Supreme Court of India

VED PRAKASH GARG ETC.versusPREMI DEVI AND ORS. ETC.

Citation: 1997 INSC 671
Decided: 25 September 1997
Disposal: Case Partly allowed
Bench: S B MAJMUDAR

Holding

The insurer is liable to pay the principal compensation and the interest under Section 4-A(3)(a) but not the penalty under Section 4-A(3)(b).

Summary

The owners of motor trucks, who employed drivers and cleaners, suffered fatal accidents and their employees' heirs filed claims under the Workmen's Compensation Act, invoking Section 167 of the Motor Vehicles Act. The Workmen's Commissioner awarded compensation, interest, and penalty, holding the insurance companies jointly liable with the employers. The insurers appealed, arguing that their policies covered only the principal compensation, not interest or penalty, and the High Court exonerated them from both. The Supreme Court examined the interplay of the Motor Vehicles Act and the Workmen's Compensation Act, concluding that interest imposed under Section 4-A(3)(a) is part of the statutory liability covered by insurance, whereas penalty under Section 4-A(3)(b) is a separate fault-based liability not covered. Accordingly, the Court partially allowed the appeals, directing the insurers to pay the principal compensation and interest but not the penalty, which remains the employer's responsibility.

Issues considered

Whether an insurance policy covering liability under the Workmen's Compensation Act also obliges the insurer to pay interest awarded under Section 4-A(3)(a) of the Act.
Whether the insurer is liable to pay the penalty imposed under Section 4-A(3)(b) of the Workmen's Compensation Act.

Legislation cited

Motor Vehicles Act, 1988s. 147(1)(b) proviso (i), s. 167
Workmen's Compensation Act, 1923s. 19(1), s. 3, s. 4-A(2), s. 4-A(3)

Subjects

insurance liabilityworkmen's compensationmotor vehicle accidentinterestpenaltystatutory coverageemployer liabilityMotor Vehicles ActWorkmen's Compensation Act

Judgment

A VED PRAKASH GARG ETC.
v.
PREM! DEVI AND ORS. ETC.

SEPTEMBER 25, I 997

B
[S.B. MAJMUDAR AND V.N. KHARE, JJ.]

Motor Vehicles Act, 1988 :

C Sections 147(1)(b) proviso (i) and 167-Read with Sections 3, 4-A and
19(1) of Workmen's Compensation Act, 1923-/nsurance coverage to
employer-owner of motor vehicles-Employer's liability arising under the
Workmen's Compensation Act on account of death or bodily injuries caused
to the workmen as a result of motor accidents-Scope of insurance company's
liability to pay compensation in case of death or bodily injuries to the
D employees of the insured employer, while such employees are on duty on the
motor vehicle-Application moved by the legal heirs for compensation before
Commissioner for workmen's compensation exercising option under Section
167 of the Motor Vehicles Act-Held, insurance company will not only be
-
liable to pay the principal amount of compensation but also interest thereon,
E if any, imposed by the Commissioner on the insured employer under Sections
3 and 4-A of the Worksmen's Compensation Act-However, insurance company
will not be liable to reimburse the additional amount of compensation .by
way of penalty imposed by the Commissioner on the insured employer under
Section 4-A(3)(b) of the Workmen's Compensation Act.

F labour law :

Workmen's Compensation Act, 1923-Section 4-A(2)~Enjoins the
employer to make provisional payment of compensation to the extent of the
liability accepted by him-Sub-section (2) not attracted where the employer
totally disputes his liability, in which case it would be adjudicated by the
G Commissioner.

Section 4-A(3) (as amended by Act 30 of 1995)-Payment of interest
under Clause (a) and penalty under Clause (b) are two distinct liabilities
imposed on the employer under sub-section (3)-Position same under sub- '
H section (3) as stood prior to the amendment in '/ 995-Liability to pay
250
VED PRAKASH v.PREMI DEVI 251
interest is part and parcel of the legal liability to pay compensation and it A
gets automatically foisted upon the employer on his default in payment of
compensation within one monthfrom the date it fell due, without any penalty-
Period of one month contemplated under sub-section (3) will start running
for the purpose of attracting interest, where provisional payment made under
sub-section (2) from the date such provisional payment became due-Where B
the employer does not accept his liability, the one month period will start
from the date of order of Commissioner-In either case Commissioner can
direct payment of interest from date of award or from the date of accident-
However, while imposing penalty under Clause (b), justification for delay
would be a good defence for the employer for meeting the claim for penalty.

The appellants, owners of respective motor trucks had employed drivers
c
and cleaners and had entrusted their trucks, for driving to their respective
drivers along with the cleaners attached to the trucks. The trucks met with
accident as a result of which the drivers as well as the cleaners died. The
trucks were insured with insurance companies. The insurance companies
insured the employer owners of the insured motor vehicles against all D
liabilities arising under the Workmen's Compensation Act for which
statutory coverage is required under Section 95 of the Motor Vehicles Act,
1939 which is analogous to Section 147 of the present Motor Vehicles Act,
1988. The heirs of the deceased drivers and cleaners filed claims under the
Workmen's Compensation Act before the Commissioner for Workmen's
Compensation by exercising options available under Section 167 of the Motor E
Vehicles Act. These applications were in substitution and in place of otherwise
legally permissible claims before the Motor Accidents Tribunal functioning
under the Motor Vehicles Act. The question which arose for consideration
was: "where an employee receives a personal injury in a motor accident arising
out ofand in the course of his employment while working on the motor vehicles F
of the employers, whether the insurance company, which has insured the
employer owner of the vehicles against third party accident claim under Motor
Vehicles Act, 1988 and against claim for compensation arising out of
proceedings under the Workmen's Compensation Act, 1923 in connection
with such motor accident, is liable to meet the awards of Commissioner
imposing penalty and interest against the insured employer under Section 4- G
A(3) of the Compensation Act". The High Court answered the question in the
negative and against the. insured employer. Hence this appeal.

Partly allowing the appeals, this Court

HELD: LI. The liability to pay compensation under the Workmen's H
252 SUPREME COURT REPORTS (1997] SUPP. 4 S.C.R.

