British India General Insurance Co.,
Ltd. Vs. Captain Itbar Singh & Ors  INSC 78 (11 May 1959)
Motor Car lnsurance--Suit for damages by
third Party- Insurance company added defendants- Defence if other than
statutory available-Interpretation of--Motor Vehicles Act, 1939 (4 of 1939),
SS. 95, 96,
A suit claiming damages, for negligent
driving was filed aginst the owner of a motor car, who was insured against
third party risks. The insurer, was subsequently added as defendant to the suit
under s. 96(2) of the Motor Vehicles Act, 1939. it contended that the defence
available to it was not restricted to the grounds enumerated in s. 96(2) Of the
Act, but that it was entitled to take all defences including those on which the
assured himself could have relied for his defence, subject only to the
restriction that it could not in view of S. 96(3) Of the Act rely on the
conditions of the policy as a defence.
Held that an insurer made a defendant to the
action under S. 96(2) of the Act was not entitled to defend it on a ground not
specified in that section.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 413, and 414 of 1958.
Appeals from the order dated April 27, 1955,
of the Punjab High Court in Civil Revisions Nos. 81-D of 1953 and 96-D of 1953
1959 April 21, 22, 23, 24.-C. K. Daphtary
Solicitor General for India, Ram Behari Lal, D. K. Kapur and Sardar Bahadur,
for the appellants. The question in the present appeals turn around S. 96 of
the Motor Vehicles Act, 1939. The purpose of sub-s. (2) of S. 96 is to state
those grounds based on the policy of insurance on which the insurer may rely
for his defence. Sub-section (3) makes certain conditions of the policy of no
effect as against the 3rd party. Both Sub-ss. (2) and (3) are concerned only
with the conditions of the policy. They should not be interpreted so as to oust
other defences the insurer may wish to take e.g.
that there was no accident or that the
plaintiff was negligent or that there was contributory negligence etc.
When a person is joined as a party he has the
right to take all defences permissible in law.
[Subba Rao, J.-Did the insurer have a right
to be joined as a party, apart from the statute ? Could he be joined under
Order 1, Rule 10, of the Code of Civil Procedure ?] 169 I am not basing my case
on Order 1, Rule to of the Code of Civil Procedure. Apart from the statute, the
insurer would not be liable to the third party, but only to the assured.
[Das, J.-Is it not correct that the statute
gives the insurer a right to be joined as a party which he did not have
previously ? If so, the right cannot be extended beyond what the statute
gives.] It is true that the statute gives a right to the insurer to become a
party to the action by the injured person which he did not have previously, but
the real question before the court is whether sub-s. (2) limits the right to
defend on the grounds stated in that sub-section. In my submission, subS. (2)
exhausts only the defences based on the conditions of the policy which the
insurer may wish to take. If it was intended that these were to be the only
defences open to the insurer the word " only " should have been used
instead of the words " any of " before the words " the following
grounds." What the legislature meant was that the insurer could defend the
action " also " on the grounds stated in sub-s. (2) in addition to
other grounds. If the court finds the section is clear no words can be added.
However, I submit the section is ambiguous. It can mean either that the insurer
can take other defences or that he is limited to the matters stated in sub-s.
(2). The Court should interpret the: section to give effect to the interests of
justice. The insurer is made liable to satisfy the judgmental It would be an
extreme hardship if he were not allowed to defend the action on merits. Apart
from the situations coming within sub-s. (2) the insurer would be condemned
unheard. The legislature could not have intended such a result. Even the cases
which hold that the defences of the insurer are limited to those stated in
subS. (2) recognise that this causes hardship. I.L.R. 1953 Bom. 109, I.L.R. 955
Bom. 39 and I.L.R. 1955 Bom. 278. In those cases the hardship was sought to be
overcome by allowing the insurer to defending the name of the insured. I do not
say that this latter procedure is correct, but it shows that there is hardship.
