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2006 DIGILAW 205 (KAR)

THE ORIENTAL INSURANCE GO. LTD. v. SUNDARI

2006-02-23

B.PADMARAJ, S.ABDUL NAZEER

body2006
B. PADMARAJ, J. ( 1 ) THE short question involved in this appeal filed by the appellant-insurer is, whether the liability of the insurance Company arising under the workmen's Compensation Act extends to payment of the Principal amount of compensation computed by the Commissioner for workmen's Compensation and interest levied under Section 4-A (3) (a) of the Workmen's compensation Act. ( 2 ) IN the instant case, the Commissioner for Workmen's Compensation having noticed that both the insurer and the insured have failed to deposit the compensation amount to which the claimants were entitled within the prescribed period, has directed both the insured and the insurer to pay interest at the rate of 6% p. a. on the principal amount of compensation computed under Section 4-A (3) (a)of the Workmen's Compensation Act. The appellant-Insurance Company is aggrieved by that part of the order whereby the Commissioner has directed the Insurance Company to pay the interest at 6% p. a. on the principal amount of compensation. ( 3 ) THERE is no dispute regarding the quantum of compensation payable and all that has to be considered is whether the appellant -Insurance Company is liable to pay the interest. ( 4 ) LEARNED counsel for the appellant-Insurance company has vehemently contended before us that the Commissioner has erred in directing the Insurance Company to pay interest at 6% p. a. even though it had not contracted with the insured to pay any interest under the terms of the Policy. He contended that the appellant-Insurance Company is liable to indemnify the insurer only to the extent of the compensation amount payable under Section 4 of the Workmen's Compensation Act and not the interest thereof. He further contended that there is a specific condition in the Policy that the appellant-Insurance company is not required to indemnify the insured in respect of any interest or penalty. While elaborating this contention, he contended that the liability of the Insurance Company in the case at hand is contractual and not statutory under the Workmen's Compensation act and hence, when there is specific condition in the Policy that the appellant is not required to indemnify the insured in respect of any interest, the Commissioner was not justified in directing the Insurance company to pay the interest imposed on the compensation amount awarded to the claimants. He also contended that in the written statement filed by the appellant-Insurance Company before the Commissioner, it has specifically contended that it is not liable to pay interest and that further, its liability is as per the terms and conditions of the Insurance Policy and that even the Insurance Policy, which was produced in the case by the insured himself would contain an endorsement to the effect that "it is hereby understood and agreed that the cover provided under the Policy shall not extend to indemnify the insured in respect of any interest and/or penalty which may be imposed on him/them on account of his /their failure to comply with the requirements laid down under the Workmen's Compensation act, 1923, and subsequent amendment of the said Act. " Therefore, he contended that the terms and conditions of the policy makes it clear that there was no contractual liability for the insurer to pay the interest imposed on the compensation amount awarded by the Commissioner. ( 5 ) IN support of his submissions, the learned counsel for the appellant has placed reliance upon a decision of this Court in the case of Oriental Insurance Company Limited v. Raju and others reported in ILR 1993 Kar. 2247 : 1994 (1) ACJ 191 and he further contended that the said decision found favour with the Hon'ble Supreme Court in the case of Ved prakash Garg v. Premi Devi and others, reported in 1998 ACJ page 1 : ( AIR 1997 SC 3854 ). A reliance was also placed upon a decision of the Hon'ble Supreme Court in the case of P. J. Narayan v. Union of India and others reported in 2004 (1) ACJ page 452. ( 6 ) FROM the provisions contained in Section 4-A of the Workmen's Compensation Act, it is clear that it deals with the time for payment of compensation computed under Section 4 of the Act. Sub-section (1) of Section 4-A mandates that the compensation shall be paid as soon as it falls due. Sub-section (2) of section 4-A contemplates a situation where the employer though accepting his liability to pay compensation disputes the extent of the claim made by the claimant and in such case, it enjoins him to make provisional payment based on the extent of admitted liability by depositing it with the Commissioner for workmen's Compensation. Sub-section (2) of section 4-A contemplates a situation where the employer though accepting his liability to pay compensation disputes the extent of the claim made by the claimant and in such case, it enjoins him to make provisional payment based on the extent of admitted liability by depositing it with the Commissioner for workmen's Compensation. But when the employer totally disputes his liability to pay the compensation on any of the grounds to which he claims to be entitled to, obviously there will be no such