A Compensation Act gets foisted on the employer provided it is shown that the
workmen concerned suffered from personal injury, fatal or otherwise, by any
motor accident arising out of and in the course of employment. Such an
accident is also covered by the statutory coverage contemplated by Section
147 of the Motor Vehicles Act read with the identical provisions under the
very contracts of insurance reflected by the policy which would make the
B insurance company liable to cover all such claims for compensation for which
statutory liability is imposed on the employer under Section 3 read with
Section 4-A of the Workmen's Compensation Ad. All these provisions
represent a well-knit scheme for computing the statutory liability of the
employers in case of such accidents to their workmen. (267-G-H)
c 1.2. Sub-section (2) of Section 4-A of the Workmen's Compensation
Act contemplates a situation wherein the employer though accepting his
liability to pay compensation to his injured workmen disputes the extent of
the claim of compensation and in such a case sub-section (2) enjoins him to
make provisional payment based on the extent of accepted liability by depositing
D it with the Commissioner or to pay it directly to the workman. Such an
obligation of the employer would not arise under Section 4-A sub-section (2)
if he totally disputes his liability to pay on grounds like the injured person
being not his employee or that the accident was caused to him at a time when
he was not in the course of employment or that the accident caused to him did
not arise out of his employment. If such disputes are raised by the employer
E then his obligation to make provisional payment under sub-section (2) of
Section 4-A would not arise and his liability would depend upon the final
adjudication by the Commissioner at the end of the trial. [262-C-EJ

1.3. Once the compensation due under the Act becomes ascertained
F either provisionally under sub-section (2) or finally on adjudication by the
Commissioner and if the employer does not pay the same within one month
from the date it thus falls due, the Commissioner can direct under sub-clause
(a) of Section 4-A(3) interest at the rate provided therein and also penalty as
contemplated by sub-clause (b) thereof as per the amended Section 4-A(3) of
the Compensation Act. Even under the amended Section 4-A(3) which applied
G at the relevant time a clear distinction was made by the legislature between
the imposition of penalty by way of a further sum not exceeding fifty percent
of compensation amount and the imposition of interest on the amount of
compensation found payable when it is not paid within the requisite time as
and when it fell due. [262-F-G]

H I .4. Once compensation falls due and within one month if it is not paid
VED PRAKASI-{ v.PREMI DEVI 253
by the employer then as per Section 4-A(3)(a) interest at the permissible rate A
gets added to the said principal amount of compensation as the claimants would
stand deprived of their compensation legally due, for a period beyond one
month which is statutorily granted to the employer concerned to make good
his liability for the benefit of the claimants whose breadwinner might have
either been seriously injured or might have lost his life. Thus so far as B
interest is concerned it is automatic once default on the part of the employer
. in paying the compensation due takes place beyond the permissible limit of
one month. No element of penalty is involved therein. It is a statutory elongation
of the liability of the employer to make good the principal amount of
compensation within permissible time-limit during which interest may not
run but otherwise liability of paying interest on delayed compensation will C
ipso facto follow. Even though the Commissioner can impose a further liability
on the employer under the circumstances and within limits contemplated by
Section 4-A (3) (a) still the liability to pay interest on the principal amount
under the said provision remains a part and parcel of the statutory liability
which is legally liable to be discharged by the insured employer. Consequently
such imposition of interest on the principal amount would certainly partake D
the character of the legal liability of the insured employer to pay the
compensation amount with due interest as imposed upon him under the
Compensation Act. Thus the principal amount as well as the interest made
payable thereon would remain part and parcel of the legal liability of the insured
to be discharged under the Workmen's Compensation Act and not dehors it. E
It, therefore , cannot be said by the insurance company that when it is
statutorily and even contractually liable to reimburse the employer qua his
statutory liability to pay compensation to the claimants in case of such motor
accidents to his workmen, theinterest on the amount which almost
automatically gets foisted upon him once the compensation amount is not paid
within one month from the date it fell due, would not be a part of the insured F
liability of the employer. No question of justification by the insured employer
for the delays in such circumstances would arise for consideration. It is of
course true that one month's period as contemplated under Section 4-A (3)
may start running for the purpose of attracting interest under sub-clause (a)
thereof in case where provisional payment has to be made by the insured G
employer as per Section 4-A (2) from the date such provisional payment
becomes due. But when the employer does not accept his liability as a whole
then Section 4-A(2) would not get attracted and one month's period would start
running from the date on which due compensation payable by the employer is
adjudicated upon by the Commissioner and in either case the Commissioner
would be justified in directing payment of interest in such contingencies not H
254 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A only from the date of the award but from the date of the accident conc.erned.
Such an order passed by the Commissioner would remain perfectly justified
on the scheme of Section 4-A(3)(a). (260-B-H; 261-A-B)

1.5. But similar consequences will not follow in case where additional
amount is added to the principal amount of compensation by way of penalty to
B be levied on the empl'-'yer under circumstances r.ontemplated by Section 4-
A(3)(b) after is~uing show cause notice to the employer concerned who will
have reasonable opportunity to the employer to show cause why on account of
some justification on his part for the delay in payment of the compensation
amount he is not liable for penalty. However, if ultimately, the Commissioner
C after giving reasonable opportunity to the employtr to show cause takes the
view that there is no justific:itior1 for such delay on the part of the insured
employer and because of his unjustified delay and due to his own personal
fault he is held responsible for the delay, then the penalty would get imposed
on him. That would add a further sum of us 50% on the principal amount by
way of penalty to be made good by the defaulting employer. So far as this
D penalty amount is concerned it cannot be said that it automatically flows from
the main liability incurred by the insured employer under the Workmen's
Compensation Act. To that extent such penalty amount 11s impugned upon the
insured employer would get out of the sweep of the term "liability incurred"
by the insured employer as contemplated by the proviso to Section 147(1) (b)
E of the Motor Vehides Act as well a~ by the terms of the insurance policy
found in proviso (b) and (c) to sub-section (1) of Section II thereof.(269-C-FJ

1.6. When an employee suffers from a motor accident injury while on
duty on the motor vehicle belonging to the insured employer, the claim for
compensation payable under the Workmen's Compensation Act along with
F interest thereon, if any, as imposed by the Commissioner, Stctions 3 and 4-
A(3)(a) will have to be made good by the insurance company jointly with the
insured employer. But so far as the amount of penalty imposed on the insured
employer under contingencies contemplated by Section 4-A(3)(b) is concerned,
as that is on account of personal fault of the insured not b:i.<:ked up by any
G justifiable cause, the insurance company cannot be made liable to reimburse
that part of the penalty amount imposed on the employer. The latter because
of his own fault and negligence, will have to bear the entire burden of the said
penalty amount with proportionate interest thereon if imposed by the
Commissioner. [268-G-H; 269-AJ

H Radhabehn & Ors. v. Mu!ji Kanji Dhord & Ors., (I 994) ACJ 404 (Guj.)
VED PRAKASH v.PREMJ DEVI [S.B. MAJMUDAR, J.] 255
and Gautam Transport v. Jiluben Huseinbhai & Ors., (1989) AC.J 587 (Guj.), A
approved.

Jayanti/al & Co. v. Garasia Rajvirba Udesinh & Ors., (1992) ACJ 286
(Guj.); Oriental Insurance Co. ltd v. Hasmat Khatoon, (1989) ACJ 862 (Del.);
Khirod Nayak v. Commissioner for Workmen's Compensation & Ors., (1992)
ACJ 76 (Ori) and New India Assurance Company Ltd v. Guddi & Ors., (1994) B
ACJ 1134 lM.P.), partly approved.

