Holding

The insurer is liable to pay interest on the compensation award where the policy contains no exclusion, and interest is payable from the date of adjudication of the claim.

Summary

The case concerned a claim for compensation under the Workmen's Compensation Act, 1923 where the Commissioner awarded Rs 2,21,370 with interest at 12% per annum and held the insurer, National Insurance Co., liable for payment. The insurer contended that, in the absence of an express contractual term, it was not liable to pay interest, relying on New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya. The Supreme Court examined whether the insurance contract, governed by the Insurance Act, 1938, could exclude interest and whether the Motor Vehicles Act, 1988, applied. It held that because the policy did not contain an exception, the insurer was liable to pay interest, and that interest accrues from the date of adjudication of the claim, not from the date of the accident. Consequently, the appeal was partly allowed, restoring the insurer's liability for interest.

Issues considered

Whether an insurer is liable to pay interest on compensation awarded under the Workmen's Compensation Act when the insurance policy does not expressly exclude interest.
From which date interest under Section 4‑A of the Workmen's Compensation Act, 1923 becomes payable.
Whether the provisions of the Motor Vehicles Act, 1988, affect the insurer's liability for interest.

Legislation cited

Insurance Act, 1938
Motor Vehicles Act, 1988s. 148
Workmen's Compensation Act, 1923s. 4-A(1), s. 4-A(2), s. 4-A(3)

Subjects

interest on compensationinsurance liabilityWorkmen's Compensation ActMotor Vehicles Actinsurance contractinterest accrual datepolicy exclusion

Judgment

[2008] 16 S.C.R. 143

KAMLA CHATURVEDI A
v.
NATIONAL INSURANCE CO. & ORS.
(Civil Appeal No. 6691 of 2008)
NOVEMBER 18, 2008 B
[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
SHARMA, JJ.]

Insurance Act, 1938:
c
Interest on award of compensation - Liability of insurer
to pay - Effective date - Held: Parties are free to choose the
terms. of the contract - A contract ofinsurance is governed
by the provisions of the Insurance Act - In the instant case,
, in the insurance policy no exception to payment of interest D
was stipulated - Hence; insurer is liable to pay interest - In
· terms of s.4~A of the Workmen's Compensation Act, the
~

interest would be payable from the date of adjudication of
the Claim - Workmen's Compensation Act, 1923 - SAA.

Words and Phrases: E

'falls cue' - Meaning of, in the context of payment of
interest on amount of compensation in terms of s.4-A of the
Workmen's Compensation Act, 1923.
F
The issue which arose for determination in this
appeal was as to whether in a claim arising under the
····J
Workmen's Compensation Act, 1923, an Insurer was
• liable to pay interest on the amount of Award in the
absence of any contract entered into between the Insurer
G
and the company with regard to payment of interest.
~
Appellant contended that the High Court has
erroneously held that the Insurance company had no
liability to pay.
I 143 H
144 SUPREME COURT REPORTS [2008] 16 S.C.R.

~.
'
'····
A Respondent-company submitted that the decision by
this Court in the case of New India Assurance Co. Ltd. vs.
Harshabhai Amratbhai Modhiya has clear application to the
facts of the case.

Partly allowing the appeal, the Court
B
HELD: 1.1 In New India Assurance Co. 's case this
Court found as a matter of fact that a contract itself
provided that the interest and/or penalty imposed on the
insurer on account of his/her failure to make payment of
c amount payable under the Workmen's Compensation Act
is not to be paid by the insurer. [Para 5] [146-E]

New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai
Modhiya (2006) 5 SCC 192, referred to.
D
1.2. A contract of Insurance is governed by the
provisions of the Insurance Act, 1938, unless the said '
contract is governed by the provisions of a statute. The "'
parties are free to enter into a contract as per their own
volition. The Act does not contain a provision like Section
E 148 of the MV Act Where a statute does not provide for a
compulsory insurance or accident thereof. The parties
are free to choose their terms of contract. In that view of
the matter contracting out so far as the reimbursement
of amount of interest is concerned is not prohibited by a
F statute. In the instant case the position is different. The
accident in question arose on account of vehicular
accident and provisions of MV Act are clearly applicable.
After going through the policy of insurance in the instant
case, it is found that no such exception as was the case
G in New India Assurance Co.'s case was stipulated in the
policy. Therefore, the Insurance Company is liable to pay
.j,.
the interest. [Para 6] [149~C-F]

New India Assurance Co. Ltd. v. Harshadbhai Amrt.itbhai
Modhiya (2006) 5 SCC 192; Ved Prakash Garg v. Premi Devi
H
I KAMLA CHATURVEDI v. NATIONAL INSURANCE CO. &
ORS.
145

' ~

and others (1997) 8 SCC 1; P.J. Narayan v. Union of India A
and others (2006) 5 SCC 200 and National Insurance co. Ltd.
v. Mubasir Ahmed & Anr. (2007) 2 SCC 349, relied on.
Case Law Reference :
(2006) s sec 192 referred to Para 3 B