[Sarkar, J.-How can that be done ? How can
the -,insurer be allowed to defend in the name of the insured? How is the
record to be kept ? There is no provision under which it can be done, not even
under s. 1 5 1 of the Code of Civil Procedure.] Probably not. But that question
does not arise for deter- mination in this appeal. The hardship recognised by
the Bombay cases can be avoided if the interpretation of sub- S. (2) suggested
by me is accepted.
22 170 [Das, J.-How is that interpretation
possible in the face of sub-s. (6) ?] Sub-section (6) only prohibits the
insurer from avoiding liability in a manner other than that stated in sub-s.
The manner of avoiding liability stated in
sub-s. (2) is that the insurer should apply, to be made a party.
Consequently, the insurer can avoid
liability, only by being joined as a party. The word ' manner ' in the context
of sub-s. (6) refers only to the procedure the insurer may follow, not to the
grounds the insurer may wish to take.
Hence the insurer can avoid liability only by
being joined as a party, but can take any defences, he chooses including those
stated in sub-s.Otherwise the third party and the assured may collude and a
judgment may be passed which the insurer would be bound to satisfy without
having had 'an opportunity of defending himself. Or the case may go by default
against the assured or may be compromised. The real party affected is the
insurer and yet he is given no right to be heard except on the limited grounds
stated in sub-s.
(2). The assured is only a nominal party and
is not likely to be interested in contesting the case, as the decree has to be
satisfied by the insurer. The legislature could not have intended such a
result. It is contrary to natural justice that a party likely to be affected by
the proceedings should not be heard on the merits.
T. P. S. Chawla (with him, Dipak Datta
Choudhry) for the respondent. Chapter VIII of the Motor Vehicles Act, 1939, is
based on various English Statutes (See Report of Motor Vehicles Insurance
Committee 1936-37 known as the Roughton Committee). For a proper appreciation
of s. 96 it is necessary to consider the historical development of the law
relating to compulsory third party insurance in England.
Before 1930, there, was no system of
compulsory insurance in respect of third party risks in England. In the event
of an accident the injured third party had a right to sue the motorist and
recover damages. But if the motorist was a man of straw, the injured party was
in practice unable to obtain compensation. This was the situation the various
Road Traffic Acts were designed to avoid.
Even in those cases in which the motorist had
taken out an insurance policy, difficulties arose in the way of the injured
third party recovering compensation. The injured third party had no direct
right of action against the insurer. In the event of the insolvency of the
assured, the injured third party would rank a,; an ordinary creditor and would
not receive complete satisfaction for his decree. The Third Parties Rights 171
Against Insurers Act, 1930, created a system of statutory subrogation in such
cases. (Halsbury, 3rd Edn., Vol. 22, PP.
339, 372). The provisions of this Act have
been sub- stantially reproduced in s. 97 of the Motor Vehicles Act.
As a result the third party can sue the
insurer directly in cases.
Next the Road Traffic Act, 1930, introduced a
scheme of compulsory insurance. Section 35(1) made third party insur- ance
Compulsory. Section 94(1) of the Motor Vehicles Act is worded in the Same Way.
Similarly s. 36 Of the English Act is substantially reproduced in s. 9.5 of the
Motor Vehicles Act. Section 38 of the Act of 1930 made certain conditions of
the policy ineffective so far as third parties were concerned. The object was
that claims of injured third parties should not fail because the assured had
not complied with or committed a breach of certain conditions in the policy.
(Shawcross on Motor Insurance, 2nd Edn., pp. 219, 277).
But the Act of 1930 did not go far enough. In
1934 another Road Traffic Act was passed the object of which was to compel
Insurers to satisfy judgments obtained against the insured (Shawcross ibid P.
271). This Act contemplated three separate actions between the various parties.
The first action was by the injured third party against the assured. By s.
10(1) of that Act, which is reproduced in s. 96(1), the insurer was obliged to
satisfy the decree against the, assured. If the insurer failed to do so, the
third party had a right of action against the insurer, based on the judgment
Obtained against the assured. (Shawcross, p. 296 ; Halsburry 3rd Edn., Vol.
22,PP. 374-5). This was the second action. It is doubtful if even the defence
of collusion would be open to the insurer in the second action.
