Insurance Co. Ltd Vs. Laxmi Narain Dhut  Insc 239 (2 March 2007)
Dr. ARIJIT PASAYAT & S.H. KAPADIA
(Arising out of SLP (C) No.25305 of 2004) WITH
(Civil Appeal NO.1141/2007 @SLP (C) No.1617/2005) Civil Appeal NO.1142/2007
@SLP (C) No.12857/2005) Civil Appeal NO.1143/2007 @SLP (C) No.15728/2005) Civil
Appeal NO.1144/2007 @SLP (C) No. 869/2006) Civil Appeal NO.1145/2007 @SLP (C)
No. 5048/2006) Civil Appeal NO.1146/2007 @SLP (C) No.6208/2006) Civil Appeal
NO.1147/2007 @SLP (C) No. 11596/2005) Civil Appeal NO.1148/2007 @SLP (C)
No.8608/2006) Civil Appeal NO.1149/2007 @SLP (C) No. 16568/2006) Civil Appeal
NO.1150/2007 @SLP (C) No. 22203/2005) Civil Appeal NO.1151/2007 @SLP (C) No.
22957/2005) Dr. ARIJIT PASAYAT, J Leave granted.
In all these cases identical questions are involved and therefore the
appeals are disposed of by this common judgment.
In each of the impugned judgments the concerned High Court held that the
principles laid down by this Court in National Insurance Co. Ltd. v. Swaran
Singh (2004 (3) SCC 297) is applicable even to claims other than third party
claims. Some of these appeals also relate to orders passed by the National
Consumer Disputes Redressal Commission, New Delhi (in short the 'Commission')
where a similar view has been taken.
Since there has been elaborate analysis of the factual position it would be
appropriate to decide the basic principles in law and ask the High
Courts/Commissions to decide the cases afresh keeping in mind the view
expressed in the present judgment.
The decision in Swaran Singh's case (supra) applied to claims which involved
only the insurance company and the owner of the vehicle i.e. where there was no
third party involved. It has been highlighted by learned counsel for the
appellants that Swaran Singh's case (supra) was rendered in the background of
Section 149 of the Motor Vehicles Act, 1988 (in short the 'Act') which has no
application to cases where there is no third party involved.
In response, learned counsel appearing for the respondents have submitted
that there can be no difference of approach in cases where the dispute relates
to the claim relating to the insurer and the insured. According to them,
purposive interpretation of provisions is called for in view of the fact that
the statute itself is a beneficial piece of legislation.
In order to appreciate the rival submissions, few provisions of the Act and
the corresponding provisions in the Motor Vehicles Act, 1939 (hereinafter
referred to as the 'Old Act') would be necessary.
Section 149 of the Act relates to duty of insurers to satisfy judgments and
awards against persons insured in respect of third party risks. The language of
the provision is clear that it only relates to third party risk. The
corresponding provision in the Old Act is Section 96. Section 166 of the Act
relates to application for compensation. The same corresponds to Section 110-A
of the Old Act. Section 168 of the Act relates to award of the Claims Tribunal
which corresponds to Section 110-B of the Old Act. Section 170 deals with
impleadment of the insurer in certain cases. Section 149 of the Act needs to be
noted in full. The same reads as follows:
"149. Duty of Insurers to satisfy judgments and awards against persons
insured in respect of third party risks- (1) If, after a certificate of
insurance has been issued under sub-section (3) of Section 147, in favour of
the person by whom a policy has been effected, judgment or award in respect of
any such liability as is required to be covered by a policy under clause (b) of
sub-section (1) of Section 147 (being a liability covered by the terms of the
policy) or under the provisions of Section 163-A) is obtained against any
person insured by the policy then, notwithstanding that the insurer may be
entitled to avoid or cancel or may have avoid 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 thereunder, as if 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 or award unless, before the commencement of the proceedings in
which the judgment or award is given the insurer had notice through the Court
or, as the case may be, the Claims Tribunal of the bringing of the proceedings,
or in respect of such judgment or award so long as execution is stayed thereon
pending an appeal; and an insurer to whom notice of the bringing of any such
proceedings 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 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 or
reward, or (b) for organized 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
transport vehicle, or (d) without side-car being attached where the vehicle is
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 dis-qualification; or (iii) a condition excluding liability for injury
caused or contributed to by conditions of war, civil war, riot or civil
commotion; or (b) 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 any such judgment as is referred to in sub-section (1) is obtained
from a Court in a reciprocating country and in the case of a foreign judgment
is, by virtue of the provisions of section 13 of the Code of Civil Procedure,
1908 (5 of 1908) conclusive as to any matter adjudicated upon by it, the
insurer (being an insurer registered under the Insurance Act, 1938 (4 of 1938)
and whether or not he is registered under the corresponding law of the
reciprocating country) shall be liable to the person entitled to the benefit of
the decree in the manner and to the extent specified in sub- section (1), as if
the judgment were given by a Court in India:
Provided that no sum shall he payable by the insurer in respect of any such
judgment unless, before the commencement of the proceedings in which the
judgment is given, the insurer had notice through the Court concerned of the
bringing of the proceedings and the insurer to whom notice is so given is
entitled under the corresponding law of the reciprocating country, to be made a
party to the proceedings and to defend the action on grounds similar to those
specified in sub- section (2).