obligation to deposit the amount. His liability to pay compensation in such event would depend upon the final adjudication by the Commissioner for Workmen's compensation. In that context if the provisions contained in sub-section (3) of Section 4-A of the Workmen's Compensation Act is ascertained and if the employer does not pay the same within one month from the date it falls due, as it has happened in this case, the commissioner can direct the payment of interest thereon under Clause (a) of Section 4-A (3)of the Workmen's Compensation Act at the rate provided therein. Interest payable on the principal amount of compensation when it becomes due is not in the nature of penalty nor it is an additional amount payable over and above the compensation amount awarded by the Commissioner. A simple default in payment of compensation amount within a prescribed time when it falls due would automati-cally attract the provisions of Sec. 4-A (3) (a)of the Workmen's Compensation Act. Therefore, when once the compensation falls due and within one month, it is not paid, then as per Section 4-A (3) (a) interest at permissible rate gets attracted to the principal amount of compensation. Thus, the liability of payment of interest is almost automatic once there is a default. It is statutory elongation of the liability of the employer to make good the principal amount of compensation within the permissible time limit during which interest may not run otherwise liability of paying interest on delayed compensation will automatically follow and it ultimately becomes part of the compensation amount payable to the claimants. It is statutory elongation of the liability of the employer to make good the principal amount of compensation within the permissible time limit during which interest may not run otherwise liability of paying interest on delayed compensation will automatically follow and it ultimately becomes part of the compensation amount payable to the claimants. The principle on which the liability to pay interest imposed under Section 4-A (3) is that the party who is liable to pay the compensation at a particular time would have had the benefit of retaining that amount from the time it became due and the party, who was entitled to it by a particular date would have been deprived of that amount and it is for that reason the party liable to pay the amount will have to pay interest as compensation. In that view of the matter or in other words, it becomes part and parcel of the compensation amount which the claimants entitled to under the Workmen's Compensation Act, which is legally liable to be paid by the employer and which in its turn is liable to be indemnified by the insurer under the Policy of Insurance. It therefore cannot be said that the interest on the principal amount which almost automatically gets foisted upon when once the compensation is not paid within time, would not be a part of the insured liability of the insurer. It is not in dispute that the appellant - Insurance company is liable to indemnify its insured to the extent of the compensation payable under section 4 of the Workmen's Compensation act. That being so, when the interest imposed on account of default becomes part and parcel of the compensation, the insurance Company cannot escape its liability to pay the compensation amount which will be inclusive of the interest. Therefore, in our view, there is no escape from the conclusion that the Insurance Company will be liable to make good not only the principal amount of compensation, but also interest ordered by the commissioner to be paid by the insured. This is because, the interest on the principal amount of compensation gets foisted automatically when there is a default and it becomes part and parcel of the compensation amount payable to the claimants by the insured. This is because, the interest on the principal amount of compensation gets foisted automatically when there is a default and it becomes part and parcel of the compensation amount payable to the claimants by the insured. We therefore hold that the Insurance Company would be liable to meet the claim of interest awarded at the rate 6% p. a. by the Commissioner under section 4-A (3) (a) of the Workmen's Compensation act as it becomes part and parcel of the compensation amount payable to the claimants in view of the default committed both by the insurer and the insured. This aspect of the case has not at all been considered by this Court in the case of Oriental Insurance company Limited v. Raju and others, reported in ILR 1993 Kar page 2247. On the other hand, the Hon'ble Supreme Court in the case of Ved Prakash Garg v. Premi Devi and others, reported in 1998 ACJ page 1 : ( AIR 1997 SC 3854 ) after examining the entire scheme of the Act held that payment of interest and penalty are too distinct liabilities arising under the Act, while liability to pay interest is part and parcel of legal liability to pay compensation upon default of payment of that amount within one month. This is very clear from the observations made by the Hon'ble supreme Court in the above decision in para 19 which reads as under: "19. As a result of the aforesaid discussion it must be held that the question 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 subsection (3) (a) of