2004 (1) TMI 602 - SC - Indian Laws

Whether the insurer has to pay the compensation of ₹ 72,000/- awarded to the legal representatives of one Hasta Bahadur ( the deceased ) who lost his life in a vehicular accident on 5.6.1987. The deceased was working as a Chowkidar of Hydel Project, Sikidri? Whether there could be any stipulation of penal rate of interest as done by the Tribunal and affirmed by the High Court? Held that - The insurer cannot withhold the awarded amount indefinitely. In the circumstances, we direct that interest @ 9% per annum on the sum of ₹ 50,000/- which is the liability of the insurer; from the date of claim till 6.3.1998, be paid within a period of three months from today, if not already paid or deposited before the Tribunal/High Court. The appeal is allowed to the extent indicated, without any order as to costs.

Issues involved:
1. Interpretation of liability of the insurer under Section 95(2)(b)(i) of the Motor Vehicles Act.
2. Legality of default rate of interest imposed on the insurer.
3. Discretionary power of the Tribunal to award interest under Section 110CC of the Act.

Detailed Analysis:

1. Interpretation of liability of the insurer under Section 95(2)(b)(i) of the Motor Vehicles Act:
The case involved a dispute regarding the liability of the insurer to pay compensation to the legal representatives of a deceased individual who lost his life in a vehicular accident. The insurer contended that its liability was limited to Rs.50,000 as per Section 95(2)(b)(i) of the Act, despite the Tribunal and the High Court directing payment of Rs.72,000. The Supreme Court held that unless there is a specific agreement between the insured and the insurer to accept higher liability by paying an additional premium, the insurer's liability remains limited to the statutory amount. The Court cited precedents to support this interpretation, emphasizing that the insurer's liability cannot exceed the statutory limit unless agreed otherwise.

2. Legality of default rate of interest imposed on the insurer:
The insurer challenged the direction for payment of compensation within a specified time with a higher default interest rate of 18% per annum. The Court examined the discretion of the Tribunal under Section 110CC of the Act to award interest, emphasizing that interest is meant to compensate for delays and pressure timely payment. The Court clarified that the discretion to award interest should be exercised judiciously and not arbitrarily. It concluded that there is no provision for penal interest, and the Tribunal's direction for a higher rate of interest for default payment was not legally sustainable. The Court directed that the interest rate awarded by the High Court should apply without any retrospective enhancement for default.

3. Discretionary power of the Tribunal to award interest under Section 110CC of the Act:
The Court discussed the nature of discretionary powers vested in the Tribunal to award interest under Section 110CC of the Act. It highlighted that the discretion should be exercised based on known legal principles and not arbitrarily. The Court emphasized that the discretion to award interest is not absolute and should be regulated by established legal norms. It clarified that once the Tribunal exercises its discretion to award interest at a particular rate, there should be no retrospective enhancement for default payment. The Court underscored that any stipulation for a higher rate of interest for default payment amounts to a penalty not envisaged by the law.

In conclusion, the Supreme Court clarified the liability of the insurer, rejected the imposition of penal interest, and emphasized the need for judicious exercise of discretion by the Tribunal in awarding interest. The judgment provided a detailed analysis of the legal principles governing insurance liabilities, interest awards, and the limits of discretionary powers of the Tribunal under the relevant provisions of the Motor Vehicles Act.

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