Oriental Insurance Company Ltd v. Raju & Ors., (1994) ACJ 191 (Kart);
Oriental Fire & General Insurance Company Ltd v. Nani Bala Devi, (1987)
AC.J 655 (Gau.) and United India Insurance Company Ltd. v. Roop Kanwar
& Ors., (1991) ACJ 74 (Raj.), distinguished. C
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 15698-15699
of 1996.
WITH
Civil Appeal No. 15700of1996. D
From the Judgment and Order dated 26.4.96 of the Hima.:hal Pradesh
High Court in F.A. Nos. 87-88of1995.
Atul Sharma, Ms. Purnima Bhat Kak, E.C. Agrawala, A.V. Palli, A.K.
Raina, R.P. Singh, Dr. Meera Agrawal and Ramesh Chandra Mishra for the
appearing parties. E
The Judgment of the Court was delivered by

S.B. MAJMUDAR, J. In these three appeals by special leave, a short
but ticklish question arises for consideration. It runs as under :

"Where an employee receives a personal injury in a motor accident F
arising out of and in the course of his employment while working on
the motor vehicle of the employer, whether the insurance company,
which has insured the employer-owner of the vehicle against third
party accident claims under Motor Vehicles Act, 1988 (hereinafter
referred to as 'the Motor Vehicles Act') and against claims for G
compensation arising out of proceedings under the Workmen's
Compensation Act, I 923 (hereinafter referred to as 'the Compensation
Act') in connection with such motor accidents, is liable to meet the
awards of Workmen's Commissioner imposing penalty and interest
against the insured employer, under section 4-A(J) of the Compensation
Act." H
256 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A The High Court ofHimachal Pradesh in the impugned judgments has answered
this question in the negative and against the insured employer. For coming
to that conclusion reliance is placed by the said High Court on a decision of
a Division Bench of Karnataka High Court in the case of Oriental Insurance
Co. Ltd. v. Raju & Ors., (1994) ACJ 191 and the judgment of a learned Single
Judge of the Gujrat High Court in the case of Jayanti/a/ & Co. v. Garasia
B Rajvirba Udesinh & Ors., (1992) ACJ 286. Indentical view is taken by a
Division Bench of the Gujarat High Court in the case of Gautam Transport,
Bhavnagar v. Jiluben Huseinbhai & Ors., (1989) ACJ 587. The decision of
a learned Single Judge of the Delhi High Court in the case of Oriental
Insurance Co. Ltd. v. Hasmat Khatoon & Ors., (1989) ACJ 862 has also fallen
C in line. While on the other hand a learned Single Judge of Gauhati High Court
in the case of Oriental Fire and Genaral Ins. Co. Ltd. v. Nani Bala Devi &
Anr., (1987) ACJ 655; a Division Bench of the Orissa High Court in the case
of Khirod Nayak v. Commissioner for Workmen's Compensation & Ors.,
(1992) ACJ 76; a learned Single Judge of the Madhya Pradesh High Court in
the case of New India Assurance Co. Ltd. v. Guddi & Ors., (1994) ACJ 1134
D and a learned Single Judge of the Rajasthan High Court in the case of United
India Insurance Co. Ltd. v. Roop Kanwar & Ors., (1991) ACJ 74 have
answered this question in the affirmative against the insurance company.
There is another judgment of a Division Bench of the Gujarat High Court in
the case of Radhabehn & Ors., v. Mulji Kanji Dhord & Ors., (1994) ACJ 404
E which has adopted a middle course and has answered the question partly in
the affirmative so far as the imposition of interest contemplated by Section
4A(3)(a) of the Compensation Act is concerned and partly in the negative so
far as the imposition of penalty on the owner-employer under Section 4A(3)(b)
is concerned. Before we proceed to resolve the aforesaid conflict of decisions
it will be profitable to note a few background facts leading to these appeals.
F
Civil Appeal Nos. 15698-15699 of 1996

These two appeals arise out of a motor accident wherein the owner of
a motor truck, appellant in these appeals, had entrusted the said truck for
G driving to one Pritam Singh and had employed one Hem Raj to be a cleaner
attached to the said truck. The said truck met with an accident on 15th
February, 1992 near Village Pulwahai on Kumarsain Dhamla Road in the State
ofHimachal Pradesh. In the said accident driver Pritam Singh and cleaner Hem
Raj died on spot. It is the case of the appellant, owner of the truck, that
having come to know about the accident on 16th February 1992 he immediately
H informed the Branch Manager of respondent no. 9-insurance company about
VED PRAKASH v.PREMI DEVI (S.B. MAJMUDAR, J.] 257
the accident. According to the appellant, respondent no. 9-insurance company A
· · ··had insured the appellant comprehensively against all the risks arising out of
the use of the said motor vehicle. That still the insurance company though
bound to pay the heirs of the deceased - employees appropriate compensation
as per the insurance cover, did not carry out the said obligation.

The two claim petitions came to be filed by the heirs and legal B
representatives of deceased driver and cleaner under the Compensation Act
before the Commissioner for Workmen'.s Compensation, Rajgarh District, Sirmur,
Himachal Pradesh. The said applications were moved presumably by exercising
option available under Section 167 of the Motor Vehicles Act which lays
down that 'notwithstanding anything contained in the Workmen's C
Compensation Act, 1923 where the death of, or bodily injury to, any persop
gives rise to a claim for compensation under this Act 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'. Thus these two applications
were in substitution and in place of otherwise legally permissible claims D
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 respondent no. 9-insurance company as respondents.
The Workmen's Commissioner after hearing the parties concerned computed
the compensation available to the claimant-dependents of the deceased E
employees. So far as the claim put forward by the heirs of the deceased driver
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 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 F
(b) of the Compensation Act. The entire amount of the Rs. 88,968 with penalty
of Rs. 41,984 and interest thereon was held payable by the insurance company
to the claimants jointly and severally with the appellant-employer. The said
amount was made payable by respondent no. 9-insurance company on the
basis that the insurance company had insured the appellant against his G
liability to meet the claims for compensation for the death of 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 of Rs. 44,274 with interest from the date of the
accident till the date of payment was also made payable by respondent No.9- H
258 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A insurance company.

The claimants were satisfied with the said awards. Similarly the appellant-
owner was also satisfied with the said awards. However, the insurance company
carried the matter in appeals before the High Court and contended that the
insurance company would be liable under the contract of insurance only to
B make good the claims for compensation so far as the principal amounts were
concerned. But it could 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
account of his personal default as per Section 4-A(3) of the Compensation
C 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 no.9-insurance company appealed to the High Court. The
appeals were allowed and the awards of the Commissioner under the
Compensation Act in so far as they fastened the liability to pay the penalty
and interest on the insurance company were set aside. The amounts deposited
D in excess by the insurance company were ordered to be refunded to it while
the remaining amounts 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.
E
Civil Appeal No. 15700 of 1996

The appellant is the owner of a motor truck on which deceased Prakash
Chand was working as a driver. Respondent no. I, widow of the deceased
driver, is the sole heir and claimant for compensation. Between 20th and 21st
F August 1992 the said truck met with an accident on Kalka-Simla national
highway in the State of Himachal Pradesh. It resulted in instantaneous death
of driver Prakash Chand. It is the case of the appellant insured owner of the
truck, that he informed respondent no. 2-insurance company which had insured
the appellant against risks arising out of the use of the insured motor vehicle.
G That he was insured comprehensively for all risks and the insurance company
was supposed to have immediately contacted the legal representatives of the
deceased driver and should have paid the compensation to the bereaved
family which it failed to do.