(4) Where a certificate of insurance has been issued under sub-section (3)
of section 147 to the person by whom a policy has been effected, so much of the
policy as purports to restrict the insurance of the persons insured thereby by
reference to any condition other than those in clause (b) of sub-section (2)
shall, as respects such liabilities as are required to he covered by a policy
under clause (b) of sub- section (1) of section 147, be of no effect:
Provided that any sum paid by the insurer in or towards the discharge of any
liability of any person which is covered by the policy by virtue only of this
sub-section shall be recoverable by the insurer from that person.
(5) 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 he
entitled to recover the excess from that person.
(6) In this section the expression "material fact" and
"material particular" means, respectively a fact or particular of
such a nature as to influence the judgment of a prudent insurer in determining
whether he will take the risk and, if so, at what premium and on what
conditions, and the expression "liability covered by the terms of the
means a liability which is covered by the policy or which would be so
covered but for the fact that the insurer is entitled to avoid or cancel or has
avoided or cancelled the policy.
(7) No insurer to whom the notice referred to in sub-section (2) or
sub-section (3) has been given shall be entitled to avoid his liability to any
person entitled to the benefit of any such judgment or award as is referred to
in sub- section (1) or in such judgment as is referred to in sub-section (3)
otherwise than in the manner provided for in sub-section (2) or in the
corresponding law of the reciprocating country, as the case may be.
Explanation: For the purposes of this section, "Claims Tribunal"
means a Claims Tribunal constituted under Section 165 and "award"
means an award made by that Tribunal under Section 168."
In Swaran Singh's case (supra) on which learned counsel for the parties have
placed reliance undisputedly related to a case under Section 149 of the Act.
This Court elaborately dealt with the scope and ambit of Sections 147 and 149
of the Act and after tracing the history of compulsory insurance and the rights
of the third parties, held that the concerned cases were mainly concerned with
third party rights under the policy. It was held in that context that any
condition in the policy whereby the right of the third party is taken away
would be void, as noted in para 23 of the judgment.
In paras 69 and 70 the principles were culled out in the following terms:
"The Insurance Company is required to prove the breach of the condition
of the contract of insurance by cogent evidence. In the event the Insurance
Company fails to prove that there has been breach of conditions of the policy
on the part of the insured, the Insurance Company cannot be absolved of its
This Court did not lay down a degree of proof, but held that the parties
alleging the breach must be held to have succeeded in establishing the breach
of the condition of the contract of insurance, on the part of the Insurance
Company by discharging its burden of proof.
The Tribunal, must arrive at a finding on the basis of the materials
available on the records".
In para 110 also the summary of the findings were recorded which reads as
(i) Chapter XI of the Motor Vehicles
providing compulsory insurance of vehicles against third-party risks is a
social welfare legislation to extend relief by compensation to victims of
accidents caused by use of motor vehicles. The provisions of compulsory
insurance coverage of all vehicles are with this paramount object and the
provisions of the Act have to be so interpreted as to effectuate the said
(ii) An insurer is entitled to raise a defence in a claim petition filed
under Section 163-A or Section 166 of the Motor Vehicles
Act, 1988, inter alia, in terms of Section 149(2)(a)(ii) of the said Act.