(1997) a sec 1 referred to Para 6
(2006) s sec 200 referred to Para 6
(2007) 2 sec 349 relied on Para 8 c
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
6691 of 2008.
From the Order dated 28.7.2006 of the High Court of
, Madhya Pradesh, Jabalpur, Bench at Gwalior in M.A. No. 105 D
of 2004.
Ankur Mody and Vikas Mehta for the Appellant.
Dr. Meera Agarwal and Ramesh Chandra Mishra for the
Respondents.
E
The Judgment of the Court was delivered by
DR. ARIJIT PASAYAT, J. 1. Leave granted.
,. 2. Challenge in this appeal is to the judgment of a learned
Single Judge of the Madhya Pradesh High Court, Jabalpur F
Bench, allowing the Misc. Appeal filed by the respondent No.1
(hereinafter referred to as the 'Insurance Company'). The
controversy lies within a very narrow compass.
3. Challenge in the Misc. Appeal before the High Court G
'' was to the Award made by the Commissioner for Workmen's
"" Compensation, Labour Court No.1 Gwalior (in short the
'Commissioner'). A sum of Rs.2,21,370/- along with interest at
the rate of 12% per annum was awarded. The liability to make
the payment was fixed on the Insurance company.· In appeal the
H
146 SUPREME COURT REPORTS [2008] 16 S.C.R.

> '
I
A only ground raised was that in a claim arising under the
Workmen's Compansation Act, 1923 (in short the 'Act') interest
is not payable by the Insurance company as there was no
contract by the insurer with the insured with regard to the
payment of interest. High Court accepted the stand placing
B reliance on a judgment of this Court in New India Assurance
Co. Ltd. v. Harshadbhai Amrutbhai Modhiya [2006(5) SCC J
192]. It was held that the direction for payment of interest by
.
the.insurance company was not sustainable. and it was held that
the insurance company was not liable to pay any interest and
c if so advised the amount of interest could be recovered by the
claimant from the employer.
4. Learned counsel for the appellant submitted that the
High Court has erroneously held that the Insurance company
had no liability to pay. On the contrary learned counsel for the.
D Insurance compariy has submitted that the decision in New
'
India Assurance Co. Ltd.'s case (supra) has a clear application -~

to the facts of the case.
5. In New India Assurance Co. 's case (supra) this Court
found as a matter of fact that a contract itself provided that the
E
interest and/or penalty imposed on the. insurer on account of .
his/her failure to make payment of amount payable under the
Act is not to be paid by the insurer. This position is clear from
the paragraphs 3&4 of the judgment which read as follows:
1.
F "3. The two claim petitions came to be filed by the heirs
and legal representatives of the deceased driver and ttie
cleaner under the Compensation Act before the
Commissioner for Workmen's Compensation, Rajgarh
District, Sirmur, Himachal Pradesh. The said applications
G were moved presumably by exercising option available
under Section 167 of the Motor Vehicles Act which lays ,,..
down that: '
"161. Notwithstanding anything contained in the
Workmen's Compensation Act, 1923 (8 of 1923)
1-1 where the death of, or bodily ,, jury to any person
er KAM LA CHATURVEDI v. NATIONAL: INSURANCE CO. & 147
ORS. [DR. ARIJIT PASAYAT, J.]
' ~
gives rise to a claim for compensation under this Act A
and also under the Workmen's Compensation Act,
1923, the person entitled to compensation may
without prejudice to the provisions of Chapter X
·claim such compensation under either of those Acts
but not under both." B
Thus these two applications were in substitution and in
place of otherwise legally permissible claims before the
Motor Accidents Claims Tribunal functioning under the
Motor Vehicles Act. In the said claim applications, the
claimants joined the appellant-employer as well as c
Respondent 9-insurance company as respondents. The
Workmen's Commissioner after hearing the parties
concerned computed the compensation available to the
claimant-dependants ofthe deceased employees. So far
' as the claim put forward by the heirs of the deceased driver D
was concerned the Commissioner awarded a sum of
Rs.88,968 as compensation. But as the compensation due
was not paid either by the appellant-employer or by the
insurance company as and when it fell due the
Commissioner awarded a penalty of Rs. 41,984 with E
interest at the rate of 6% per annum from the date of the
accident till the date of payment under Section 4-A(3)(a)
and (b) of the Compensation Act. The entire amount of
Rs.88,968 with penalty of Rs.41,984 and interest thereon
was held payable by .the insurance company to the F
claimants jointly and severally with the appellant-employer.
The said amount was made payable by Respondent 9-
insurance company on the basis that the insurance
company had insured the appellant agairist his liability to
meet the claims for compensation for the death of G
·t employees dying in harness giving rise to proceedings
against the insured employer under the Compensation Act.
Similarly the Commissioner awarded a sum of Rs.88,548
to the claimants being legal representatives of the
deceased cleaner. In addition to the said amount, penalty
H
148 SUPREME COURT REPORTS [2008] 16 S.C.R. ~