the Compensation Act. So far as additional amount of compensation by way of penalty imposed on the employer by the Workmen's Commissioner under Section 4-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. So far as additional amount of compensation by way of penalty imposed on the employer by the Workmen's Commissioner under Section 4-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. " ( 7 ) IN the subsequent decision rendered by the Hon'ble Supreme Court in the case of L. R. Ferro Alloys Ltd. v. Mahavir Mahto and another reported in 2001 (1) ACJ page 645, the hon'ble Supreme Court has followed the decision in Ved Prakash Garg v. Premi Devi and others, reported in 1998 ACJ page 1 : ( AIR 1997 SC 3854 ) and has held that liability to pay interest is part and parcel of legal liability to pay compensation upon default of payment within one month and hence, the claim for compensation along with interest will have to be made good jointly by the Insurance Company with the insured employer. We have also carefully perused the decision relied upon by the learned counsel for the appellant in the case of P. J. Narayan v. Union of India and others, reported in 2004 (1) ACJ page 452 (SC) and we find that the facts of that case have no application to the facts and circumstances of this case. That was a case where a writ petition was filed for the purpose of directing Insurance Company to delete the clause in the Insurance Policy which provided that in case of compensation under the workmen's Compensation Act, the Insurance company will not be liable to pay interest and the Hon'ble Supreme Court having noticed that an insurance is a matter of contract between the Insurance Company and the insured and it is always open to the Insurance Company to refuse the insured, dismissed the writ petition. In that case, there was no issue or a question arose with regard to the liability or otherwise of the Insurance Company to pay the interest. The observations must be read in the context in which they appear. The judgment cannot be construed as statutes. In this connection, a reference may be made to a decision of the Hon'ble Supreme Court in the case of Ashwani Kumar Singh v. U. P. Public service Commission and others, reported in 2003 AIR SCW 3387. The observations must be read in the context in which they appear. The judgment cannot be construed as statutes. In this connection, a reference may be made to a decision of the Hon'ble Supreme Court in the case of Ashwani Kumar Singh v. U. P. Public service Commission and others, reported in 2003 AIR SCW 3387. In another decision of the Hon'ble Supreme Court in the case of union of India v. Amrit Lal Manchanda and another, reported in 2004 AIR SCW 944, it is held that disposal of cases by blindly placing reliance on decision is not proper. The decisions relied upon by the appellant-Insurer is not strictly applicable to the issue in the case at hand. On the other hand, in the abovesaid two decisions of the Hon'ble Supreme Court, to which a reference has been made by us, the question involved in this case was directly in issue and it was held that the claim for compensation along with interest will have to be made good jointly by the Insurance Company with the insured employer. Therefore, we are unable to accept the contention of the appellant-Insurance company that the Insurance company is not liable to pay the amount of interest imposed upon it by the Commissioner under Section 4-A (3) (a) of the Workmen's compensation Act. ( 8 ) IT may be stated even at the cost of repetition that Section 4-A (3) of the Workmen's compensation Act, which contemplates levy of interest provides that where any employer is in default in paying the compensation due under the Workmen's Compensation Act within one month from the date it fell due, the Commissioner for Workmen's Compensation may direct that, in addition to the amount of arrears, simple interest at the rate prescribed therein shall be recovered. The condition on the happening of which, liability for interest gets attracted is merely that the employer is in default in paying the compensation within one month of the date it fell due. The considerations relevant to the levy of interest do not include any circumstances subjective to the employer. The conditions are purely objective. The provision is compensatory and not strictly penal. Under the workmen's Compensation Act, the employer becomes liable to pay the compensation as soon as the injury or death of the workman, as the case may be, is caused. The considerations relevant to the levy of interest do not include any circumstances subjective to the employer. The conditions are purely objective. The provision is compensatory and not strictly penal. Under the workmen's Compensation Act, the employer becomes liable to pay the compensation as soon as the injury or death of the workman, as the case may be, is caused. It is the duty of the employer to pay compensation under section 4-A (l) as soon as the death is caused. Where the employer fails to do so, the employer is liable to pay interest. Thus, the liability of payment of interest is almost automatic upon default of payment of compensation within one month and that further, the liability to pay interest becomes part and parcel of legal liability