RATE OF INTEREST UNDER SECTION 171, MOTOR VEHICLES ACT, 1988

A CONUNDRUM

Section 171 of the Motor Vehicles Act, 1988 (hereinafter referred to as the MV Act) mandates that where any Claims Tribunal allows a claim for compensation made under this Act, such Tribunal may direct that in addition to the amount of compensation, simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as it may specify in this behalf.

Section 171 leaves the discretion with the Claims Tribunal to determine the rate of interest to be paid on such compensation. However, the statute does not prescribe the minimum threshold qua the rate of interest to be imposed by the Tribunal in addition to the compensation amount.

In National Insurance Co. Ltd. vs. Keshav Bahadur, (2004) 2 SCC 370, the Supreme Court has held that the provision requires payment of interest in addition to compensation already determined. Even though the expression "may" is used, a duty is laid on the Tribunal to consider the question of interest separately with due regard to the facts and circumstances of the case. It was clearly held by the Supreme Court that the provision of payment of interest is discretionary and is not and cannot be bound by rules.

Pertinently, no rate of interest is also fixed under Section 171 of the MV Act and the duty has been bestowed upon the Claims Tribunal to determine such rate of interest.

The Constitutional Courts have, however, laid down relevant criteria, from time to time, for determining the rate of interest imposable under Section 171 of the MV Act

In the year 2001, in the case of Kaushnuma Begaum (Smt.) and others vs. New India Assurance Co. Ltd. & Others, (2001) 2 SCC 9 on the question of rate of interest to be awarded, the Supreme Court held as follows:

"24. Now, we have to fix up the rate of interest. Section 171 of the MV Act empowers the Tribunal to direct that ‘in addition to the amount of compensation simple interest shall also be paid at such rate and from such date not earlier than the date of making the claim as may be specified in this behalf’. Earlier, 12% was found to be the reasonable rate of simple interest. With a change in economy and the policy of Reserve Bank of India the interest rate has been lowered. The nationalized banks are now granting interest at the rate of 9% on fixed deposits for one year. We, therefore, direct that the compensation amount fixed hereinbefore shall bear interest at the rate of 9% per annum from the date of the claim made by the appellants........"

In the year 2002, in the case of United India Insurance Co. Ltd. and others vs. Patricia Jean Mahajan and others (2002) 6 SCC 281, the Supreme Court held that the interest is payable on equitable grounds to the aggrieved person who is deprived of using the money which is due and payable to him. The Supreme Court observed as follows:

"In our view the reason indicated in the case of Kaushnuma Begum (supra) is a valid reason and it may be noticed that the rate of interest is already on the decline. We therefore, reduce the rate of interest to 9% in place of 12% as awarded by the High Court."

In the year 2003 in the case of Abati Bezbaruah v. Dy. Director General, Geological Survey of India and Another, (2003) 3 SCC 148 it was held by the Supreme Court that the question as to what should be the rate of interest would depend upon the facts and circumstances of each case. Award of interest would normally depend upon the bank rate prevailing at the relevant time. Interest @ 9% was awarded in the said case.

However, in the year 2005 in the case of Tamil Nadu State Transport Corpn. Ltd. vs. S. Rajapriya, (2005) 6 SCC 236 the Supreme Court again taking note of the then prevailing rate of interest on bank deposits directed for lowering the rate of interest fixed by the Tribunal at 9% per annum and altered the same to 7.5% per annum.

Reference may also be made to the decision of the Supreme Court in Dharampal v. UP State Road Transport Corporation (2008) 12 SCC 208, wherein it was emphasised that a duty has been laid on the Tribunal to determine the question of interest by taking into account all the facts and circumstances of the case. The Apex Court observed that the change in economy and policy of the RBI qua the rate of interest would be a relevant criterion for granting interest on compensation

In the case of Supe Dei and Others v. National Insurance Company Ltd. and Another, (2009) 4 SCC 513, the Supreme Court held that 9% per annum would be the appropriate rate of interest to be awarded in Motor Accidents Claims compensation cases.

Likewise, in the case of Sube Singh and another versus Shyam Singh (Dead) and Others, 2018 (2) R.C.R. (Civil) 131 (SC) the rate of interest of 6% per annum awarded by the Motor Accidents Claims Tribunal was modified by the Supreme Court of India to 9% per annum.

The Supreme Court has, however, in some of its recent decisions, awarded interest @ 9% p.a. as in Kirti vs. Oriental Insurance Co. Ltd. (2021) 2 SCC 166, and in Rahul Sharma & Anr. vs National Insurance Co. Ltd. (2021) 6 SCC 188, and has also awarded interest @ 12% p.a. in United India Insurance Co. Ltd. vs. Satinder Kaur (2021) 11 SCC 780.

There is yet another line of cases of the Supreme Court in the recent past i.e., Sarup Singh @ Ram Saru vs. HDFC Ergo General Insurance Co Ltd. (2023) 1 SCC 159, Divya vs. The National Insurance Co. Ltd. & Anr. (2022) SCC Online SC 1488, Velayudhan vs. National Insurance Co. Ltd & Anr (2022) SCC Online SC 1168, wherein interest has been granted @7.5% p.a.

