(Hrishikesh Roy and Manoj Misra, JJ.)
Managing Director, Kunnel Engineers and Contractors Pvt. Ltd. _______________________________________________ Appellant;
v.
Divisional Manager, The New India Assurance Company Ltd. and Another _______________________________________ Respondent(s).
Civil Appeal No. 8064 of 2011, decided on May 3, 2023
The Order of the court was delivered by
Order
1. Heard Mr. P.V. Dinesh, the learned counsel appearing for the appellant. Also heard Mr. Amit Kumar Singh, the learned counsel appearing for the insurance company (respondent No. 1).
2. This appeal arise out of the order dated 29.09.2009 in MFA No. 67 of 2006 whereby the High Court has allowed the appeal filed by the insurance company and thereby directed the employer to pay interest on compensation as against the order of the Commissioner directing the insurer, to pay compensation with interest under the provisions of the Workmen’s Compensation Act, 1923 (now, the Employees Compensation Act, 1923) (for short, the ‘Act’). The sole reason offered by the High Court for allowing the appeal is that there is a contractual exception for the insurer, on payment of interest.
3. In this case, the employee was engaged as a Carpenter Helper with the employer. On 19.02.2001, the employee fell down from the second floor of the construction site and suffered serious injuries. He was rushed to the Hospital by the employer where he was treated and undoubtedly, all his hospital expenses were borne by the employer.
4. As the employer was insured with the respondent, on the next day of the accident, the employer reported the accident to the insurance company by letter dated 20.02.2001 and also requested for the claim form. As there was no response, further correspondence were exchanged and at that stage, the employee sent a legal notice seeking compensation from the employer or to take steps with the insurance company, to facilitate payment of compensation to him. As this did not elicit the required response, a claim petition was filed before the Commissioner, Workmen’s Compensation.
5. In course of the proceedings before the Court of the Commissioner for Workmen’s Compensation, Thiruvananthapuram, it was found that the claimant is a workman and that the accident occurred during the course of his employment. The total disability of the workman was assessed at 52% and on that basis, compensation for a sum of Rs. 1,80,989/- with 12% interest from the date of the accident was awarded, favouring the employee. Since a valid and existing insurance policy existed, the Commissioner passed on the liability to pay the compensation with interest, upon the insurance company.
6. The insurance company preferred an appeal before the High Court mainly on the ground that liability towards interest on compensation cannot be fastened on the insurance company as the policy excludes liability of the insurer, from paying the interest.
7. The above contention would require us to take note of the relevant terms of the policy:
“Provided that the Insurance granted hereunder is not extended to include:
(i) any interest and/or penalty imposed on the Insured an account of his/their failure to comply with the requirements laid down under the W.C. Act 1923 and
xxxxxx”
8. The Division Bench of the High Court in order to examine the liability of the insurance company bearing in mind the above clause in the insurance contract, adverted to the applicable law on the point and concluded that the insurer does not have any liability to indemnify the insured in respect of the interest, on the determined sum of compensation. The High Court relied on the judgment of this Court reported in New India Assurance Co. Ltd. v. Harshadbhai Amrutbhai Modhiya, (2006) 5 SCC 192 wherein this Court observed as follows:
“19. As indicated hereinbefore, a contract of insurance is governed by the provisions of the Insurance Act. Unless the said contract is governed by the provisions of a statute, the parties are free to enter into a contract as for their own volition. The Act does not contain a provision like Section 147 of the Motor Vehicles Act. Where a statute does not provide for a compulsory insurance or the extent thereof, it will bear repetition to state that the parties are free to choose their own terms of contract. In that view of the matter, contracting out, so far as reimbursement of amount of interest is concerned, in our opinion, is not prohibited by a statute.