(Sliawcross, P. 296). Then S. 10(2) of the
Road Traffic Act of 1934, is substantially reproduced in s. 96(2)(a). By this
provision in certain events the insurers liability ceases. To appreciate s.
96(2)(b) it is necessary to keep in mind s. 38 of the Road Traffic Act of 193o
and S. 12 of the Road Traffic Act of 1934. Both these letter sections made
certain conditions of the policy ineffective against third parties. Whilst
drafting the Motor Vehicles Act the legislature reversed the manner of
statement. In s. 96(2)(b) the legislature has stated affirmatively what are the
conditions on which the insurer can rely as against a third party. This was
done to avoid doubt and uncertainly.
Then s. 10(3) of the Road Traffic Act, 1934,
gave the insurer a right to obtain a declaration that he was not liable on the
policy due to non-disclosure or misrepresentation as to 172 a material fact. In
this action a notice had to be sent to the third party injured who was given a
right to join as a party and oppose the action. This was the third action.
The same result is achieved by s. 96(2)(C).
What s. 96 does is to roll up into one these three actions which occurred in
English Law. This saves time and money and enables the three parties involved
to have their respective rights and liabilities settled in one action. But s.
96 does not give any party greater rights than it would have had in English
Law. At common law the insurer had no right to intervene in the action by the
injured party against the insured and oppose the claim on merits, e.g., that
there was no accident or negligence or that there was contributory negligence
The insurer could avoid liability only by
showing that he was not liable for some reason connected with the -policy.
This is the right which sub-s. (2) preserves.
It does not give additional rights to the insurer over what he would have had
at common law or in accordance with the English Statutes. On the interpretation
suggested by the Solicitor- General the insurer would get a right he never had
This is contrary to the object of Chapter
VIII which is to protect the injured third party and not the insurer. The
insurer is neither a necessary nor a proper party. under Order 1, Rule 10, Code
of Civil Procedure, in the action by the injured third party against the
[Subba Rao, J.-You need not deal with Order
1, Rule 10, Code of Civil Procedure, as the Solicitor-General has not relied on
it.] There is no ambiguity in s. 96(2). The sub-section clearly specifies the
defences open to the insurer and it is not permissible to add to those
defences. This is put beyond doubt by sub-s. (6). It prevents the insurer from
avoiding liability in a ` manner' other than that stated in sub-s.
(2). The 'manner' provided by sub-s. (2) is
by joining as a party and defending on the grounds stated There' fore, '
manner' refers to both the procedure and the grounds. To hold otherwise is to
make sub-s. (2) unnecessary. If the Legislature intended that the insurer
should be able to defend on grounds other than those stated in sub-s. (2) all
it needed to say was that the insurer would be entitled to join as a party. As
sub-s. (2) specifies the defenses the intention was clearly to limit the
insurer to those defences.
[Subba Rao, J.-Suppose the injured third
party and the insured collude or judgment is allowed to go by default, could
not the insurer have the judgment set aside or bring a suit to,have it set
aside ?] 173 In. my submission even a suit for this purpose is barred as that
would contravene sub-s. (6). Such a suit would enable the insurer to avoid
liability in a.' manner' which sub-s. (6) does not allow.
There is no hardship caused by giving full
effect to the section as it stands. The possibilities of collusion are remote,
and indeed illusory. (Shawcross, P. 296). By- s. 96(3) the insurer is given a
right to recover from the insured any sums paid, by him which he was not bound
to pay due to breaches of conditions in the policy, but which conditions have
been made ineffective as against the third party. Sub-section (4) of the same
section gives the insurer the right to recover from the assured the excess
which he is made to pay by virtue of s. 95, over his obligations in the policy.
