Oriental Insurance Co. Ltd. vs Raju

M. Ramakrishna, J.—The Oriental Insurance Company Limited, the appellant herein, being aggrieved by the award of interest at, 6 per cent

per annum on the amount of compensation determined by the Commissioner of Workmen''s Compensation, Sub Division III, Bangalore, has

approached this Court in this Appeal challenging the correctness of the said imposition of interest for the reasons set out in the Appeal.

We have heard Sri S.P. Shankar, learned Counsel for the appellant, and perused grounds taken in die Appeal as well as the award.

At the outset, we are of the view that having regard to the provisions of the 1st proviso to Section 30 of the Workmen''s Compensation Act,

1923 (hereinafter referred to as ""the Act""), the question now raised relating to the imposition of interest over the compensation determined is a

substantial question of law involved in the Appeal and, therefore, it is a fit case for being admitted and considered:

On a careful consideration of the award as well as the coverage found in the policy issued under the Act in favour of the insured, it is seen that

the liability of indemnifying the insured as to imposition of interest of penalty is expressly excluded. The last sentence of the condition imposed

reads as follows:

It is hereby understood and agreed mat me cover provided under the policy shall not extend to indemnify the insured/insureds in respects of any

interest and/or penalty which may be imposed on him/them on account of his/their failure to comply with me requirements laid down under the

Workmen''s Compensation Act, 1923 and subsequent amendments of the said Act.

Therefore, the Commissioner ought to have seen whether it would be open to him to impose interest over the amount of compensation

determined by him payable to the claimant in view of the clear understanding between the insurer and the insured.

The submission is, that so long as there is a contract between the parties, the insurer undertakes only to indemnify compensation that may be

awardable in favour of a workman in the event of his being injured or his death. In the instant case, the submission is that when there is a condition

by which the liability of the insurer is excluded as to the payment of interest awardable, the Commissioner ought not to have imposed interest on

the amount determined as compensation. Sri Shankar, learned Counsel for appellant also brought to our notice the view taken by this Court in a

similar matter arising in Ameenabai of Ors. v. Khemaraju and Ors. M.F.A. No. 1626 of 1987 disposed of on 31st October, 1988. It is seen from

a perusal of the judgment of the Division Bench that referring to me material terms of the policy, it was held that the insurer cannot be made liable

to pay interest and penalty on the compensation which may be fixed for the death or injury of die employee whose risk is insured. Thus, die

Division Bench held in that appeal that it was an error on me part of me Commissioner to have fixed liability on the insurer respecting the interest

and penalty payable by the insurer as compensation to his employer. Thus the appeal of the insurer came to be allowed setting aside the imposition

of penalty and interest imposed on them.

Therefore, Sri Shankar submits that in most of the cases, the authorities who are called upon to deal with such cases under the provisions of the

Act, without applying their mind to die specific coverage taken under the Act, invariably impose payment of interest/penalty fastening the liability

with the insurer which will result in hardship and injustice to the insurer. Hence, he submitted that this is a fit case where specific direction may be

issued or observations made that die authorities exercising powers under the provisions of the said Act shall apply their mind to these aspects and

make appropriate orders specifically relating to exclusion or inclusion of the liability of the insurer as to payment of penalty and interest leviable in a

case like this.

There is sufficient force in the submission of Sri Shankar inasmuch as it is seen that in a contractual liability arising out of a contract between the

two parties, the insurer and the insured, die liability arising under such contract is different from those liabilities arising out of the statute. Therefore,

we must be able to distinguish between these two liabilities, one arising under the provisions of the statute and the other arising out of die contract

undertaken by die parties. Here is a case where the responsibility to indemnify the insured arises out of contract which excludes liability to pay

interest or penalty imposable or payable in a case of this kind, particularly in the instant case, in view of the specific condition imposed under the

policy. Therefore, the authorities exercising power under the Act must necessarily apply their mind to see whether under the policy covering the

risk there arises liability to indemnify the payment of interest or penalty. To make it clear, in the event of the insured having entered into a contract

with the insurer, the latter shall not be made liable to indemnify the insured as to payment of interest/ penalty that may arise in a claim of this kind. In

the instant case, we are satisfied that in view of the exclusion of the liability to pay interest or penalty arising out of the claim petition, die appellant-

insurer shall not be liable to pay interest imposed in die instant case.

Therefore, for the reasons stated above, the Appeal deserves to be allowed. It is accordingly allowed. The imposition of interest awarded by

the Commissioner over the amount determined as compensation is hereby quashed. It is needless to say mat since fastening of liability to pay

interest by the appellant-Insurance Company is held to be incorrect, it is now shifted to the 3rd respondent employer. Ordered accordingly.