NATIONAL INSURANCE CO. LTD. versus KESHAV BAHADUR AND ORS.

Citation: [2004] 1 S.C.R. 861 · Decided: 20-01-2004 · Supreme Court of India · Bench: DORAISWAMY RAJU · Disposal: Appeal(s) allowed

Judgment (excerpt)

NATIONAL INSURANCE CO. LTD. 
A 
V. 
KESHA V BA HAD UR AND ORS. 
JANUARY 20, 2004 
(DORAISWAMY RAJU AND ARIJIT PASAYAT, JJ.] 
B 
Motor Vehicles Act, 1939: 
Section 95-Third party risk-liability of insurer to pay compensation-
Extent of-Held: liability of insurer is limited-However, in view of specific C 
clause in the insurance policy making insurer's liability higher than the statutory 
liability and proof of payment of additional higher premium, liability of the 
insurer can be higher than the statuto1y liability-On facts, insurance policy 
indicating limit of liability in respect of one claim or series of claims as 
Rs.50,000-lnsured not paying any additional premium for any enhanced D 
liability-Hence, liability limited to Rs. 50,000. 
Section llOCC (corresponding to Section 171 of the 1988 Act)-
Stipulation of higher rate of interest in case of default-Justification of-
Held: Once the discretion conferred by Section 11 OCC on Tribunal to award 
interest on the compensation amount at a particular rate is exercised there is E 
no scope for retrospective enhancement of interest for default in payment. 
Admini.•trative Law-Action-Discretion-Manner of exercise a/-
Discussed. 
H died in a road accident and his sons filed a claim petition under F 
Motor Vehicles Act. In the insurance policy, limit of insurer's liability in 
respect of any one claim or series of claims arising out of one event was 
Rs.50,000/- and premium was paid as third party insurance premium. 
Tribunal awarded compensation of Rs. 72,000 with interest at the rate of 
12% per annum 'to be paid within 60 days by the insurer and in default 
the rate of interest was to be 18% per annum. Appellant-insurer contended G 
that its liability was limited to Rs. 50,000 and there could be no stipulation 
for default rate. High Court upheld the order regarding the compensation 
amount and also reduced the interest rate from 12'Yo to 9%. However, it 
recorded no finding regar(ling legality of default rate. Hence the present 
861 
II 
862 
SUPREME COURT REPORTS 
(2004) I S.C.R. 
A appeal. 
Appellant-insurer contended that the liability statutorily lixed in 
respect of third party risk was at the relevant point of time Rs. 50,000 for 
which Rs. 240 was paid as premium; that when extra premium was not 
paid for any enhanced liability, nothing beyond the statutorily fixed 
B liability of Rs.50,000/- which was the maximum could have been awarded; 
that pursuant to the order insurer deposited Rs. 50,000; that neither the 
Tribunal nor the High Court could have stipulated any penal interest as 
there is no provision therefor; and that the only provision relating to 
interest is Section ll 0 CC of the Act. 
c 
Allowing the appeal, the Court 
HELD: I. The liability of the insurer is limited as indicated in Section 
95 of the Motor Vehicles Act. 1939. However, it is open to the insured to 
make payment of additional higher premium and for insurer to accept 
D higher risk covered in respect of third party also for which there should 
be presence of such clause in the insurance policy and proof of payment 
of additional premium, otherwise the liability of the insurer cannot be 
unlimited in respect of third party and it is limited only to the statutory 
liability. Furthermore, in case insurer-appellant does not take any higher 
liability by accepting higher premium for payment of compensation to 
E third party, the liability is neither unlimited nor higher than the statutory 
liability lixed under Section 95(2) of the Act. Therefore, in the instant case, 
the liability of the appellant-insurer is limited to Rs. 50,000. 
1865-D, E, H; 866-A-DI 
New India Assurance Company Limited v. Shanti Bai, 119951 2 SCC 
F 539; National Insurance Co. Ltd. v. Jugal Kishore, [19881 1 SCC 626 and 
New India Assurance Co. ltd v. C.M Jaya and Ors., 120021 2 SCC 278, 
referred to. 
2.1. The grant of higher rate of interest under Section llOCC of 
G Motor Vehicles Act, 1939 corresponding to Section 171 of the 1988 Act is 
discretionary and cannot be bound by rules. It is meant to be exercised in 
cases where the claimant can claim the same as a matter of right. The 
purpose for award of interest is to put pressure on the relevant person 
not to delay in making the payment; and to compensate the victim or his 
dependents at least to some extent for such delay as may occur, by way of 
H interest. Even though the expression 'may' is used, a duty is laid on the 
--;" 
NATIONAL INSURANCE CO. LTD. v. KE

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