(iii) The breach of policy condition e.g.
disqualification of the driver or invalid driving licence of the driver, as
contained in sub- section (2)(a)(ii) of Section 149, has to be proved to have
been committed by the insured for avoiding liability by the insurer. Mere
absence, fake or invalid driving licence or disqualification of the driver for
driving at the relevant time, are not in themselves defences available to the
insurer against either the insured or the third parties. To avoid its liability
towards the insured, the insurer has to prove that the insured was guilty of
negligence and failed to exercise reasonable care in the matter of fulfilling
the condition of the policy regarding use of vehicles by a duly licensed driver
or one who was not disqualified to drive at the relevant time.
(iv) Insurance companies, however, with a view to avoid their liability must
not only establish the available defence(s) raised in the said proceedings but
must also establish "breach"
on the part of the owner of the vehicle; the burden of proof wherefore would
be on them.
(v) The court cannot lay down any criteria as to how the said burden would
be discharged, inasmuch as the same would depend upon the facts and
circumstances of each case.
(vi) Even where the insurer is able to prove breach on the part of the
insured concerning the policy condition regarding holding of a valid licence by
the driver or his qualification to drive during the relevant period, the
insurer would not be allowed to avoid its liability towards the insured unless
the said breach or breaches on the condition of driving licence is/are so
fundamental as are found to have contributed to the cause of the accident. The
Tribunals in interpreting the policy conditions would apply "the rule of
main purpose" and the concept of "fundamental breach" to allow
defences available to the insurer under Section 149(2) of the Act.
(vii) The question, as to whether the owner has taken reasonable care to
find out as to whether the driving licence produced by the driver (a fake one
or otherwise), does not fulfil the requirements of law or not will have to be
determined in each case.
(viii) If a vehicle at the time of accident was driven by a person having a
learner's licence, the insurance companies would be liable to satisfy the
(ix) The Claims Tribunal constituted under Section 165 read with Section 168
is empowered to adjudicate all claims in respect of the accidents involving
death or of bodily injury or damage to property of third party arising in use
of motor vehicle. The said power of the Tribunal is not restricted to decide
the claims inter se between claimant or claimants on one side and insured,
insurer and driver on the other. In the course of adjudicating the claim for
compensation and to decide the availability of defence or defences to the
insurer, the Tribunal has necessarily the power and jurisdiction to decide
disputes inter se between the insurer and the insured. The decision rendered on
the claims and disputes inter se between the insurer and insured in the course
of adjudication of claim for compensation by the claimants and the award made
thereon is enforceable and executable in the same manner as provided in Section
174 of the Act for enforcement and execution of the award in favour of the
(x) Where on adjudication of the claim under the Act the Tribunal arrives at
a conclusion that the insurer has satisfactorily proved its defence in
accordance with the provisions of Section 149(2) read with sub-section (7), as
interpreted by this Court above, the Tribunal can direct that the insurer is
liable to be reimbursed by the insured for the compensation and other amounts
which it has been compelled to pay to the third party under the award of the
Tribunal. Such determination of claim by the Tribunal will be enforceable and
the money found due to the insurer from the insured will be recoverable on a
certificate issued by the Tribunal to the Collector in the same manner under
Section 174 of the Act as arrears of land revenue. The certificate will be
issued for the recovery as arrears of land revenue only if, as required by
sub-section (3) of Section 168 of the Act the insured fails to deposit the
amount awarded in favour of the insurer within thirty days from the date of
announcement of the award by the Tribunal.
(xi) The provisions contained in sub-section (4) with the proviso thereunder
and sub-section (5) which are intended to cover specified contingencies
mentioned therein to enable the insurer to recover the amount paid under the
contract of insurance on behalf of the insured can be taken recourse to by the
Tribunal and be extended to claims and defences of the insurer against the
insured by relegating them to the remedy before regular court in cases where on
given facts and circumstances adjudication of their claims inter se might delay
the adjudication of the claims of the victims".
At this juncture, it would be necessary to test the logic behind Section 149
of the Act. The conditions under the said provision relate only to third party
risks and claims.
The Indian Law on motor vehicle insurance has is origin in English Law.
