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.
