one case, this was done because the amount of compensation was settled without delay and prompt payment thereof assured: Elizabeth Mathew v. Vasudev, 1990 ACJ 461 (Del.).

2. The annexure to Chapter VI of S.S. Minhas on Law of Compensation for Wrongful Death, (1993) sets out an interesting analysis of the decided cases on this aspect.

3. It has, however, been held that it is open to the Court to provide that the amount should bear interest at a particular rate for a stipulated time and at a higher rate if the amount is not deposited by that time: See New India Assurance Co. Ltd. v. Shanabhai Anjanbhai, 1987 ACJ 688 (Guj); Commr. NCC Group v. Nirmala Moherana, 1984 ACJ 459 (Ori); Narmada Choudhary v. MACT, 1984 ACJ 283 (Gau).

4. In English Law, differential rates of interest on 'pre-trial' and 'post-trial' damages are contemplated; See Cookson v. Knowles, 1979 ACJ 216 (HL) and Jefford v. Gee, (1970) 2 QB 130 (CA).

11.4. The Law Commission, in its 85th Report, had suggested a revision of section 110CC requiring the Court to award interest at a rate not less than 12% per annum in the absence of special circumstances. The recommendation of the Commission has not been implemented. We also think that section 110CC needs to be amended. In our opinion, it will be better to incorporate the principles of interest payment in the statute more specifically.

It may be made clear that the award of interest is mandatory unless cogent reasons exist to justify refusal to grant interest. While generally, in principle, the rate of interest is left to the discretion of the court, subject to its not exceeding the current market rates, to be awarded in each case in the light of its individual facts and circumstances,1 suggestions have also been made from time to time for specifying the rate of interest2 or the minimum3 or maximum4 rate of interest that should be awarded.

In the absence of statutory provision, the award of rate of interest has not been uniform and it has varied from Tribunal to Tribunal. It would therefore be advisable to incorporate statutory provision in this respect. We think, that, as an encouragement to prompt payment, the Tribunal may be given the discretion to specify a particular rate of interest for a stipulated time with a condition that interest at higher rate will become payable in case the amount of compensation is not deposited within the stipulated time.

1. See para 6.2 of the 63rd Report of the Law Commission on the Interest Act.

2. The Workmen's Compensation Act, 1923 specifies a rate of six per cent. The 62nd Report (1974) of the Law Commission suggested that this be enhanced to 9% (para. 3.54) while 134th Report (1989) suggested its being stepped upto 15%.

3. The 85th Report on the Motor Vehicles Act has suggested that the interest shall not be less than 12% unless the court specifically directs otherwise for reasons to be recorded.

4. Under section 34 of the Code of Civil Procedure, 1908 the court may award interest at any rate not exceeding the contractual rate of interest or the rate of interest fixed by a commercial bank in relation to a commercial transaction.

11.5. Keeping in mind the various aspects discussed above, we recommend the substitution of the following provision in place of the existing section 171:

"Section 171: Award of interest where any claim is allowed.-(1) Where any Tribunal allows a claim for compensation made under this Act, it may direct that in addition to the amount of compensation, simple interest shall also be paid at a rate of not less than fifteen per cent per annum from the date of the application under section 166 till the date of payment:

Provided that if the Tribunal is satisfied for reasons to be recorded in writing, that interest at a rate less than fifteen per cent. per annum or interest for a shorter period may be awarded in any particular case, it may direct accordingly.

(2) Without prejudice to the provisions of sub-section (1), the Tribunal may in an appropriate case, direct that interest shall be paid at a specified rate if the amount of compensation is paid or deposited within a stipulated period, and that, in default of such deposit, interest beyond the said period shall be paid at a higher rate."

In making this suggestion we are virtually reiterating the recommendations contained in the 85th Report of the Law Commission substituting 15% in place of 12% consequent on the increase in commercial rates of interest in recent years.1

1. See Chapter 14 of the 85th Report of the Law Commission (May, 1980) Under the Chairmanship of Justice P.V. Dikshit.

Removing certain deficiencies in the Motor Vehicles Act, 1988 Back

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