Respondent no. I, widow of the deceased driver, filed a Claim Petition
H before the Commissioner for Workmen's Compensation exercising her option
VED PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.] 259
under Section 167 of the Motor Vehicles Act. The Workmen's Commissioner A
after hearing the parties awarded a sum of Rs. 81,540 as compensation along
with interest and further directed that in the event of failure to pay the said
amount within one month the penalty at the rate of 30% per annum on the
principal amount was to be paid by respondent no. 2-insurance company. The
award obviously was passed jointly and sevrrally against the appellant- B
owner as well as respondent no. 2-insurance company. The said award was
challenged only on behalf of respondent no. 2-insurance company before the
High Court. The High Court took tile very same view which it took in the
companion matters and exonerated respondent no. 2-insurance company from '
its liability to make good award of penalty amount as well as interest arr.aunt
on the principal amount of Rs. 81,540. Identical order in these terms was C
passed in this case as it was passed in common in the other two appeals as
stated earlier.

Rival Contentions

Learned counsel for the appellant-owners of the motor vehicles who D
were admittedly employers of deceased workmen contended before us that
the view taken by the High Court of Himachal Pradesh ·in the impugned
judgments and identical view taken in the decisions of the High Courts
referred to earlier exonerating the insurance company of its liability for making
good !be claim for compensation flowing out of the orders of additional E
interest and penalty as imposed by the Workmen's Commissioner under
Section 4-A(3) of the Compensation Act were not justified on the scheme of
the Compensation Act read with the Motor Vehicles Act. That on the contrary
the decisions of High Courts representing the contrary view laid down correct
Jaw. It was alternatively contended that in any view of the matter at least the
middle course adopted by the Division Bench of the Gujarat High Court in F
the case of Radhabehn (supra) deserved to be upheld.

On the other hand learned counsel for respondent-insurance companies
submitted that on the schemes of the Compensation Act and the Motor
Vehicles Act the insurance companies would be liable to meet the liability of G
the insured employer-owners of the respective vehicles to the extent of the
principal amounts of compensation which were made payable to the claimants
by the insured employers by the Workmen's Commissioner. So far as penalty
amounts by way of additional interest and additional compensation as
contemplated by Section 4-A(3) were concerned they were made payable by
the insured employers for their own default and for such default on the part H
260 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A of the insured, the insurance companies would not be liable and consequently
they could not be made to reimburse the said amounts to the insured. That
such claims would be dehors the contractual liability flowing from the insurance
policy as well as it would be against the relevant statutory scheme of the
Motor Vehicles Act read with the Compensation Act. It was, therefore,
contended that the view taken by the Himachal Pradesh High Court in the
B impugned judgments in favour of the insurance companies and identical view
taken by the other High Courts falling in line represented the correct legal
position and deserved to be upheld.

Schemes of the Acts
c Before we deal with the rival contentions and have a look at the
divergent viewpoints expressed by the different High Courts on this question,
it will be necessary to keep in view the relevant statutory schemes in the light
of which this controversy has to be resolved. The Compensation Act deals
with the provisions for payment by certain classes of emp10yers to their
D workmen of compensation for employment injuries caused by accident. There
is no dispute between the parties that the deceased drivers and cleaner in
these cases were workmen employed by the appellant-employers. Section 3
of the Compensation Act deals with 'Employer's liability for compensation'.
Sub-section (1) thereof lays down that 'if personal injury is caused to a
E workman by accident arising out of and in the course of his employment, his
employer shall be liable to pay compensation in accordance with the provisions
of Chapter II'. It is also not in dispute that fatal personal injuries were caused
to the workmen by accidents which arose out of and in the course of their
employment because of which they were working on the motor vehicles of the
appellant-employers when they met their ends on account of motor accidents.
F Section,4 of the Compensation Act deals with 'Amount of compensation'. It
lays down the statutory scheme for computing the compensation payable in
cases of the types of accidental injuries suffered by the work.men concerned.
The employer, on a conjoint reading of Sections 3(1) and 4(1) of the
Compensation Act, would be liable to make good the liability for paying
G compensation to the insured workmen under circumstances contemplated by
these provisions. Then follows Section 4-A of the Compensation Act with
which we are directly concerned. It is, therefore, necessary to extract it in
extenso. The said Section during the relevant time, in 1992, when the accidents
were caused read as under :

H "4-A. Compensation to be paid, when due and penalty for default.- (1)
VED PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.] 261
Compensation under Section 4 shall be. paid as soon as it falls due. A
(2) In cases where the employer does not accept the liability for
compensation to the extent claimed, he shall be bound to make
provisional payment based on the extent of liability which he accepts,
and, such payment shall be deposited with the Commissioner or made
to the workman, as the case may be, without prejudice to the right of B
the workman to make any further claim.

(3) Where any employer is in default in paying the compensation
due under this Act within one mon.h from the date it fell due, the
Commissioner may direct that, in addition to the amount of the arrears,
simple interest at the rate of six per cent per annum on the amount C
due together with, if in the opinion of the Commissioner there is no
justification for delay, a further sum not exceeding fifty percent of
such amount, shall be recovered from the employer by way of penalty."

The said Section was further amended by Act 30 of 1995 with effect from
15.9.1995 and in the amended form it now reads as under: D
"4A. Compensation to be paid when due and penalty for default.-(!)
Compensation under section 4 shall be paid as soon as it falls due.

(2) In cases where the employer does not accept the liability for
compensation to the extent claimed, he shall be bound to make E
provisional payment based on the extent of liability which he accepts,
and, such payment shall be deposited with the Commissioner or made
to the workman, as the case may be, without prejudice to the right of
the workman to make any further claim.
(3) where any employer is in default in paying the compensation F
due under this Act within one month from the date it fell due, the
Commissioner shall-

(a) direct that the employer shall, in addition to the amount
of the arrears, pay simple interest thereon at the rate of
twelve per cent per annum or at such higher rate not G
exceeding the maximum of the lending rates of any
scheduled bank as may be specified by the Central
Government, by notification in the Official Gazette, on the
amount due; and

(b) if, in his opinion, there is no justification for the delay, H
262 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A direct that the empioyer shall, ir. addition to the amount of
the arrears and interest thereon, pay a further sum not
exceeding fifty per cent of such amount by way of penalty:

