There is no “straightjacket formula” in determining the rate of interest on compensation amount awarded in motor vehicle accident cases, said the High Court of Karnataka while rejecting an insurance company’s plea for reducing the rate of interest to 8% from the 9% awarded by a motor accident claims tribunal in a case of death caused due to road accident.

“There cannot be any straitjacket formula in determining the rate of interest and that the same must depend on the facts and circumstances of each case. The guiding principle remains that the rate must neither be punitive nor non-existent but must strike a balance between fairness to the claimant and reasonableness to the insurer,” the court observed.

Appeal dismissed

Justice Tara Vitasta Ganju passed the order while dismissing an appeal filed by United India Insurance Co. Limited., questioning only the rate of interest awarded by the tribunal in 2018 on the compensation amount while disposing of a claim petition filed by a man, along with two children, for the death of his wife, a coolie, who had died when a van hit her while she was crossing a road in Bengaluru in November 2016.

The insurance company had contended that tribunal should have imposed prevailing bank rate of interest or a maximum of 8% on the compensation amount of ₹16.57 lakh.

No fixed interest rate

The Court said that Motor Vehicles Act does not prescribe a fixed interest rate but leaves it to the Tribunal’s discretion, requiring simple interest from the claim date, and the courts, from time to time have evolved interest rate to compensate for delayed payment of compensation.

On analysing the rate of interest awarded in various accident cases that were affirmed by the apex court during past 5-10, Justice Ganju pointed out that the tribunals and the courts have been consistently been awarding interest at 9% from the date of accident on the compensation amount.

“While bank rates may serve as a guiding factor, they are not determinative, and the discretion of the Court remains paramount. In addition, the Supreme Court has awarded/upheld the award of 9% per annum even in serious injury/death cases,” the High Court observed.

The rate of interest 9% is more appropriate in case involving death and serious injury especially, where there is a long delay in the claimants receiving the compensation, the High Court said while pointing out that award of interest is usually determined on a case-to-case basis and at the rate which is just and fair and reasonable.