Case: National Insurance Co. Ltd Vs. Keshav Bahadur

2. National Insurance Company Limited (hereinafter referred to as the insurer) questions legality of the judgment of a Division Bench of the Jharkhand High Court holding that the insurer has to pay the compensation of Rs.72,000/- awarded to the legal representatives of one Hasta Bahadur (hereinafter referred to as 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. A claim petition was filed by his sons under Section 110A of the Motor Vehicles Act 1939 (in short the Act). The Motor Vehicle Accidents Tribunal (hereinafter referred to as the Tribunal) awarded compensation of Rs.72,000/- along with interest @ 12% per annum. The amount was directed to be paid within 60 days. It was further directed that in case of failure to pay within 60 days, the rate of interest would be 18%. The insurer questioned the legality of the direction that the whole amount of compensation was to be paid by the insurer; and the direction regarding default rate of interest. According to it, the liability was limited to Rs.50,000/- in terms of Section 95(2)(b)(i) of the Act; and there was no legal basis for the default rate. Though these points were specifically urged before the Tribunal, no definite finding was recorded. Similar was the situation so far as the High Court is concerned. Though it dealt with the question of interest and reduced the rate from 12%, as awarded by the Tribunal, to 9% per annum, no finding was recorded regarding legality of default rate.

Court's reasoning:
12. Though Section 110CC of the Act (corresponding to Section 171 of the New Act) confers a discretion on the Tribunal to award interest, the same is meant to be exercised in cases where the claimant can claim the same as a matter of right. In the above background, it is to be judged whether a stipulation for higher rate of interest in case of default can be imposed by the Tribunal. Once the discretion has been exercised by the Tribunal to award simple interest on the amount of compensation to be awarded at a particular rate and from a particular date, there is no scope for retrospective enhancement for default in payment of compensation. No express or implied power in this regard can be culled out from Section 110CC of the Act or Section 171 of the new Act. Such a direction in the award for retrospective enhancement of interest for default in payment of the compensation together with interest payable thereon virtually amounts to imposition of penalty which is not statutorily envisaged and prescribed.