20. The views taken by us find support from a recent judgment of this Court in P.J. Narayan v. Union of India [(2006) 5 SCC 200 : 2004 ACJ 452 (SC)] wherein it was held: (SCC p. 200, para 1)
“This writ petition is for the purposes of directing the insurance company to delete the clause in the insurance policy which provides that in cases of compensation under the Workmen’s Compensation Act, 1923, the insurance company will not be liable to pay interest. We see no substance in the writ petition. There is no statutory liability on the insurance company. The statutory liability under the Workmen’s Compensation Act is on the employer. An insurance is a matter of contract between the insurance company and the insured. It is always open to the insurance company to refuse to insure. Similarly, they are entitled to provide by contract that they will not take on liability for interest. In the absence of any statute to that effect, insurance companies cannot be forced by courts to take on liabilities which they do not want to take on. The writ petition is dismissed. No order as to costs.”
9. When a similar clause in the Insurance Contract was challenged before this Court in P.J. Narayan v. Union of India, (2006) 5 SCC 200, this Court held as under:
“This writ petition is for the purposes of directing the insurance company to delete the clause in the insurance policy which provides that in cases of compensation under the Workmen’s Compensation Act, 1923, the insurance company will not be liable to pay interest. We see no substance in the writ petition. There is no statutory liability on the insurance company. The statutory liability under the Workmen’s Compensation Act is on the employer. An insurance is a matter of contract between the insurance company and the insured. It is always open to the insurance company to refuse to insure. Similarly, they are entitled to provide by contract that they will not take on liability for interest. In the absence of any statute to that effect, insurance companies cannot be forced by courts to take on liabilities which they do not want to take on. The writ petition is dismissed. No order as to costs.”
10. With the assistance of the learned counsel for the parties, we have perused the provisions of Sections 4, 4A and 17 of the Act. Under these provisions, the liability to pay compensation to the employee falls due on the date of the accident. Such a view was also taken by this Court in Ajaya Kumar Das v. Divisional Manager reported 2022 Livelaw (SC) 102.
11. The records in the case would indicate that the employer did not tender compensation to the employee even on provisional basis and, therefore, under the exception clause extracted above in the insurance contract between the employer and the insurance company, the liability towards interest cannot be fastened on the insurance company. As payment of compensation becomes due on the date of the accident itself yet, until the amount was tendered by the insurance company on 20.01.2006, no payment was remitted by the employer for the accident which occurred on 19.02.2001, the burden if any towards interest, has to be on the employer.
12. The insurance company has tendered the quantified compensation payable to the employee and have therefore discharged their burden under the policy to indemnify the employer to the extent of the compensation payable to the employee. However, it is the employer who failed to pay the compensation with reasonable expediency therefore, the Workmen’s Commissioner has directed for payment of interest. As the insurance policy does not provide for indemnifying the employer to the extent of the sum payable towards the interest component, on the compensation sum, the liability to pay interest would fall upon the employer.
13. Notably, liability of the insurance company does not fall under the Act and the same is governed only by the terms of the contract. When parties have agreed upon the terms of the insurance contract, the Court cannot interpret the clauses in the contract, by adverting to equity principles. It is because in commercial transactions, the question of lack of bargaining power does not arise. This was the view taken by a three-Judge Bench of this Court in Oriental Insurance Company Limited v. Narbheram Power and Steel Private Limited, (2018) 6 SCC 534 wherein this Court held as under:
“10. The aforesaid principles are in the realm of settled position of law. The natural corollary of the said propositions is that the parties are bound by the clauses enumerated in the policy and the court does not transplant any equity to the same by rewriting a clause. The court can interpret such stipulations in the agreement. It is because they relate to commercial transactions and the principle of unconscionability of the terms and conditions because of the lack of bargaining power does not arise. The said principle comes into play in a different sphere.”
14. In view of the foregoing discussion and having regard to the exception clause incorporated in the insurance contract between the employer and the insurance company as extracted above, we see no infirmity with the view taken by the High Court in declaring that the insurer is not liable to satisfy the interest component payable by the employer, in terms of the award of the Commissioner.
15. The employer is therefore required to satisfy the balance sum payable towards the interest component and we see no reason to disturb such finding of the High Court. The appeal accordingly stands dismissed.
16. Pending application(s), if any, shall stand closed.
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