Decided On: 22.3.202 vs Sh. Lachhman Thapa & Ors
2021 Latest Caselaw 2365 HP

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

FAO (WCA) No. 419 of 2012

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                           Decided on:       22.3.2021
    The New India Assurance Co. Ltd.           .....Appellant.
                             Versus





    Sh. Lachhman Thapa & ors.                   .....Respondents.

    Coram
    Ms. Justice Jyotsna Rewal Dua, Judge.





    Whether approved for reporting?1 Yes.

    For the appellant              :     Mr. B.M. Chauhan, Senior
                                         Advocate with Mr. M.S. Katoch,
                           r             Advocate.

    For the respondents            :     Ms. Ritta Goswami and Ms.
                                         Komal Chaudhary, Advocates, for
                                         respondent No. 1.

                                         Mr. Naveen K. Bhardwaj,


                                         Advocate, for respondent No. 2.

                                         Nemo for respondents No. 3 & 4.




    Jyotsna Rewal Dua, Judge

The appellant-Assurance Company has assailed the

order passed by Employee's Compensation Commissioner on the

ground that liability of payment of interest could not have been

fastened upon it in view of specific terms of the Insurance Policy.

2. Bare Minimum factual position.

2(i) Learned Employee's Compensation Commissioner in

its judgment dated 25.5.2012 held that deceased Dil Bahadur

Thapa was working as a labourer with respondent No.2/Dot Ram.

Whether the reporters of the local papers may be allowed to see the Judgment?

He died on 26.8.2007 during the course of his employment at the

work site of respondent No. 2 at RD 1820 Malana Phase-II, Tehsil

.

Manali, District Kullu. Respondent No.2/Dot Ram was given the

work contract by respondents No. 3 and 4. Age of the deceased

at the time of accident was determined as 20 years. Income of

the deceased at the time of his death was assessed at Rs. 75/-

per day. As per Section 4 Schedule IV of the Employees

r to Compensation Act, factor of 224 was applied to work out the

payable compensation. The claimants were accordingly held

entitled to compensation of Rs. 2,52,000/- [224(factor)X1125(half

salary of the deceased)] alongwith interest @ 12% per annum from

the date it fell due till its payment. In the facts and

circumstances of the case, the claimants were also held entitled

to penalty to the extent of 50% on the compensation amount.

2(ii) Liability to pay the compensation amount of

Rs. 2,52,000/- alongwith 12% interest per annum from the due

date was fastened upon the appellant-Assurance company

whereas liability to pay the penalty was upon respondent No.

2/Dot Ram/employer of the deceased.

3. Heard learned counsel for the parties.

3(i) The short contention of the appellant is that it is

only liable to pay the compensation amount determined by the

Employee's Compensation Commissioner and that the liability to

pay interest in view of the unambiguous terms of the policy

executed between the appellant and the employer Dot

.

Ram/respondent No. 2 cannot be foisted upon the Assurance

Company.

3(ii) Learned counsel for the respondents by placing

reliance upon following para of Ved Prakash Garg v. Premi

Devi, reported in (1997) 8 SCC 1 submits that Assurance

"19.

Company is bound to make good the claim for compensation

alongwith interest:

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 the Workmen's Commissioner under the Compensation Act on the conjoint operation of Section 3 and Section 4-A sub Section (3)(a) of the Compensation Act. So far as additional

amount of compensation by way of penalty imposed on the insured 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."

4. Observations.

4(i) Before venturing into the contentions raised by the

parties, it will be appropriate to first refer to the provisions of

Workmen's Compensation Policy executed between the employer

and the appellant. This policy is Ex.R-1 and was valid from

21.2.2007 to 20.2.2008. The clause relevant for the purpose of

considering the point raised by the appellant is extracted

hereinafter:

.

"Provided always that in the event of any changes in the law(s) or the substitution of other legislation thereof this policy shall remain in force but the liability of the Company shall

be limited to such sum as the Company would have been liable to pay if the Law (s) had remained unaltered. Law(s):

1. The Workman's Compensation Act, 1923 and subsequent amendments of the said Act, prior to the date of the

issue of Policy.