The judgment is still against the assured who is the party primarily liable. It
is only made executable against the insurer. Apart from this, by s. 1(3) of the
Motor Vehicles Act, 1939, the legislature gave insurers six years to insert
provisions in their policies and take such other steps to protect themselves
against the assured committing them to liability as they thought fit.Most
insurers insert the control of proceedings clause in the policy (Halsbury, 3rd
Edn., VOl. 22 p. 338). Someone had to bear the loss ultimately, and the
legislature has tried so far as possible to ensure that the loss falls on the
person causing the accident. But, if the insured is impecunious the choice is
between allowing the loss to fall on the injured party or the insurer. The
legislature, in its wisdom has provided that in such a situation the loss shall
fall on the insurer. It is a part of the insurer's business to suffer such
losses and when entering the contract of insurance he contemplates that he
might be called upon to pay the loss.
Now, the Bombay cases referred to by the
Solicitor General are right in so far as they hold that the insurer can defend
only on the grounds stated in sub-s. (2). Those cases are wrong in proceeding
on the assumption that there is hardship caused to the insurer by this view.
They are based on a misunderstanding of the cases of Windsor v. Chalcraft,
 1 K.B. 279 and Jacques v. Harrison, 12 Q.B.D. 136, and on appeal, 12
Q.B.D. 165. It was not noticed in the Bombay cases that the provisions of
Indian Law equivalent to S. 24(5) of the judicature Act and Order 27, Rule 15,
R.S.C., were not as wide as the English provisions. Order 9, Rule 7, Code of
Civil Procedure, allows an ex-parte decree to be set aside only at the instance
of the defendant whilst there is no such limitation in 0. 27, R. 15, R.S.C.
There, is 174 no procedure known to law by
which the insurer can be allowed to defend in the name of the insured. This
cannot be done under s. 151, C.P.C. as it would contravene s. 96(6) and allow
the insurer to avoid liability in a 'manner' other than the one allowed. The Bombay
cases have not noticed sub-s. (6) at all. The procedure stated in those cases
[Sarkar, J. -Are we called upon to decide
that point in this case ? Apparently there is a revision petition pending in
the High Court between the same parties in which that question awaits
determination. Should we express an opinion on that point ?] The
Solicitor-General has adopted it as apart of his reasoning He has said that if
the insurer can take all the defences in the name of the insured, that is an
additional reason why sub-s. (2) should not be interpreted as to limit the
defences available to the insurer. I wants show that view is wrong. (The Court
disallowed this branch of the argument).
In the case reported as Windsor v. Chalcraft
 1 K.B.
279, the dissenting judgment of Slesser,
L.J., states the correct position. The judgment of Greer, L.J., show-, that lie
was in considerable doubt as to the correct position in law, but felt himself
bound by the earlier judgments reported in jacques v. Harrison, 12 O.B.D. 165.
Mckinnon, L.J., proceeded on the footing that the assured was only a nominal
defendant. As already submitted this is not correct. Even in English Law the
insurer could recover against the assured. (Halsbury, 3rd Edn,, Vol. 22, PP.
374, 379, 385). The case of Windsor V. Chalcraft was decided in May 1038. The Motor
Vehicles Act was passed in February, 1939. It is legitimate to assume that the
persons who drafted the Act were aware of this case. I submit that the real
purpose of sub-s. (6) was to give effect to the view of Slesser, L.J.
[Das, J.-That is rather far fetched.] I
submit it is not. Even in England the, view of Slesser, T..J., seems to have
been approved. Subsequent English cases show that the principle of Windsor v.
Chalcraft, is not to be extended. See Murfin v. Ashbridge  1 All E.R.231.
It was not necessary to expressly over rule the case of Windsor v. Chalcraft as
in 1946 the Motor Insurers Bureau was set tip in England, as a result of which
an insurer is bound to satisfy a judgment obtained by a third party against a,
motorist even if the motorist was not insured (Halsbury, 3rd Edn., Vol. 22, PP.
382 et. seq., Shawcross, ibid, Introduction LXXXVII et. seq.) This shows how
strong 175 the attempt to protect the third party has been. Actually the words
of s. 96(2) and (6) are clear to show that the insurer can take only the
defences mentioned in sub-s. (2) But if there be any doubt, a consideration of
the historical development of the law and the objects to be attained puts it
beyond doubt that the legislature intended this result.