Thus, the Supreme Court seems to be re-affirming the principle that no uniform rate of interest can be laid down under the MV Act.

It is pertinent to mention here that Section 171, MV Act also does not mention anything about imposition of penal interest in case of default in payment of compensation. One, however, finds provisions for such penal interest being there in Section 4A of the Workmen’s Compensation Act.

A line of argument can be raised that the quantum of penal interest prescribed in Section 4A of the Workmen’s Compensation Act may be borrowed for the purpose of determining the interest component in Section 171, MV Act. After all, both are beneficial legislations intended to benefit victims or their dependants in cases of personal injuries.

The interchangeable nature of benefits under the Workmen’s Compensation Act and the MV Act has been statutorily recognized in Section 167, MV Act. Section 167, MV Act reads as follows:

“167. Option regarding claims for compensation in certain cases.—Notwithstanding anything contained in the Workmen’s Compensation Act, 1923 (8 of 1923), where the death of, or bodily injury to, any person gives rise to a claim for compensation under this Act and also under the Workmen’s Compensation Act, 1923, the person entitled to compensation may without prejudice to the provisions of Chapter X claim such compensation under either of those Acts but not under both.”

However, the Supreme Court has closed the door to the usage of the benefits of Section 4A of the Workmen’s Compensation Act in determining the interest component under Section 171, MV Act.

The law on this issue was succinctly laid down by the Apex Court in Abati Bezbaruah v. Geological Survey (supra) which reads as under:

“6. The question as to what should be the rate of interest, in the opinion of this Court, would depend upon the facts and circumstances of each case. Award of interest would normally depend upon the bank rate prevailing at the relevant time.

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18. Three decisions were cited before us by Mr A.P. Mohanty, learned counsel appearing on behalf of the appellant, in support of his contentions. No ratio has been laid down in any of the decisions in regard to the rate of interest and the rate of interest was awarded on the amount of compensation as a matter of judicial discretion. The rate of interest must be just and reasonable depending upon the facts and circumstances of each case and taking all relevant factors including inflation, change of economy, policy being adopted by Reserve Bank of India from time to time, how long the case is pending, permanent injuries suffered by the victim, enormity of suffering, loss of future income, loss of enjoyment of life etc., into consideration. No rate of interest is fixed under Section 171 of the Motor Vehicles Act, 1988. Varying rates of interest are being awarded by Tribunals, High Courts and the Supreme Court. Interest can be granted even if a claimant does not specifically plead for the same as it is consequential in the eye of law. Interest is compensation for forbearance or detention of money and that interest being awarded to a party only for being kept out of the money which ought to have been paid to him. No principle could be deduced nor can any rate of interest be fixed to have a general application in motor accident claim cases having regard to the nature of provision under Section 171 giving discretion to the Tribunal in such matter. In other matters, awarding of interest depends upon the statutory provisions, mercantile usage and doctrine of equity. Neither Section 34 CPC nor Section 4-A(3) of the Workmen's Compensation Act are applicable in the matter of fixing rate of interest in a claim under the Motor Vehicles Act. The courts have awarded the interest at different rates depending upon the facts and circumstances of each case. Therefore, in my opinion, there cannot be any hard-andfast rule in awarding interest and the award of interest is solely on the discretion of the Tribunal or the High Court as indicated above.”

Thus, the common prescription, in terms of judicial dicta, is to determine the interest component under Section 171, MV Act based on the prevailing rate of bank interest.

However, that view is not without its share of problems. One must remember that bank interests, though a safe mode of investment, do not provide the highest of returns. People deposit money in bank, not so much for the interest but for the security and convenience that it provides. However, the compensation that is payable in a Section 166, MV Act application is determined by examining actual loss of life or limb and corresponding loss of income for the victim or the dependant. The prevailing rate of bank interest, therefore, may not be most correct parameter while determining what should be the rate of interest payable under Section 171, MV Act.

Pertinently, the Law Commission in its 149^th Report which was intended towards removal of deficiencies in The Motor Vehicle Act, 1988 recognized this lacuna in the Act and suggested amending Section 171 of the MV Act to prescribe a minimum of 15 % of interest. The Law Commission also suggested introducing the concept of penal interest in case of default in payment of compensation. The Law Commission proposed substituting Section 171 with the following alternative.

"171. Award of interest where claim is allowed.

(1) Where any Tribunal allows a claim for compensation made under this Act, it may direct that, in addition to the amount of compensation, simple interest shall also be paid at a rate of not less than fifteen per cent per annum from the date of the application under section 166 till the date of payment:

Provided that if the Tribunal is satisfied, for reasons to be recorded in writing, that interest at a rate less than fifteen per cent per annum, or interest for a shorter period may be awarded in any particular case, it may direct accordingly.

(2) Without prejudice to the provisions of sub-section (1), the Tribunal may in an appropriate case direct that interest shall be paid at a specified rate if the amount of compensation is paid or deposited within a stipulated period and, in default of such deposit, interest beyond the said period shall be paid at a higher rate."

The proposal, however, is still to see the light of day. For now, one remains at the mercy of the Tribunal’s discretion. However, the varied rates imposed by the Supreme Court in different cases leaves the room open for a litigant to implore the Claims Tribunals to levy an interest that is more beneficial; rather than being a nominal gesture.