PROVIDED that an order for the payment of penalty shall not be
passed under clause (b) without giving a reasonable opportunity to
B the employer to show cause why it should not be passed."
A mere look at the aforesaid provision shows that Section 4-A deals with the
time for payment of compensation as required to be computed under Section
4. Sub-section(!) thereof mandates that compensation shall be paid as soon
as it falls due. Sub-section (2) thereof contemplates a situation wherein the
C employer though accepting his liability to pay compensation to his injured
workman disputes the extent of the claim of compensation and in such a case
sub-section (2) enjoins him to make provisional payment based on the extent
of accepted liability by depositing it with the Commissioner or to pay it
directly to the workman. It is obvious that such an obligation of the employer
would not arise under Section 4-A sub-section (2) if he totally disputes his
D liability to pay on grounds like the injured person being not his employee or
that the accident was caused to him at a time when he was not in the course
of employment or that the accident caused to him did not arise out of his
employment. If such disputes are raised by the employer then his obligation
to make provisional payment under sub-section (2) of Section 4-A would not
E arise and his liabllity V.'Otild depend upon the final adjudication by the
Workmen's Commissioner at the end of the trial. In that light when sub-
section (3) of section 4-A is seen it becomes obvious that once the
compensation due under the Act becomes ascertained either provisionally
under sub-section (2) or finally on adjudication by the Commissioner and if .
the employer does not pay the same within one month from the date it thus
F falls due, the Commissioner can direct under sub-clause (a) of Section 4-A(3)
interest at the rate provided therein and also penalty as contemplated by sub-
clause (b) thereof as per the amended Section 4-A(3) of the Compensation
Act but even under the unamended Section 4-A(3) which applied at the
relevant time a clear distinction is made by the Legislature between the
G imposition of penalty by way of a further sum not exceeding fifty per cent
of compensation amount and the imposition of interest on the amount of
compensation found payable when it is not paid within the requisite time as
and when it fell due. Thus even in the scheme of unamended Section 4-A(3)
or as per the amended Section 4A(3) read with clauses (a) and (b) thereof,
it becomes clear that additional amount of compensation can be levied against
H the defaulting employer by way of penalty if it is shown that there is no
VED PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.] 263
justification for the delay on his part in making good the compensation A
amount to the claimant. Interest payable on the principal amount, if not paid
when it fell due, is not considered by the Legislatun: to be a penalty. This
is further highlighted by the proviso to Section 4-A(3) as substituted by Act
30 of 1995 which clearly indicates that a penalty amount under clause (b)
cannot be imposed against the employer without giving him reasonable B
opportunity to show cause. No such show cause notice is contemplated while
imposing interest on default of payment of the principal amount on the part
of the employer as per Section 4-A(3)(a). Absence of this provision is obviously
based on the legislative intent that interest on principal amount is not by way
of penalty. Therefore, the employer need not be heard in this connection. A
simplicitor default in payment of compensation within the time of one month C
from the date it fell due would automatically attract the provision for simple
interest under Section 4-A(3) as per the rate prescribed therein and for such
imposition of interest no question of justification for the delay is countenanced
by the Legislature. But while imposing' penalty justification for delay would
be a good defence for the employer for meeting such claim for p~nalty. The
same ·aspect is further highlighted by Section 4-A(3)(a) of the Compensation D
Act as existing on the statute book at present which shows that the interest
payable under sub-section (3A) is to be paid to the workman or his dependent
while the penalty imposed is to be credited to the State Government. It is in
the light of the aforesaid statutory scheme of Section 4A that the question
posed for our consideration has to be resolved. E
)

Section 19 of the Compensation Act also deserves to be noted at this
stage. Sub-section ( 1) thereof lays down that 'if any question arises in any
proceedings under this Act as to the liability of any person to pay
compensation (including any question as to whether a person injured is or
is not a workman) or as to the amount or duration of compensation (including F
any question as to the nature or extent of disablement), the question shall,
in default of agreement, be settled by a Commissioner'. Sub-section (2) of
Section 19 bars the jurisdiction of Civil Court to settle, decide or deal with
any question which is by or under this Act required to be settled, decided
or dealt with by a Commissioner, or to enforce any liability incurred under this G
Act. As per the aforesaid provisions any dispute between the employer-
insured on the one hand and the insurance company, that is said to have
insured the employer against such claims for compensation under the
Compensation Act, on the other has to be resolved in default of agreement
between them by the Commissioner functioning under the Compensation Act
and not by any Civil Court. It may be mentioned at this stage that learned H
264 SUPREME COURT REPORTS (1997] SUPP. 4 S.C.R.

A counsel for the contesting respondent-insurance companies made it clear
before us that it is not their contention that the insurance companies which
have insured the employers against such risks and claims are not liable to
make good the principal amounts of compensation· as awarded by the
Commissioner to the claimants and that the insurance companies under the
contracts of insurance would remain liable to make good the said claims. But
B their only grievance is against the liability sought to be enforced against them
for reimbursing the claims for additional compensation by way of penalty and
interest as imposed on the insured employers under Section 4-A(3) of the
Compensation Act.

C We may now turn to the relevant provisions of the Motor Vehicles Act.
Reference to these provisions becomes necessary because the workmen
concerned suffered personal injuries of fatal nature while they were working
on motor vehicles of their employers. If they had suffered from any personal
injuries during the course of and arising out of the employment while working
in the factory premises of the employers or while carrying on their service
D obligations as employees at any other place under the instructions of the
employers, the question of interaction of the Compensation Act and the
Motor Vehicles Act would not arise and such claims for compensation would
have squarely been governed only by the Compensation Act.

Hence it becomes necessary for us to tum to the scheme of Motor
E Vehicles Act foisting liability on the insurance companies which have insured
such vehicles against third party risks undertaken by the insured. Chapter XI
of the Motor Vehicles Act deals with 'Insurance of motor vehicles against
third party risks'. Section 146 lays down the necessity for insurance against
third party risk and provides that 'no person shall use, except as a passenger,
F or cause or allow any other person to use, a motor vehicle in a public place,
unless there is in force in relation to the use of the vehicle by that person
or that other person, as the case may be, a policy of insurance complying with
the requirements of this Chapter'. Section 147 deals with 'Requirements of
policies and limits of liability'. Sub-section(!) of Section 147 along with its
proviso is relevant for our present purpose. Hence it is extracted as under:
G
"147. Requirements of policies and limits ofliability. - (!)In order to
comply with the requirements of this Chapter, a policy of insurance
must be a policy which-
(a) is issued by a person who is an authorised insurer; and

H (b) insure~ the person or classes of persons specified in the
VED PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.] 265
policy to the extent specified in sub-section (2)- A
(i) against any liability which may be incurred by him in respect
of the death of or bodily injury to any person, including owner
of the goods or his authorised representative carried in the vehiclfl
or damage to any property of a third party caused by or arising
out of the use of the vehicle in a public place; B
· (ii) against the death of or bodily injury to any passenger of a
public service vehicle caused by or arising out of the use of the
vehicle in a public place ;

Provided that a policy shall not be required- c
(i) to cover liability in respect of the death, arising out of
and in the course of his employment, of the employee of a person
insured by the policy or in respect of bodily injury sustained by
such an employee arising out of and in the course of his
employment other than a liability arising under the Workmen's D
Compensation Act, 1923 (8 of 1923 ), in respect of the death of, or
bodily injury to, any such employee-

(a) engaged in driving the vehicle, or

(b) if it is a public service vehicle engaged as a E
conductor of the vehicle or in examining tickets on the vehicles,
or

( c) if it is a goods carriage, being carried in the vehicle,
or
F
(ii) to cover any contractual liability."

