Motor Insurance is compulsory ~ all vehicles on public road
should compulsorily have insurance – not a policy covering the vehicle or its
owner but some, which are stated in the Motor Vehicles Act itself. Sec
147 of Motor Vehicles Act 1988 specifies the requirements of policies and
limits of liability.
For ease of compensation to victims involved in a motor vehicle
accident, Motor Accident Claims
Tribunals have been constituted. The
defences available to the Insurer are very limited and again specified in the
Motor Vehicles Act itself. There can be
circumstances where the amount deposited in satisfaction of the award could be
less than the actual award + interest + costs.
Ever wondered, as to how the amount would be adjusted – against
Principal, or Interest or Costs – in which order ? – this was answered in Civil
Appeal no. 3056 of 2008 before Apex
Court – the defendant being Oriental
Insurance Co Ltd.
The claim
arose out of a road accident whence an Engg Graduate was killed in Apr
1993. The victims filed application
seeking compensation of 2 crores. The
Tribunal in Apr 1997 awarded Rs.98,40,500/- as compensation with
interest @ 12% p.a. from the date of petition + costs of Rs.99443/- Being
aggrieved, the Insurers preferred appeal.
The High Court granted stay of execution of award subject to deposit of
Rs.30 lakhs + costs. A Division bench
partly allowed the appeal in Dec 2001 reducing to compensation to
Rs.56,40,000/- retaining the interest
rate @ 12%.
The Insurers
deposited a sum of Rs.23,27,635/- in Sept 2002 claiming it to be full and final
satisfaction of the award. The victims
filed Execution Petition before the Executing Court claiming an amount of Rs.20,16,700/- The Insurers contended that their liability to
pay interest gets discharged when it deposits the award
amount in full. Thus, relying on the principle of accrual method, they stated that only a sum of Rs.36,650/- was liable to be paid, which was
deposited in July 2003.
The
Executing Court took a view that the amounts deposited by the Insurer from time
were liable to be adjusted towards the component of interest first and
thereafter remnant towards the decretal amount – by which Insurer’s liability was
fixed vide order of Aug 2004 to the extent
of Rs.17,70,657/- together with
interest @ 12% p.a. from
the date of filing of the Execution Petition till the
date of realization. Insurers challenged
this before High Court of Judicature, Andhra Pradesh.
The
learned single Judge
of the High
Court of Judicature, Andhra
Pradesh, in July 2005 held that the part
payments deserve to be adjusted towards the principal decretal
amount and not any component of interest accrued upto that
date. So the matter was agitated before the Supreme Court of India. Apex Court
opined that before adverting to the
various issues involved in the case and
the contentions advanced by
the counsel on either side, we have given
our anxious consideration to the
judgment impugned of the learned single Judge of the Andhra Pradesh High Court.
Extracting relevant paras of impugned judgment – it was stated that it
is that in a plethora of judgments, the
Supreme Court as
well as the High Courts took the
view that any
amount deposited under Rule
1 of
Order 21 CPC
must be first
adjusted towards interest. It added that the expression “interest if
any” occurring in both the provisions is significant.
A decree may
comprise of principle amount claimed in the suit, as well as
a component of interest up to the date of decree. Once a
decree is passed
for certain amount, it becomes a principle by itself and the liability to pay interest thereon, and if so,
the rate at which it is to be paid, would depend upon the terms
of decree. The
amount that carries the interest
till the date of realization would be the
one stipulated in the decree. It
is not permissible for a
Court to award interest on
interest. Sub section (3) of
Section 3 of the - Interest Act clearly
prohibits grant of
interest on interest.
The Court
observed the passing of order of High Court to be based on considerations of
: Firstly, the judgments relied upon by
the claimants are based on the pre-amended provisions of Order 21 Rule 1 C.P.C; Secondly, in
the cases which
were decided subsequent
to amendment, the issue - of
appropriation of amounts has not fallen for consideration. Thirdly, a decree comprises of principal
claimed in the suit as well as component of interest. Hence, once a decree is passed
for certain amount, it becomes
principal by itself and Section
3(3) of Interest Act clearly prohibits grant of
interest on interest.
It was
further pointed out that the law have not looked upon favourably where the
judgment debtor does not pay or deposit the decretal amount
within the time
granted as one cannot be permitted to take advantage of
his own default. Therefore,
the normal rule that is followed is to allow the deposit or
payment, if it is in
part, to be adjusted towards the interest due, etc., However, when there is a
shortfall in deposit,
the amount has
to be adjusted towards interest
and costs, then it has to
be adjusted towards principal. In money suit, the amount consists of
principal and interest till the suit is
filed. But, in case of award passed
under the Act, the question of inclusion of
any interest on the decretal
amount does not
arise.
The Court
held that keeping in view the
ratio of the Constitution
Bench judgment in
Gurpreet Singh (supra),
where considering an identical question of CPC, it was held that if the
amount deposited by the judgment
debtor falls short of the
decretal amount, the decree-holder is
entitled to apply
the rule of appropriation by appropriating the amount first
towards interest, then towards costs and subsequently towards
principal amount due under the decree.
The Hon’ble
CJ held that they are of the opinion that the appellants herein
are entitled to the amount awarded by the Executing Court,
as the amounts deposited by the judgment
debtor fell short
of the decretal
amount. After such appropriation, the decree-holder is
entitled to interest only to the extent of
unpaid - principal amount. Hence,
interest be calculated on the
unpaid principal amount. The Court thereby
allowed the appeal, setting aside
the impugned judgment of High Court passed in July 2005
and restoring the order of Executing Court
dated 18.08.2004.
With regards
– S. Sampathkumar
10th
Feb 2015.
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