C. K. Daphtari, in reply. It is wrong that at
common law the insurer could not be brought in as a party. At common law the
guarantor or indemnifier could be brought in by means of third party procedure
(see I.L.R. 35 All. 168 and Halsbury, 3rd Edn., Vol. 18, P. 535 and Gray v.
Lewis, L.R. (1873) 8 Ch. 1035, 1058).
Apart from the common law, the insurer could
also be joined as a party under 0. I, R. 10, Code of Civil Procedure.
I rely on the case of United Provinces v.
Atiqa Begum,  A.C. 16. A person should be joined as a party if his
presence is necessary for an effectual and complete adjudication. On this
principle the insurer ought to be joined as a party, and thus can take all
Chaula, in reply : The passage cited by the
Solicitor General from Halsbury, 3rd Edn., Vol. 18, P. 535, is actually against
him. The foot note (e) shows that at common law the insurer could not be joined
as a party to the action by the insured. Third party procedure did not exist at
Common Law. Even under third party procedure in England it is doubtful whether
this could be done (Shawcross, pp. 150-151). In any case there is no third
party procedure in Punjab. The cases 35 All. 168 and (1873) L.R. 8 ch. A. 1035
are also against him.
The insurer is neither a necessary nor a
proper party as there can be a complete and effectual adjudication without his
presence. The decree is to be a against the assured, not against the insurer.
Cur. adv. vult.
1959. May 11. The Judgment of the Court was
delivered by SARKAR J.-These two appeals arise out of two suits and have been
heard together. The suits had been filed against owners of motor cars for recovery
of damages suffered by the plaintiffs as a result of the negligent driving of
The owners of the cars were insured against
third party risks and the insurers were subsequently added as defendants to the
suits 176 under the provisions of sub-s. (2) of s. 96 of the Motor Vehicles
Act, 1939. The terms of that subsection will have to be set out later, but it
may now be stated that it provided that an insurer added as a party to an
action under it was entitled to defend on the grounds enumerated in it.
On being added as defendants, the insurers
filed written statements taking defences other than those mentioned in that
sub-section. The plaintiffs contended that the written statements should be
taken off the records as the insurers could defend the action only on the
grounds mentioned in the sub-section and on no others. A question thereupon
arose in the suits as to what defences were available to the insurers. In one
of the suits it was held that the insurer could take only the defences
specified in that sub-section and in the other suit the view taken was that the
insurers were not confined to those defences. Appeals were perferred from these
decisions to the High Court of Punjab. The High Court held that the insurers
could defend the actions only on the grounds mentioned in the subsection and on
Hence these appeals by the insurers.
The question is whether the defences
available to an insurer added as a party under s. 96(2) are only those
mentioned there. A few of the provisions of the Motor Vehicles Act have now to
be referred to. Section 94 of the Act makes insurance against third party risk
compulsory. Section 95 deals with the requirements of the policies of such
insurance and the limits of the liability to be covered thereby. Sub-section
(1) of this section provides "............ a policy of insurance must be a
policy which- (a)....................................................
(b) insures the person or classes of person
specified in the policy to the extent specified in subsection (2) against any
liability which may be incurred by him or them in respect of the death or
bodily injury to any person caused by or arising out of the use of the vehicle
in a public place." 177 Sub-section (2) of s. 95 specifies the limits of
the liability for which insurance has to be effected, and it is enough to say
that it provides that in respect of private cars, which the vehicles 'with
which these appeals are concerned were, the insurance has to be for the entire
amount of the liability incurred. Then comes s. 96 round which the arguments advanced
in this case have turned and some of its provisions have to be set out.
" Section 96. (1) If, after a
certificate of insurance has been issued under sub-section (4) of section 95 in
favour of the person by whom a policy has been effected, judgment in respect of
any such liability as is required to be covered by a policy under clause (b) of
sub-section (1) of section 95 (being a liability covered by the terms of the
policy) is obtained against any person insured by the policy, then,
notwithstanding that the insurer may be entitled to avoid or cancel or may have
avoided or cancelled the policy, the insurer shall, subject to the provisions
of this section, pay to the person entitled to the benefit of the decree any
sum not exceeding the sum assured payable there under as if he were the
judgment debtor, in respect of the liability, together with any amount payable
in respect of costs and any sum payable in respect of interest on that sum by
virtue of any enactment relating to interest on judgments.