Sub-clause (b) of Section 147(1) read with proviso lays down a statutory
scheme of compulsory coverage of liability incurred by the employer vis-a-
vis his employees when they sustain injuries by the use of motor vehicles G
during their employment and on account of motor accidents arising out of and
in the course of their employment. But the statutory coverage for such
liability would be limited to the extent of liability of the insured employer
arising under the Workmen's Compensation Act in respect of death or bodily
injury to such employees. As the motor accidents resulted in fatal injuries to
the employees who were either driving or were being carried in the goods H
266 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A carriage as cleaner whatever liability was incurred by insured owners of the
goods vehicles in connection with proceedings arising out of the Compensation
Act was covered by the statutory liability of the respondent-insurance
companies. The very same result would follow when we tum to the relevant
clause of the insurance policies to which our attention was invited by learned
B counsel for the appellants. Section II in the Insurance Policy of respondent
no.9-insurance company which had insured the appellant, dealt with 'liability
to third parties'. Relevant clause of sub-section (I) of Section 11 of the said
policy reads as under :

"l. Subject to the Limits of Liability the Company will indemnify
the Insured against all sums including claimant's cost and expenses
c which the Insured shall become legally liable to pay in respect of
(i) death of or bodily injury to any person caused by or arising out
of the use (including the loading and/or unloading) of the Motor
Vehicle.

D (ii)

PROVIDED ALWAYS that :-
(a) ........... .

(b) Except so far as necessary to meet the requirements of Section
92-A and Section 95 of the Motor Vehicles Act, 1939, the
E Company shall not be liable in respect of death of or bodily
injury to any person in the employment of the Insured arising
out of and in the course of such employment.

(c) Except so far i::s is necessary to meet the requirements of Section
95 of the Motor Vehicles Act, 1939, in re[ation to liability under
F the Workmen's Compensation Act, 1923, the company shall not
be liable in respect of death of or bodily injury to any person
(other than a passenger carried by reason of or in pursuance of
a contract of employment) being carried in or upon or entering
or mounting or alighting from the Motor Vehicle at the time of
G the occurrence of the event out of which any claim arises."

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
H Act, 1939 which is analogous to Section 147 of the present Motor Vehicles
VED PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.] 267
- Act noted earlier. Section 149 deals with 'Duty of insurers to satisfy judgments A
and awards against persons insured in resper,t 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 uncier the
Workmen's Compensation Act on account of motor accident injuries caused
to their workmen would include additional statutory liability foisted on the B
insured employers under Section 4-A(3) of the Compensation Act.

Consideration of the question

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 C
not in dispute and cannot be disputed that the respondent-insurance companies
conc.erned 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 (I) of Section 147 of the Motor Vehicles Act and as D
found in proviso to clause (i) of sub-section (I) 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 E
by Section 4-A(3)(a) and (b) of the Compensation Act.

On a conjoint operation of the relevant schemes of the aforesaid twin
Acts, in our view, there is no escape from the conclusion that the insurance
companies will be liable to make good not only the principal amounts of

'
compensation payable by insured· employers but also interest thereon, if F
\ ordered by the Commissioner to be paid by the insured employers. Reason
for this conclusion is obvious. As we have noted earlier the liability to pay
compensation under the Workmen's Compensation Act gets foisted on the
employer provided it is shown that the workman concerned suffered from
personal injury, fatal or otherwise, by any motor accident arising out of and G
in the course of his employment. Such an accident is also covered by the
statutory coverage contemplated by Section 14 7 of the Motor Vehicles Act
read with the identical provisions under the very contracts of insurance
reflected by the Policy which would make the insurance company liable to
cover all such claims for compensation for which statutory liability is imposed
on the employer undef Section 3 read with Section 4-A of the Compensation H
268 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A Act. All these provisions represent a well-knit scheme for computing the
0.-
statutory liability of the employers in cases of such accidents to their workmen. 1
As we have seen earlier while discussing the scheme of Section 4-A of the
Compensation Act the legislative intent is clearly discernible that once
comp>ensation falls due and within one month it is not paid by the employer
B then as per Section 4-A(3)(a) interest at the pennissible rate gets added to the
said principal amount of compensation as the claimants would stand deprived
of their legally due compensation for a period beyond one month which is
statutorily granted to the employer concerned to make good his liability for
the benefit of the claimants whose bread-winner might have either. been
seriously injured or might have lost his life. Thus so far as interest is concerned
C it is almost automatic once default, on the part of the employer in paying the
compensation due, takes place beyond the pennissible limit of one month. No
element of penalty is involved therein. It is a statutory elongation of the
liability of the employer to make good the principal amount of compensation
within pennissible time limit during which interest may not run but otherwise
liability of paying interest on delayed compensation will ipso facto follow.
D Even though the Commissioner under these circumstances can impose a
further liability on the employer under circumstances and within limits
contemplated by Section 4-A(3)(a) still the liability to pay interest on the
principal amount under the said provision remains a part and parcel of the·
statutory liability which is legally liable to be discharged by the insured
E employer. Consequently such imposition of interest on the principal amount
• would certainly partake the character of the legal liability of the insured
employer to pay the compensation amount with due interest as imposed upon
him under the Compensation Act. Thus the principal amount as well as the
interest made payable thereon would remain part and parcel of the legal
liability of the insured to be discharged under the Compensation Act and not
F dehors it. It, therefore, cannot be said by the insurance company that when
it is statutorily and even contractually liable to reimburse the employer qua
his statutory liability to pay compensation to the claimants in case of such
motor accidents to his workmen, the interest on the principal amount which
almost automatically gets foisted upon him once the compensation amount
G is not paid within one month from the date it fell due, would not be a part
of the insured liability of the employer. No question of justification by the
insured employer for the delay in such circumstances would arise for
consideration. It is of course true that one month's period as contemplated
under Section 4-A(3) may start running for the purpose of attracting interest
under sub-clause (a) thereof in case where provisional payment has to be
H made by the insured employer as per Section 4A(2) of the Compensation Act
VED PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.] 269

