Adjustment of MACT award ~ Principal or Interest or Costs ~ which Order !!

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

10^th Feb 2015.