Full Judgment Text
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CASE NO.:
Appeal (civil) 2333 of 2006
PETITIONER:
New India Assurance Co. Ltd.
RESPONDENT:
Harshadbhai Amrutbhai Modhiya & Anr.
DATE OF JUDGMENT: 28/04/2006
BENCH:
S.B. Sinha
JUDGMENT:
J U D G M E N T
[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:
(i) the law set out in the Schedule or
(ii) 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:
(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."
Sanjay Amrutbhai Modhiya was a sales man employed by the insured
\026 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
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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.\027Any 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
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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:
"\005A 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
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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 \026 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
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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.