(2) No sum shall be payable by an insurer
under sub-section (1) in respect of any judgment unless before or after the
commencement of the proceedings in which the judgment is given the insurer had
notice through the Court of the bringing of the proceedings, or in respect of
any judgment so long as execution is stayed thereon pending an appeal;
and an insurer to whom notice of the bringing
of any such proceeding is so given shall be entitled to be made a party thereto
and to defend the action on any of the following grounds, namely:- (a) that the
policy was cancelled by mutual consent or by virtue of any provision contained
therein before the accident giving rise to the liability, and 23 178 that
either the certificate of insurance was surrendered to the insurer or that the
person to whom the certificate was issued has made an affidavit stating that
the certificate has been lost or destroyed, or that either before or not later
than fourteen days after the happening of the accident the insurer has
commenced proceedings for cancellation of the certificate after compliance with
the provisions of sec- tion 105; or (b) that there has been a breach of a
specified condition of the policy, being one of the following conditions,
namely:- (i) a condition excluding the use of the vehicle- (a) for hire or
reward, where the vehicle is on the date of the contract of insurance a vehicle
not covered by a permit to ply for hire on reward, or (b) for organised racing
and speed testing, or (c) for a purpose not allowed by the permit under which
the vehicle is used, where the vehicle is a public service vehicle or a goods
vehicle, or (d) without side-car being attached, where the vehicle in a motor
cycle; or (ii) a condition excluding driving by a named person or persons or by
any person who is not duly licensed, or by any person who has been disqualified
for holding or obtaining a driving licence during the period of
disqualification; or (iii) a condition excluding liability for injury caused or
contributed to by conditions of war, civil war, riot or civil commotion; or,
(e) that the policy is void on the ground that it was obtained by the
non-disclosure of a material fact or by a representation of fact which was
false in some material particular.
(3) Where a certificate of insurance has been
issued under sub-section (4) of section 95 to the person by whom a policy has
been effected, so much of the policy as purports to restrict the insurance of
the 179 persons insured thereby by reference to any conditions other than those
in clause (b) of sub-section (2) shall, as respects such liabilities as are
required to be covered by a policy under clause (b) of sub -section (1) of
section 95, be of no effect:
Provided that any sum paid by the insurer in
or towards the discharge of any liability or any person which is covered by the
policy by virtue only of this sub-section shall be recoverable by the insurer
from that person.
(4) If the amount which an insurer becomes
liable under this section to pay in respect of a liability incurred by a person
insured by a policy exceeds the amount for which the insurer would apart from
the provisions of this section be liable under the policy in respect of that
liability, the insurer shall be entitled to recover the excess from that
(6) No insurer to whom the notice referred to
in sub-section (2) has been given shall be entitled to avoid his liability to
any person entitled to the benefit of any such judgment as is referred to in
subsection (1) otherwise than in the manner provided for in sub-section
(2)." It may be stated that the policies that were effected in these cases
were in terms of the Act and the certificate of insurance mentioned in s. 96
had been duly issued. It will have been noticed that sub-s. (1) of s. 96 makes
an insurer liable on the judgment obtained by the injured person against the
assured. Sub-section (2) provides that no sum shall be payable by the insurer
under sub-s. (1) unless he has been given notice of the proceedings resulting
in that judgment, and that an insurer who has been given such a notice shall be
entitled to be made a party to the action and to defend it on the grounds
enumerated. The contention of the appellants is that when an insurer becomes a
party to an action under sub-s. (2), he is entitled to defend it on all grounds
available at law including the grounds on which the assured himself could have
relied for his 180 defence and that the only restriction on the insurer's right
of defence is that he cannot rely on the conditions of the policy which sub-s.
(3) makes as of no effect. This is the contention which we have to examine in
To start with it is necessary to remember
that apart from the statute an insurer has no right to be made a party to the
action by the injured person against the insured causing the injury.