to pay compensation. That is to say. liability to pay interest is part and parcel of legal liability to pay compensation upon default of payment of that amount within one month. It is thus clear that the award of interest is only compensatory in nature and not a penalty. Therefore, the principle on which the insurer cannot be made liable for the penalty levied under Section 4-A (3) (b)of the Workmen's Compensation Act cannot be extended to the levy of interest which is only compensatory in nature. The party whether it be insurer or insured, who was liable to pay the compensation at a particular time would have had the benefit of retaining that amount from the time it became due and the party, who was entitled to it by a particular date would have been deprived of that amount and it is for that reason the party liable to pay the amount will have to pay interest as compensation. The insurer became liable to pay the compensation, the moment the liability of the insured arose. The question whether the insurer was aware of the accident or not is not that relevant. The insurer would have had the benefit of retaining that amount from the date its liability arose till actual payment. As such, the insurer who virtually steps into the shoes of the employer for the purpose of paying the compensation to the workman must also be liable to pay the interest. The insurer would have had the benefit of retaining that amount from the date its liability arose till actual payment. As such, the insurer who virtually steps into the shoes of the employer for the purpose of paying the compensation to the workman must also be liable to pay the interest. In this connection, a reference may be made to a division Bench decision of this Court in united India Insurance Company Limited v. Kashimsab, reported in ILR 1993 Kar 1991 : (1993 Lab IC 2241), wherein this Court taking into consideration the provisions of the workmen's Compensation Act and several decisions, has noted that the insurer steps into the shoes of the employer or the owner of the vehicle and has held that the insurer must deposit the compensation before filing the appeal. Apart from this, as we have already indicated, the liability to pay interest is part and parcel of legal liability to pay compensation upon default of payment of that amount within one month. Therefore, claim for compensation along with interest will have to be made good jointly by the Insurance Company with the insured employer. The learned counsel for the insurer do not dispute the fact that the Insurance company is liable to pay interest awarded by the Tribunal in exercise of its powers under the provisions of the Motor vehicles Act. It is not in dispute that where death or injury to any person gives rise to a claim for compensation under the Motor Vehicles act and also under the Workmen's compensation Act, then, the person entitled to compensation may claim such compensation under either of those Acts but not under both. Thus, the option is given to the claimants either to seek compensation under the motor Vehicles Act or under the Workmen's compensation Act. That being so, it would be anomalous to hold that while the insurer would be liable to pay the interest awarded by the Tribunal in case the claimants prefer the claim before the Tribunal, the insurer would not be liable to pay the interest payable under the Workmen's Compensation Act. The interest awarded by the Commissioner under Section 4-A (3) (a) is interest awarded in pursuance of an enactment at the time of the final order or final adjudication of the claim. The interest awarded by the Commissioner under Section 4-A (3) (a) is interest awarded in pursuance of an enactment at the time of the final order or final adjudication of the claim. When the interest payable under the workmen's Compensation Act gets foisted automatically on the principal amount of compensation upon default of payment of that amount within one month and when such liability to pay interest becomes part and parcel of the compensation amount payable to the claimants, the claim for compensation along with interest will have to be made good jointly by the Insurance Company with the insured employer. Hence, the compensation with interest is payable by the Insurance Company. Therefore, the Insurance Company cannot avoid its liability to pay the compensation along with interest which is payable to the claimants under law. It is well recognised that the Workmen's Compensation Act is a beneficial social legislation, the object of which is to provide security to certain class of workmen and that the provisions of the Act should be construed in a broad and liberal manner so as to advance the object of the enactment and not in any way which would defeat it. We are therefore of the view that the contention raised by the appellant-insurer that it is not liable for the interest awarded under section 4-A 3 (a) is wholly untenable and cannot be accepted. ( 9 ) THEREFORE, in view of our above discussion and in the light of the above decisions of the Apex Court, we find no merit in this appeal filed by the appellant. ( 10 ) IN the result, this Miscellaneous First appeal filed by the appellant is dismissed. But in the circumstances of the case, there is no order as to costs. Appeal dismissed.