Motor Insurance Law in England had its foundations in the Third Party Rights
Against Insurers' Act, 1930. An illustrious case which related to the said
statue is Re Harrington Motor Co. ex-parte Chaplin (1928 Ch 105 C.A.) The
principles laid down in the said case need to be noted in brief. It was inter
alia held as follows:
"The liquidator has in hand the 4201. 3s. 10d., and the question I have
to decide is whether the plaintiff is entitled to have that sum paid over to
him or whether it constitutes assets available for the general body of the
company's creditors? The plaintiff's claim is put forward on the ground that
there is, or should be, an equity binding the liquidator to apply the moneys,
towards satisfying the liability in respect of which they have come to his
hands and not the less because they are insufficient to give the plaintiff the
full compensation to which he has been held to be entitled. I fail to see how
any such equity can be raised. The liquidator, as recipient of the fund, stands
in no fiduciary relation to the plaintiff. The money has been recovered under a
contract made between the company, and the insurers, to which the plaintiff was
not and could not in the circumstances have been a party; he has no concern and
was not in any way connected with the company and, indeed, probably did not
know of its existence until its vehicle inflicted these injuries upon him. In
these circumstances neither the company nor the Liquidator can be treated as a
trustee for him in enforcing the claim against the insurers.
Here the right of the company to be indemnified was created by a contract to
which the plaintiff is no party, and I cannot see upon what ground he can be
held to have any valid claim either at law or in equity to the moneys in the
hands of the liquidator.
In spite of a strenuous and able and, I may add, helpful argument on the
part of Mr.
Stable, we feel compelled to dismiss this appeal, and to hold that the
decision of Eve J.
was right. It is, perhaps, unfortunate that one should have to give a
judgment which would, at first sight, appear to run counter to what 1 might
call the common-sense view of the proceedings. None the less it is necessary
for us to administer the law as it stands, and if any alteration is to be made
in it that must be made by the proper authorities and by the proper means.
On careful consideration of the authorities I would only say that that view,
however cogent it might at first sight appear, is untenable. The company had
insured themselves against what are commonly called third party risks with the
Universal Automobile Insurance Company, and they had paid the premiums.
The liquidation of a company or the bankruptcy of an individual bars the
right of a creditor to proceed any further against the company or the bankrupt.
There is an absolute break in the relationship between the creditor who has
suffered the accident and the insurance company, and there cannot be a privity
under which, when the bankruptcy or liquidation supervenes, you can cancel out
the defendants and then say that a privity arises between the creditor and the
insurance company and that the latter has to make good this principal sum to
the former It is, therefore, clear to my mind, after considering the nature of
the bar to further proceedings-namely, by bankruptcy- that there is an absolute
break in the relation or suggested relation between the creditor and the
insurance company. The money which is being received and which will be
distributed by the liquidator is a sum which the debtors, the company, have
secured should be paid to them in certain events, but which has been secured by
their own contract made with the insurance company, and not by any intervention
of the creditor, Mr. Chaplin, although it was in consequence of an accident
which he suffered that the loss arose, in respect of which the insurance
company has made the payment.
It may be that the present case is one that ought to be provided for by the
Legislature. But as the authorities stand it is impossible, I think, to vary
the order of Eve J., which was made upon a true reading of the authorities, and
for these reasons it appears to me that this appeal must be dismissed, even
though one may regret that it is not possible to earmark this sum and to say
that the liquidator ought to be allowed to receive it and to pay it over,
inasmuch as it was the misfortune of Mr. Chaplin which caused this sum to be
received, a sum which will enure to the benefit of all the creditors of the
company and not to the particular advantage of the man who suffered the loss
which quantified the risk which the insurance company had taken. The appeal
must be dismissed with costs.
ATKIN L.J. In this case I am of the opinion that the applicant has a real
grievance, and if it were possible to decide for him I should very willingly do
so. But it appears to me that the general rules of law which govern cases of
insurance and indemnity have been laid down in such terms that it is impossible
to make an exception in the particular class of cases of which this forms one,
and I am bound to say that 1 myself should be well satisfied if, by the
decision of a higher tribunal or by legislation, the general rule of law were
altered so as to cover this particular case".
In a later case i.e. Hood's Trustees v. Southern Union General Insurance Co.
of Australasia Ltd. (1928 Ch 793) the Chancery Division noted the plight of the
third party victims and observed as follows:
"As it seems to me it does not differ substantially from the position
in In re Harrington Motor Co.