Sub-section (2) of S. 96 however gives him the right to be made a party to the
suit and to defend it. The right therefore is created by statute and its
content necessarily depends on the provisions of the statute. The question then
really is, what are the defences that sub-S. (2) makes available to an insurer
? That clearly is a question of interpretation of the sub-section.
Now the language of sub-s. (2) seems to us to
be perfectly plain and to admit of no doubt or confusion. It is that an insurer
to whom the requisite notice of the action has been given " shall be
entitled to be made a party thereto and to defend the action on any of the following
grounds, namely," after which comes an enumeration of the grounds. It
would follow that an insurer is entitled to defend on any of the grounds
enumerated and no others. If it were not so, then of course no grounds need
have been enumerated. When the grounds of defence have been specified, they
cannot be added to. To do that would be adding words to the statute.
Sub-section(6) also indicates clearly how
sub-s. (2)should be read. It says that no insurer to whom the notice of the
action has been given shall be entitled to avoid his liability under sub-s. (1)
" otherwise than in the manner provided for in sub-section. (2)". Now
the only manner of avoiding liability provided for in subs. (2) is by
successfully raising any of the defences therein mentioned.
It comes then to this that the insurer cannot
avoid his liability except by establishing ,such defences. Therefore sub-s. (6)
clearly contemplates that he cannot take any defence not mentioned in subS.
(2). If he could, then he would have been in a position to avoid his liability
in a manner other than that 181 provided for in sub-s. (2). That is prohibited
by sub-s. (6).
We therefore think that sub-s. (2) clearly
provides that an insurer made a defendant to the action is not entitled to take
any defence which is not specified in it.
Three reported decisions were cited at the
bar and all of them proceeded on the basis that an insurer had no right to
defend the action except on the grounds mentioned in sub-s. (2). These are
Sarup Singh v. Nilkant Bhaskar (1), Royal Insurance Co. Ltd. v. Abdul Mahomed
(2) and The Proprietor, Andhra Trading Co. v. K. Muthuswamy (3). It does not
appear however to have been seriously contended in any of these cases that the
insurer could defend the action on a ground other than one of those mentioned
in sub-s. (2).
The learned counsel for the respondents, the
plaintiffs in the action, referred us to the analogous English statute, The
Road Traffic Act, 1934, in support of the view that the insurer is restricted
in his defence to the grounds set out in sub-s. (2). But we do not think it
necessary to refer to the English statute for guidance in the interpretation of
the section that we have to construe.
We proceed now to consider the arguments
advanced by the learned Solicitor-General who appeared for the appellants.
He contended that there was nothing in sub-s.
(2) to restrict the defence of an insurer to the grounds therein enumerated. To
support his contention, he first referred to sub-s. (3) of s. 96 and said-that
it indicated that the defences that were being dealt with in sub-s. (2) were
only those based on the conditions of the policy. His point was that sub-s. (2)
permitted defences on some of those conditions and sub-s. (3) made the rest of
the conditions of no effect, thereby preventing a defence being based on any of
them. He said that these two sub-sections read together show that sub-s. (2)
was not intended to deal with any defence other than those arising -out of the
conditions of the policy, and as to other defences therefore sub-s. (2)
contained no prohibition. He further (1) I.L.R.  Bom. 296. (2) I.L.R.
 Bom. 1422.
(3) A.I.R. 1956 Mad. 464.
182 said that as under sub-s. (2) an insurer
was entitled to be made a defendant to the action it followed that he had the
right to take all legal defences excepting those expressly prohibited.
We think that this contention is without
foundation. Sub- section (2) in fact deals with defences other than those based
on the conditions of a policy. Thus cl. (a) of that sub-section permits an
insurer to defend an action on the ground that the policy has been duly
cancelled provided the conditions set out in that clause have been satisfied.
Clause (c) gives him the right to defend the
action on the ground that the policy is void as having been obtained by
non-disclosure of a material fact or a material false representation of fact.
