Simplified Explanation of the Judgment
The Patna High Court recently addressed a dispute involving the payment of statutory interest on delayed insurance claims under the Pradhan Mantri Gram Sadak Yojana (PMGSY). The case centered around a contractor who had completed road construction work, but suffered losses due to damages covered under an insurance policy issued by a government insurance company.
Despite submitting a survey report in 2007 assessing the damage, the insurance company delayed settlement. After multiple rounds of litigation, including contempt petitions and appeals, the insurance company eventually released the principal insurance amount in 2016—eight years later. The contractor then demanded statutory interest on the delayed payment, invoking the Insurance Regulatory and Development Authority (Protection of Policyholders’ Interests) Regulations, 2002.
These regulations mandate interest payment at a rate 2% above the “bank rate” if claims are delayed. The contractor argued that the bank rate should reflect common public understanding—like the interest rate on savings or fixed deposits. Conversely, the insurance company asserted that the bank rate must be derived from Section 49 of the Reserve Bank of India Act, 1934, which refers to the rate at which RBI buys or discounts commercial paper.
The court sided with the insurance company, holding that the statutory term “bank rate” should follow its legal definition under the RBI Act, not general perception. It upheld the payment of interest calculated at RBI’s notified bank rate plus 2%, and declined to issue further directions for enhanced interest.
However, the court acknowledged the petitioner’s request for transparency in calculation. It permitted the petitioner to approach the insurance branch for a detailed interest calculation chart, which the branch must provide within 30 days of such request.
Significance or Implication of the Judgment
This decision is significant for contractors and policyholders dealing with government insurance schemes, especially under infrastructure projects like PMGSY. It clarifies that:
- Delayed insurance claims are eligible for interest, reinforcing policyholder rights.
- However, the term “bank rate” will be interpreted strictly as per statutory definitions, ensuring consistency and preventing arbitrary or inflated claims.
The judgment balances statutory compliance with fairness and encourages prompt claim settlement by insurers.
Legal Issue(s) Decided and the Court’s Decision with Reasoning
- Whether the insurer was liable to pay statutory interest on delayed insurance payments?
- Yes. As per IRDA (Protection of Policyholders’ Interests) Regulations, 2002, insurers must pay interest for delayed claims at bank rate + 2%.
- How should the term ‘bank rate’ be interpreted under these regulations?
- As per Section 49 of the RBI Act, 1934. The court rejected the argument that bank rate should reflect saving account or lending rates, emphasizing the need for statutory consistency.
- Whether the petitioner is entitled to enhanced interest or a new interpretation of bank rate?
- No. The court held that since payment was already made at RBI’s bank rate +2%, no further relief could be granted.
- Was the petitioner entitled to know how the interest was calculated?
- Yes. The court directed that upon request, the insurance company must provide a calculation chart within 30 days.
Judgments Referred by Parties
- CWJC No. 17027/2008
- CWJC No. 6395/2010
- LPA No. 455/2012
- CWJC No. 6065/2010
- LPA No. 468/2012
- MJC No. 2399/2015
- MJC No. 3095/2016
Judgments Relied Upon or Cited by Court
- Reserve Bank of India Act, 1934 (Section 49)
- IRDA (Protection of Policyholders’ Interests) Regulations, 2002
- IRDA (Protection of Policyholders’ Interests) Regulations, 2017
Case Title
M/s Surendra Prasad Singh v. Union of India & Ors.
Case Number
CWJC No. 11083 of 2016
With CWJC No. 10667 of 2016
Citation(s)
2021(1)PLJR 93
Coram and Names of Judges
Hon’ble Mr. Justice Rajeev Ranjan Prasad
Names of Advocates and who they appeared for
Mr. Aditya Narayan Singh – for the petitioner
Mr. Durgesh Kumar Singh – for the Insurance Company
Link to Judgment
https://patnahighcourt.gov.in/viewjudgment/MTUjMTEwODMjMjAxNiMxI04=-w9ExVgO7B2I=
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