NEW INDIA ASSURANCE CO. LTD. versus HARSHADBHAI AMRUTBHAI MODHIYAND ANR.

Citation: [2006] SUPP. 1 S.C.R. 444 · Decided: 28-04-2006 · Supreme Court of India · Bench: S.B. SINHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
NEW INDIA ASSURANCE CO. LTD. 
v. 
HARSHADBHAI AMRUTBHAI MODHIY A AND ANR. 
APRIL 28, 2006 
[S.B. SINHA AND P.K. BALASUBRAMANY AN, JJ.] 
Workmen's Compensation Act, 1923-Section 3--Contract of Insurance 
entered into by Employer with an Insurance Company to indemnify for 
C compensation payable under the Act--Commissioner awarded compensation 
with interest to the claimant-Appeal by Insurance Company before High 
Court challenging the payment of interest-High Court dismissed the appeal-
Correctness of-Held, employer is statutorily liable to pay workman 
compensation under the Act-On facts, payment of any interest/penalty is 
specifically excluded under the contract of insurance-Hence, employer, and 
D not the insurance company, is liable to pay interest to the claimant-Insurance 
Act, 1938-Motor Vehicles Act, 1988. 
An employer entered into a contract of insurance with appellant-
insurance company to indemnify for compensation payable under the 
Workmen's Compensation Act, 1923. On an application filed by a claimant 
E for grant of compensation under the Act, the Commissioner directed the 
appellant to pay the claimed sum with interest thereon. The appellant filed an 
appeal under section 30 of the Act before High Court challenging the payment 
of interest to the claimant under the terms of contract of insurance. The High 
Court dismissed the appeal. 
F 
In appeal to this Court, the appellant contended that as per the terms of 
the contract of insurance entered into with the employer, the payment of 
interest and/or penalty is specifically excluded and hence, it is not liable to 
pay interest to the claimant. 
G 
The respondent contended that he his entitled to receive interest on the 
H 
awarded sum which may be made payable either by the insurance company or 
by the employer. 
Allowing the appeal, the Court 
444 
-
NEW INDIA ASSURANCE CO. LTD. v. HARSHADBHAI AMRUTBHAI MODHIYA 
445 
HELD: Per S.B. Sinha, JJ: 
A 
Lt. Under the Workmen's Compensation Act, 1923, an employer is not 
statutorily liable to enter into a contract of insurance. Where, however, a 
contract of insurance is entered into by and between the employer and the 
insurer, the insurer shall be liable to indeminfy the employer. The insurer, 
however, unlike under the provisions of the Motor Vehicles Act, 1988 does B 
not have a statutory liability. (448-G, H; 449-A] 
1.2. Where a statute does not provide for a compulsory insurance or 
the extent thereof, the parties are free to choose their own terms of contract. 
Contracting out, so far as reimbursement of amount of interest is concerned, C 
is not prohibited by a statute. Under the terms of insurance entered into, the 
appellant is not liable for the interest. The employer shall be liable to pay the 
amount of interest to the claimant. (451-8, F] 
P.J. Narayan v. Union of India and Ors., (2004) ACJ 452, referred to. 
Ved Prakash Gargv. Premi Devi and Ors., (1997] 8 SCC 1 and L.R. Ferro D 
Alloys Ltd. v. Mahavir Mahto & Anr., (2002] 9 SCC 450, referred to. 
PER P.K. Balasubramanyan, J. (concurring): 
1.3. On a construction of the contract of insurance, the insurer had not 
undertaken the liability for interest and penalty, but had undertaken to E 
indemnify the employer only to reimburse the compensation the employer was 
liable to pay among other things under the Workmen's Compensation Act, 
1923. Unless one is in a position to void the exclusion clause concerning 
liability for interest and penalty imposed on the insured on account of his 
failure to comply with the requirements of the Act, the insurer cannot be made F 
liable to the insured for those amounts. [452-B, C] 
1.4. The obligation for the insurer clearly stands limited and the relevant 
proviso providing for exclusion of liability for interest or penalty has to be 
given effect to. Unlike the scheme of the Motor Vehicles Act, 1988, the 
Workmen's Compensation Act does not confer a right on the claimant for G 
compensation under that Act to claim the payment of compensation in its 
entirety from the insurer himself. The entitlement of the claimant under the 
Workmen's Compensation Act is to claim compensation from the employer. 
As between the employer and the in·surer, the rights and obligations would 
depend upon the terms of the insurance contract. Construing the contract H 
446 
SUPREME COURT REPORTS [2006) SUPP. I S.C.R. 
A involved here it is clear that the insurer has specifically excluded any liability 
for interest or penalty 

Excerpt shown. Read the full judgment & AI analysis in Lexace.