Therefore it cannot be said that in enacting sub-s.(2) the legislature was
contemplating only those defences which were based on the conditions of the
It also seems to us that even if sub-s.(2)
and sub-s.(3) were confined only to defences based on the conditions of the
policy that would not have led to the conclusion that the legislature thought
that other defences not based on such conditions, would be open to an insurer.
If that was what the legislature intended, then there was nothing to prevent it
from expressing its intention. What the legislature has done is to enumerate in
sub-s. (2) the defences available to an insurer and to provide by sub-s.
(6) that he cannot avoid his liability
excepting by means of such defences. In order that sub-s. (2) may be
interpreted in the way the learned Solicitor-General suggests we have to add
words to it. The learned Solicitor-General concedes this and says that the only
word that has to be added is the word " also" after the word
"grounds". But even this the rules of interpretation do not permit us
to do unless the section as it stands is meaningless or of doubtful meaning,
neither of which we think it is. The addition suggested will, in our view, make
the language used unhappy and further effect a complete change in the meaning
of the words used in the sub-section.
As to sub-s. (6) the learned
Solicitor-General contended that the proper reading of it was that an 183
insurer could not avoid his liability except by way of a defence upon being
made a party to the action under sub-s.
(2). He contended that the word it manner
" in sub-s. (6) did not refer to the defences specified in sub.s. (2) but
only meant, by way of defending the suit the right to do which is given by
sub-s. (2). We think that this is a very forced construction of sub-s. (6) and
we are unable to adopt it. The only manner of avoiding liability provided for
in sub-s. (2) is through the defences therein mentioned.
Therefore when sub-s. (6) talks of avoiding
liability in the manner provided in sub-s. (2), it necessarily refers to these
defences. If the contention of the learned Solicitor- General was right, sub-s.
(6) would have provided that the insurer would not be entitled to avoid his
liability except by defending the action on being made a party thereto.
There is another ground on which the learned
Solicitor- General supported the contention that all defenses are open to an insurer
excepting those taken away by sub-s. (3). He said that before the Act came into
force, an injured person had no right of recourse to the insurer and that it
was s. 96(1) that made the judgment obtained by the injured person against the
assured binding on the insurer and gave him a right against the insurer. He
then said that being so, it is only fair that a person sought to be made bound
by a judgment should be entitled to resist his liability under it by all
defences which he can in law advance against the passing of it.
Again, we find the contention wholly
unacceptable. The Statute has no doubt created a liability in the insurer to
the injured person but the statute has also expressly confined the right to
avoid that liability to certain grounds specified in it. It is not for us to
add to those grounds and therefore to the statute for reasons of hardship. We
are furthermore not convinced that the statute causes any hardship. First, the
insurer has the right, provided he has reserved it by the policy, to defend the
action in the name of the assured and if he does so, all defences open to the
assured can then be urged by him and there is no 184 other defence that he
claims to be entitled to urge. He can thus avoid all hardship if any, by
providing for a right to defend the action in the name of the assured and this
he has full liberty to do. Secondly, if he has been made to pay something which
on the contract of the policy he was not, bound to pay, he can under the
proviso to sub-s. (3) and under sub-s. (4) recover it from the assured. It was
said that the assured might be a man of straw and the insurer might not be able
to recover anything from him. But the answer to that is that it is the
insurer's bad luck. In such circumstances the injured person also would not
have been able to recover the damages suffered by him from the assured, the
person causing the injuries. The loss had to fall on someone and the statute
has thought fit that it shall be borne by the insurer. That also seems to us to
be equitable for the loss falls on the insurer in the course of his carrying on
his business, a business out of which he makes profit, and he could so arrange
his business that in the net result he would never suffer a loss. On the other
hand, if the loss fell on the injured person, it would be due to no fault of
his; it would have been a loss suffered by him arising out of an incident in
the happening of which he had no hand at all.
We therefore feel that the plain words of
sub-s.(2) should prevail and that no ground exists to lead us to adopt the
extraordinary course of adding anything to it. We think that the High Court was
right in the view that it took, In the result these appeals are dismissed with