2. The Fatal Accidents Act, 1855.

It is hereby understood and agreed that the Workmen's Compensation (Amendment) Act of 1959 (8 of 1959, and 1962

(64 of 1962) and 1976 (65 of 1976) and 1984 (22 of 1984) and

1995 (30 of 1995) and 2000 (46 of 2000) and deemed to be added to the Laws set out in the Schedule to the Policy. Provided that the insurance granted hereunder is not extended to include:

(i) any interest and/or penalty imposed on the insured on account of his/her failure to comply with the requirements laid down under the W.C. Act, 1923 and

(ii) any compensation payable on account of occupational

diseases listed in part 'C' of schedule III of the W.C. Act, 1923."

Relying upon the emphasized portion of the terms of

policy (extracted above), learned counsel for the appellant contends

that it is not liable to pay the interest awarded by the learned

Employee's Compensation Commissioner as the policy

specifically excludes the liability of payment of interest.

4(ii)(a) In Ved Prakash Garg's case supra the Hon'ble Apex

Counsel was considering the question as to whether the

insurance coverage as available to the insured employers-owners

of the motor vehicles in relation to their liabilities under the

Workmen's Compensation Act on account of motor accident

.

injuries caused to their workmen would include additional

statutory liability foisted on the insured employers under Section

4-A(3) of the Compensation Act. The precise question framed

therein runs as under:

"Where an employee receives a personal injury in a motor

accident arising out of and in the course of his employment while working on the motor vehicle of the employer, whether the insurance company, which has insured the employer-owner of the vehicle against third party accident claims under Motor

Vehicles Act, 1988 (hereinafter referred to as 'the Motor Vehicles

Act') and against claims for compensation arising out of proceedings under the Workmen's Compensation Act, 1923 (hereinafter referred to as 'the Compensation Act') in connection with such motor accidents, is liable to meet the awards of

Workmen's Commissioner imposing penalty and interest against the insured employer under Section 4A(3) of the Compensation Act."

4(ii)(b) Judgment in Ved Prakash Garg's case supra as well as

the judgment in L.R. Ferro Alloys Ltd. vs. Mahavir Mahto,

reported in (2002) 9 SCC 450 came up for consideration before

the Apex Court in New India Assurance Co. Ltd. Vs.

Harshadbhai Amrutbhai Modhiya, (2006) 5 SCC 192.

The question involved in Harshadbhai's case was

whether interest was payable by an insurer while indemnifying

the insured the amount of compensation awarded against him

under the Workmen's Compensation Act. The policy involved

therein contained a proviso that "the insurance granted is not

extended to include any interest and/or penalty imposed on the

.

insured on account of his/her failure to comply with the

requirements laid down under the WC Act." While answering the

question the judgment passed in Ved Prakash Garg was also

noticed. It was observed that in Ved Prakash Garg's case it was

held 'in terms of the contract of insurance entered into by and

between the employer and the insurer under the provisions of

the Motor Vehicles Act, 1988 which would also apply in a given

case to the claim under the provisions of the Workmen's

Compensation Act, the insurer would also be liable for payment

of interest.' The court also took note of the judgment rendered

in LR. Ferro Aloys Ltd. Supra wherein it was observed that if the

amount of compensation is not deposited within a period of one

month, then the insurance company would be liable to

reimburse the owner the amount of compensation with interest

but not the penalty. Taking note of the above judgments, the

Apex Court in Harshadbhai's case held as under:

"13. Section 12 of the Act provides for the mode and manner of payment of compensation by a principal employer and/or his contractor. Section 17 of the Act nullifies contracting out in the following terms:

"17.Contracting out.- Any contract or agreement whether made before or after the commencement of this Act, whereby a workman relinquishes any right of compensation from the employer for personal injury arising out of or in the course of the employment, shall be null and

void in so far as it purports to remove or reduce the liability of any person to pay compensation under this Act."

.

14. By reason of the provisions of the Act, 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 indemnify the

employer. The insurer, however, unlike under the provisions of the Motor Vehicles Act does not have a statutory liability. Section 17 of the Act does not provide for any restriction in the matter of contracting out by the

employer vis-a-vis the insurer.