_,...__ ',,

A of Rs. 44,274 with interest from the date of the accident
till the date of payment was also made payable by
Respondent 9-insurance company.
4. The claimants were satisfied with the said awards.
Similarly the appellant-owner was also satisfied with the
B said awards. However, the insurance compary carried the -t
matter in appeals before the High Court and contended
that the insurance company would be liable under the
contract of insurance only to make good the claims for
compensation so far as the principal amounts were
c concerned. But it co·uld not have been made liable to pay
the amounts of penalties with interest thereon as ordered
by the Workmen's Commissioner as these amounts of
penal nature were awarded against the insured owner on

D
account of his personal default as per Section 4-A(3) of
the Compensation Act and for such default on the part of
.
the insured the insurance company was not liable to
reimburse the insured. As noted earlier, the said contention
of Respondent 9-insurance company appealed to the High
Court. The appeals were allowed and the awards of the
E Commissioner under the Compensation Act insofar as
they fastened the liability to pay the penalty and interest
on the insurance company were set aside. The amounts
deposited in excess by the insurance company were
ordered to be refanded to it while the remaining amounts )

F were ordered to be paid to the claimants. It was, however,
clarified that the Claimants shall be at liberty to recover the
amount of penalty and interest in accordance with law from
the employer, appellant herein."
6. In Ved Prakash Garg v. Premi Devi and others
G [1997(8) SCC 1] this court observed that the Insurance
j
Company is liable to pay not only the principal amount of
compensation payable by the insurer employer but also interest
thereon if ordered by the Commissioner to be paid by the
insured, employee. Insurance company is liable to meet claim
H for compensation along with interest as imposed on insurer
KAMLA CHATURVEDI v. NATIONAL INSURANCE CO. & 149
ORS. [DR. ARIJIT PASAYAT, J.]
' ~
employer by the Act on conjoint operation of Section 3 and A
4(A)(3)(a) of the Act. It was, however, held that it was the liability
of the insured employer alone in respect of additional amount
of compensation by way of penalty under Section 4(A)(3)(b) of
the Act. In New India Assurance Co.'s case (supra) and Ved
Prakash Garg's case (supra) was distinguished on facts. It was B
observed that in the said case the court was not concerned with
....' a case where an accident had occurred by use of motor vehicle
in respect whereof the Contract of Insurance will be governed
by the provisions of the Motor Vehicles Act, 1988 (in short the
'M.V. Act'). A contract of -Insurance is g?verned by the c
provisions of the Insurance Act, 1938 (in short 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 per
their own volition. The Act does not contain a provision like
Section 148 of the MV Act where a statute does not provide D
, for a compulsory insurance or accident thereof. The parties are
_... free to choose their terms of contract. In that view of the matter
contracting out so far as the reimbursement of amount of
interest is concerned is not prohibited by a statute. This position
have been reiterated in P.J. Narayan v. Union of India and
E
others [2006 (5) SCC 200]. In the instant case the position is
different. The accident in question arose on account of vehicular
accident and provisions of MV Act are clearly applicable. We
have gone through the policy of insurance and we find that no
such exception as was the case in New India Assurance Co.'s
p
case was stipulated in the policy of insvrance. The,·efore, the
Insurance Company is liable to pay the interest.
7. The further question arises as to from which date it
would be paid.
8. In National Insurance co. Ltd. v. Mubasir Ahmed & Anr. G
[2007(2) sec 349] it was, inter alia, held as follows:
"Interest is payable under Section 4-A(3) if there is default
in paying the compensation due under this Act within one
month from the date it fell due. The question of liability H
150 SUPREME COURT REPORTS [2008] 16 S.C.R.

,,.._
A under Section 4-A was dealt with by this Court in Maghar
Singh v. Jashwant Singh [(1998) 9 SCC 134]. By
amending Act 30 of •1995, Section 4-A of the Act was
amended, inter alia, fixing the minimum rate of interest to
be simple interest @ 12%. In the instant case, the accident
B took place after the a·mendment and, therefore, the rate of
12% as fixed by the High Court cannot be faulted. But the
period as fixed by it is wrong. The starting point is on
completion of one month from the date on which it fell due.
Obviously it cannot be the date of accident. Since no
c indication is there as to when it becomes due, it has to
be taken to be the date of adjudication of the claim. This
appears to be so because Section 4-A(1) prescribes that
compensation under Section 4 shall be paid as soon as
it falls due. The compensation becomes due on the basis
of adjudication of the claim made. The adjudication under
D
Section 4 in some cases involves the assessment of loss
ofearning capacity by a qualified medical practitioner. "'......
Unless adjudication .is done, question of compensation
becoming due does not arise. The position becomes
clearer on a reading of sub-section (2) of Section 4-A. It
E provides that provisional payment to the extent of admitted
liability has to beimade when employer does not accept
the liability for compensation to the extent claimed. The
crucial expression is "falls due". Significantly, legislature
has not used the expression "from the date of accident".
F Unless there is an adjudication, the question of an amount ~

falling due does:not arise.
9. In view of what has been stated in Mubasir Ahmed's
case (supra) the liability for interest would be in terms.of what
G has been stated in paragraph 9 of the judgment.
1O. The appeal is allowed to the aforesaid extent. There
1
shall be no order as to costs.
S.K.S. Appeal partly allowed.
H