. from the date such provisional payment becomes due. But when the employer A
does not accept his liability as a whole under circumstances enumerated by
us earlier then Section 4-A(2) would not get attracted and one month's period
would start running from the date on which due compensation payable by the
employer is adjudicated upon by the Commissioner and in either case the
Commissioner would be justified in directing payment of interest in such B
contingencies not only from the date of the award but also from the date of.
the "1ccident concerned. Such an order passed by the Commissioner would
remain perfectly justified on the scheme of Section 4-A(3)(a) of the
Compensation Act. But similar consequence will not follow in case where
additional amount is added to the principal amount of compensation by way
of penalty to be levied on the employer under circumstances contemplated C
by Section 4A(3)(b) of the Compensation Act after issuing show cause notice
to the employer concerned who will have reasonable opportunity to show
cause why on account of some justification on his part for the delay in
payment of the compensation amount he is not liable for this penalty. However
if ultimately the Commissioner after giving reasonable opportunity to the
employer to show cause takes the view that there is no justification for such D
delay on the part of the insured employer and because of his unjustified delay
and due to his own personal fault he is held responsible for the delay, then
penalty would get imposed on him. That would add a further sum up to 50%
on the principal amount by way of penalty to be made good by the defaulting
employer. So far as this penalty amount is concerned it canrn;it be said that E
it automatically flows from the main liability incurred by the insured employer
under the Workmen's Compensation Act. To that extent such penalty amount
as imposed upon the insured employer would get out of the sweep of the term
' liability incurred' by the insured employer as contemplated by the proviso
to Section 147 (I)(b) of the Motor Vehicles Act as well as by the terms of the
Insurance Policy found in provisos (b) and ( c) to sub-section (I) of Section J;
II thereof. On the aforesaid interpretation of these two statutory schemes,
therefore, the conclusion becomes inevitable that when an employee suffers
from a motor accident injury while on duty on the motor vehicle belonging
to the insured employer, the cfaim for compensation payable under the
Compensation Act along with interest thereon, if any, as imposed by the G
Commissioner Sections 3 and 4-A(3)(a) of the Compensation Act will have to
be made good by the insurance company jointly with the insured employer.
But so far as the amount of penalty imposed on the insured employer under
contingencies contemplated by Section 4-A(3)(b) is concerned as that is on
account of personal fault of the insured not backed up by any justifiable
cause, the insurance company cannot be made liable to reimburse that part H
270 SUPREME COURT REPORTS [1997) SUPP. 4 S.C.R.

A of the penalty amount imposed on the employer. The latter because of his
own fault and negligence will have to bear the entire burden of the said
penalty amount with proportionate interest thereon if imposed by the Workmen's
Commissioner.

Consideration of the judgments of the High Courts
B
It is now time for us to have a look at the judgments of the different
High Courts which have reflected different viewpoints on this question. We
shall first deal with those judgments of the High Courts wherein a view is
taken that the insurance company would be fully exonerated from the obligation
C to meet the claims for interest and the penalty amounts imposed on the
insured employer as per Section 4-A(3)(a) and (b) of the Compensation Act.
For taking the aforesaid view in the impugned judgments the High Court of
Himachal Pradesh has strongly relied upon two decisions of Karnataka High
Court and the Gujarat High Court. We will, therefore, in the first instance deal
with these judgments.
D
In the case of Oriental Insurance Co. Ltd. v. Raju & Ors., (supra) a
Bench of two learned Judges of the Kamakata High Court on the express
tenns of the Insurance Policy in that case took the view that the Policy did
not extend to indemnify the insured in respect of any interest and/or penalty
E which may be imposed on the insured on account of his failure to comply with
the requirements of the Workmen's Compensation Act. There was an express
exclusion clause qua this liability under the Insurance Policy and consequently
the Karnataka High Court rightly came to the conclusion on the facts of that
case that liability arising under Section 4-A(3) of the Compensation Act to
pay interest on the principal amount as imposed on the insured was not
F required to be met by the insurance company. Said judgment proceeds on its
own facts. It is of no re.al assistance for resolving the present controversy.
The second judgment relied upon by the Himachal Pradesh High Court is
rendered by a learned Single Judge of the High Court of Gujarat in the case
of Jayanti/a/ & Co. (supra). It has laid down that penalty under Section 4-
G A(3) of the Workmen's Compensation Act is imposed on the owner of the
offending truck for remaining indifferent to his statutory liability to make
payment in time. Such a liability arising out of personal fault of the insured
employer is not required to be met by the insurance company. The aforesaid
view of the learned Single Judge of the Gujarat High Court is in consonance
with the scheme of the Compensation Act as well as the Motor Vehicles Act
H as discussed by us earlier. Therefore, in our view, it lays down the correct
VED PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.) 271

legal position so far as the penalty claims are concerned. However in so far A
as the aforesaid decision takes the view that the insurance company would
not be liable even to meet the claim of interest at the rate of 6% per annum
on the amount of compensation as imposed upon the insured employer under
Section 4-A(3) of the Compensation Act, the same is not borne out from the
scheme of the aforesaid two Acts and to that extent the said decision has to
be overruled. We may in this connection refer to a latter Division Bench B
judgment of the Gujarat High Court in the case of Radhabehn (supra )
wherein the Division Bench of the High Court has taken the view that when
penalty is imposed on the employer under Section 4-A (3) it is on account
of the default and negligence of the employer for which he is personally
responsible and the legislature would never be said to have intended that C
there should be a compulsory insurance covering the liability of an employer
for payment of penalty. So far as the interest is concerned the Division Bench
took the view that such liability was a natural corollary of the liability to make
payment of compensation and, therefore, it would be covered by the scheme
of statutory coverage and consequently the insurance company would be
required to make good that claim and reimburse the amount of liability to that D
..... extent imposed on the insured employer. The aforesaid decision of the Gujarat
High Court has impliedly overruled the contrary view expressed by the learned
Single Judge of that Court in Jayantilal & Co. (supra) so far as the liability
of the insurance company to meet the interest claim is concerned. In the
schemes of the Compensation Act and the Motor Vehicles Act as discussed E
by us earlier the conclusion to which the Division Bench of the High Court
of Gujarat reached in Radhabehn 's case (supra) is the correct conclusion. The
said decision of the Division Bench rightly takes the middle course and
answers the question for consideration partly in favour of the insurance
company so far as the penalty claims are concerned and partly against the
insurance company so far as the claims for interest are concerned. F
We may now refer to another Division Bench judgment of the Gujarat
High Court in the case of Gautam Transport, Bhavnagar (supra) wherein it
is held that the insurance company would not be liable to meet the claim
arising out of penalty imposed on the insured employer under Section 4-A G
(3) of the Compensation Act as the penalty arose on account of clear violation
of statutory provisions of the Compensation Act by the employer and that
could never be said to have been contemplated by the insurance company
while offering contractual coverage as the said penalty would be the result
of the negligence on the part of the insured. In our view, the said decision
is in consonance with the schemes of the Compensation Act and the Motor H
272 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A Vehicles Act as discussed by us earlier. We may in this connection refer to
a decision of the High Court of Delhi in the case of Oriental Insurance Co.
Ltd v. Hasmat Khatoon & Ors. (supra). A learned Single Judge of the Delhi
High Court on the schemes of the Workmen's Compensation Act and the
Motor Vehicles Act has taken the view that the liability covered by the
statutory coverage of insurance is to make good the claim for compensation
B and that liability would not include interest and penalty. In our view, the said
decision lays down the correct legal position so far as award of penalty
against the insured employer is concerned. But in so far as it holds that even
for the claim of interest on the principal amount of compensation, as imposed
on the insured, the insurance company would not remain liable, it has to be
C overruled.