15. The terms of a contract of insurance would depend upon the volition of the parties. A contract of insurance is governed by the provisions of the Insurance Act. In terms of the

provisions of the Insurance Act, an insured is bound to pay

premium which is to be calculated in the manner provided for therein. With a view to minimize his liability, an employer can contract out so as to make the insurer not liable as regards indemnifying him in relation to certain matters

which do not strictly arise out of the mandatory provisions of any statute. Contracting out, as regards payment of interest by an employer, therefore, is not prohibited in law.

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."

Hon'ble Justice P.K. Balasurbramanayan while

concurring and supplementing the above judgment of Hon'ble

.

Justice S.B. Sinha also held as under:

"24. Section 17 of the Workmen's Compensation Act voids only a contract or agreement whereby a workman relinquishes any right of compensation from the employer for personal injury arising out of or in the course of the employment and insofar as it purports to remove or reduce the liability of any person to pay

compensation under the Act. As my learned brother has noticed, in the Workmen's Compensation Act, there are no provisions corresponding to those in the Motor Vehicles Act, insisting on the insurer covering the entire liability arising out of an award

towards compensation to a third party arising out of a motor

accident. It is not brought to our notice that there is any other law enacted which stands in the way of an insurance company and the insured entering into a contract confining the obligation of the insurance company to indemnify to a particular head or to

a particular amount when it relates to a claim for compensation to a third party arising under the Workmen's Compensation Act. In this situation, the obligation of the insurance company 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 the

Workmen's Compensation Act, does not confer a right on the claimant for 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 the compensation from the employer. As between the employer and the insurer, the rights and obligations would depend upon the terms of the insurance contract. Construing the contract involved here it is clear that the insurer has specifically excluded any liability for interest or penalty under the Workmen's Compensation Act and confined its liability to indemnify the employer only against the amount of compensation ordered to be paid under the Workmen's Compensation Act. The High Court was, therefore, not correct in holding that the appellant

insurance company, is also liable to pay the interest on the amount of compensation awarded by the Commissioner. The workman has to recover it from the

.

employer."

4(ii)(c) It has thus been clearly held in Harshadbhai's case

that the judgment rendered in Ved Parkash Garg's case was in

context of the liability of the insurance company in respect of a

contract of Insurance under the Motor Vehicles Act, which would

also apply in a given case to a claim under Workman's

Compensation Act. The Apex Court has clearly held in

Harshadbhai's case supra that the Employee's Compensation Act

does not contain a provision like Section 147 of the Motor

Vehicles Act. Employee's Compensation Act does not provide for

compulsory compensation. Therefore, the contracting parties are

free to choose their own terms of the contract. Instant also is not

a case where an accident had occurred by use of a motor vehicle

governed by provision of Motor Vehicles Act. The terms of the

insurance policy involved in the case (extracted earlier) are not much

different to the terms of the policy interpreted by the Apex Court

in Harshadbhai's case. The appellant- Assurance company has

clearly contracted out any liability to pay interest on account of

employer's failure to comply with the requirement under the

Worksmen's/Employee's Compensation Act. The insurance policy

is not in dispute. Its terms are not in dispute. In light of the law

laid down by Hon'ble Apex Court, the contention of the

appellant-Assurance company that it is not liable to pay interest

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upon the compensation amount awarded by the Employees

Compensation Commissioner, is justified. Learned Counsel for

the respondent has cited various authorities to show that in

many cases insurance companies have been fastened upon the

liability to pay the interest on the compensation amount. Suffice

to note that each case under the Employee's Compensation Act

has to be determined in terms of the insurance policy executed

between the contracting parties. In the instant case there is no

dispute that the contracting parties had excluded foisting the

liability for paying interest upon the insurance company.

Accordingly, I find merit in the appeal and the same is allowed.

Impugned judgment passed by Employee's Compensation

Commissioner, to the extent it fastens the liability to pay interest

on the compensation amount upon the appellant-Assurance

Company, is quashed and set aside. It is ordered that the liability

to pay the interest awarded by learned Employee's

Compensation Commissioner shall be borne by

employer/respondent No. 2/Dot Ram. Pending application(s), if

any, shall also disposed of.

Jyotsna Rewal Dua Judge 22nd March, 2021 (vs)