We may now refer to the other set of judgments, on which reliance was
placed by learned counsel for the appellants. In the case of Oriental Fire and
Genera/1ns. Co. Ltd. v. Nani Bala & Anr. (supra) a learned Single Judge
B.L. Hansaria, J. (as he then was) speaking for the High Court of Judicature
D at Gauhati had to consider the question whether any liability could be imposed
upon t_he insurer of the offending vehicle which had caused accidental injury .......
to the employees of the insured employer. It was decided in the said case on •
a conjoint operation of the Motor Vehicles Act and the Compensation Act
that the provisions of the Compensation Act cannot be viewed in isolation
E when the Motor Vehicles Act had specifically stated that a policy of insurance
cannot exclude the liability arising under the Compensation Act and that the
expression 'any person' has to cover insurer also. The aforesaid decision was
rendered entirely in a different context and was not concerned with the
question whether the insurance company would be liable to meet the claim
of penalty amount and interest as awarded under Section 4-A(3) of the
F Compensation Act against the insured employer. It is, therefore, of no
assistance in the present cases. However, the same learned Judge speaking
on behalf of a Division Bench of the Orissa High Court in the case of Khirod
Nayak v. Commissioner for Workmen's Compensation & Ors. (supra) has
taken the view that when any penalty is imposed on the insured employer
G under Section 4-A(3) of the Compensation Act along with interest the insurance
company would be liable to make good the entire claim. In the light of the
scheme of both the relevant Acts as discussed by us earlier lt has to be held
that the aforesaid view of the Division Bench of the Orissa High Court in so
far as it holds that the insurance company would be liable to meet the claim
of penalty to the tune of 50% of the amount of compensation as imposed on
H th~ insured employer is not correct. But so far as it is held that the insurance
VED PRAKASH v.PREMI DEVI (S.B. MAJMUDAR, J.] 273
company would be liable to meet the claim of interest at the rate of 6% per A
annum as granted under Section 4-A (3) of the Compensation Act, the same
is justified on the scheme of the Act. Aforesaid decision of the Orissa High
Court has to be partly overruled to the aforesaid extent. We may now tum
to a decision of the Madhya Pradesh High Court in the case of New India
Assurance Co. Ltd. v. Guddi & Ors., (supra). A learned Single Judge in the
said case took view that on the scheme of Section 4-A (3) of the Compensation B
Act the insurance company will have to make good the claim of interest and
penalty as imposed upon the insured employer. In the light of what _we have
discussed earlier it must be held that the said view is partly correct in so far
as it is held that the insurance company would be liable to pay the amount
of interest imposed upon the insured employer by the Workmen's Commissioner C
under Section 4-A(3). But to the extent it seeks to cover even the penalty
amount and makes obligatory on the insurer to meet the said claim of penalty
imposed upon the insured employer it must be held that the same is not
correct and is not borne out from the scheme of the Acts discussed by us.
To that extent the said decision of the learned Single Judge would stand
-\ partly overruled. In the case of United India Insurance Co. Ltd. v. Roop D
Kanwar & Ors., (supra) a lc.imed Single Judge of the Rajasthan High Court
had to consider a situation where on payment of additional premium the
insurance company had agreed in the light of endorsement no. 16 of the
Policy to cover all liabilities incurred by the insured under Workmen's
Compensation Act. In view of this contractual coverage of liability the insurance E
company in that case was held liable to meet the claim for penalty and interest
as imposed upon the insured under Section 4-A(3) of the Compensation Act.
This judgment proceeds on its own facts and was concerned with a situation
converse to the one as was examined by the Kamataka High Court in Oriental
Insurance Co. Ltd. v. Raju & Ors., (supra). In the case decided by the
Kamataka High Court, as seen earlier, there was an express exclusion of such F
liability of the insurance company. In the aforesaid case decided by the
Rajasthan High Court there was an express inclusion of such liability for the
insurance company which had taken additional premium. This judgment also,
therefore, is of on assistance to either side.

As a result of the aforesaid discussion it must be held that the question
G
posed for our consideration must be answered partly in the affirmative and
partly in the negative. In other words the insurance company will be liable
to meet the claim for compensation along with interest as imposed on the
insured employer by the Workmen's Commissioner under the Compensation
Act on the conjoint operation of Section 3 and Section 4-A sub-section (3) H
274 SUPREME COURT REPORTS [1997) SUPP. 4 S.C.R.

A (a) of the Compensation Act. So far as additional amount of compensation
by way of penalty imposed on the insured employer by the Workmen's
Commissioner under Section4-A(3)(b) is concerned, however, the insurance
company would not remain liable to reimburse the said claim and it would be
the liability of the insured employer alone.

B In view of the aforesaid conclusion of ours the present appeals will
have to be partly allowed. The impugned judgments of the High Court will
stand confirmed to the extent they exonerate the respondent-insurance
companies of the liability to pay the penalty imposed on the insured employers
by the Workmen's Commissioner under Section 4-A(3) of the Compensation
C Act. But the impugned judgments will be set aside to the extent to which they
seek to exonerate insurance companies for meeting the claims of interest
awarded on the principal compensation amounts by the Workmen's
Commissioner on account of default of the insured in paying up the
compensation amount within the period contemplated by Section 4-A(3) of
the Compensation Act. Accordingly it must be held that the respondent
D insurance company will be liable to meet the claim of the appellant-insured
in Appeals Nos. 15698-15699 of 1996 to the extent of Rs. 88,548 in Claim Case
No. 2 of 1992 with interest thereon at the rate of 6% per annum from the date
of accident till the date of payment. But the respondent-insurance company
will not be liable to meet the claim of penalty of Rs. 44,274 imposed on the
E appellant-insured along with the interest of 6% per annum on the said amount
of Rs. 44,274. To that extent the award of the Commissioner will stand modified.
So far as the Claim Case No. 3of1992 is concerned the respondent-insurance
company will be liable to reimburse the compensation amount of Rs. 88,968
with interest at the rate of 6% p.a. thereon from the date of the accident till
the date of payment. But it will stand exonerated of its liability of reimbursement
F so far as the penalty amount of Rs. 41,984 and amount of interest at 6% p.a.
thereon are concerned. To that extent the award of the Workmen's Commissioner
in Claim Case No. 3 of 1992 will stand modified. Similarly in Civil Appeal No.
15700 of 1996 the impugned judgment of the High Court will stand partly set
aside so far as the claim for interest as imposed on appellant-insured is
G concerned and the award of the Workmen's Commissioner in so far as his
award of Rs. 81,540 as compensation along with interest will stand confirmed.
But the further part of the award to the extent it directs that in the event of
failure to pay the said amount within one month a penalty of 30% p.a. shall
be payable by the insurance company, will stand set aside. Consequently the
respondent-insurance company in this case will be liable to pay Rs. 81,540 by
H way of compensation with interest at 6% per annum thereon from the date
YEO PRAKASH v.PREMI DEVI [S.B. MAJMUDAR, J.] 275
of the accident till the date of payment to the claimants. The awards of the A
Cor.1missioner will stand modified accordingly. They will obviously remain
untouched so far as they are against the employers. It will be open to the
claimants to enforce their claims of penalty amounts with proportionate interest
the_reon against employers concerned.

In the result all these three appeals are partly allowed as aforesaid. In B
the facts and circumstances of these cases there will be no order as to costs.

R.K.S. Appeals partly allowed.

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