In giving judgment Atkin L.J. said that he thought that the appellant had a
real grievance; but the general rule of law was too strong to allow the Court
to make any exception, however the Court might sympathize with the appellant.
The position in law was quite clear, and it was that the appellant had no right
or claim against the insurance company or against money paid by the insurance
company. The assured had a direct right of recourse against the insurance
company, but a third party had no such right, because there was no privity
between him and the insurance company, and it was difficult to see how a
special right could be said to exist against the insurance company, or any
right to claim money paid over by the insurance company, merely because the
assured happened to be in financial difficulties.
Upon what grounds of equity or legal logic can it be argued that, because
the law, on grounds of public policy, compels the creditor, the liability to
whom is the event upon which the right of a bankrupt or of an insolvent company
to payment of the sum covered by the contract arises, to be content with such
share of the assets of the bankrupt or the company in liquidation as a pari
passu distribution between creditors will give, these assets are not to include
the payment due under the contract? "That seems to me," said Atkin
L.J., "to be a direct statement by the learned Lord Justice; indeed a
statement of the law that the third party is compelled by the law to be content
with such a share of the assets as a pari passu distribution between the creditors
Now so far as this case is concerned everything which has been said applies
It seems to make no difference in principle, whether the person whose claim
gives rise to a claim for indemnity, is able against the assured to claim a
dividend in the bankruptcy of the assured, or whether his claim is not provable
in that bankruptcy at all - that seems to make no difference. In re Harrington
Motor Co. was the case of the liquidation of a company in which the claimant
was in the position of being able, at any rate, to claim a dividend, he did get
something out of it, he could not claim to be paid in full, but he could claim
his dividend. Here, by reason of the fact that the particular claim is not
provable in this bankruptcy, he will never get anything in this bankruptcy, he
cannot make a claim in this bankruptcy, but that does not seem to affect the
I think I must take the principles which are indicated in In re Harrington
Motor Co. as being the more appropriate to the particular case I am now
deciding. The result of that is that I must come to the conclusion - however
unfortunate - that in fact the benefit of the indemnity vested in the trustee,
notwithstanding that the claim of Caddy was not provable in the first
The Third Party Rights Against Insurer's Act, 1930 appears to have been
enacted to set right, anomalies in the law. It was provided in the said Act
that where the insured was insured against the third party risk, then in the
event of his being made bankrupt, his rights against the insurer,
notwithstanding anything in any Act or rule of law to the contrary, are
transferred and vest in the third party to whom the liability has been
The High Court and the Commission seem to have proceeded on the basis that
the defences available to insured are only those provided in Section 149(2) of
the Act and the said provision has to be interpreted strictly in view of the
fact that it is a social legislation.
Section 149 is part of Chapter XI which is titled "Insurance of Motor
Vehicles against Third Parties". A significant factor which needs to be
noticed is that there is no contractual relation between the insurance company
and the third party. The liabilities and the obligations relatable to third
parties are created only by fiction of Sections 147 and 149 of the Act.
It is also to be noted that the terms of the policy have to be construed as
it is and there is no scope for adding or subtracting something. However
liberally the policy may be construed, such liberalism cannot be extended to
permit substitution of words which are not intended. (See United India
Insurance Co. Ltd. V Harchand Rai Chandan Lal (2004 (8) SCC 644 and Polymat
India (P) Ltd. V. National Insurance Company Ltd. and Ors. (2005 (9) SCC 174).
The primary stand of the insurance company is that the person driving the
vehicle did not have a valid driving license.
In Swaran Singh's case (supra) the following situations were noted:
(i) the driver had a license but it was fake;
(ii) the driver had no license at all;
(iii) the driver originally had a valid license but it had expired as on the
date of the accident and had not been renewed;
(iv) the license was for a class of vehicles other than that which was the
(v) the license was a learner's license.
Category (i) may cover two types of situations. First, the license itself
was fake and the second is where originally that license is fake but there has
been a renewal subsequently in accordance with law.
Chapter II contains Sections 3, 4 and 5 of the Act relating to licensing of
drivers driving the motor vehicles.
Where the claim relates to own damage claims, it cannot be adjudicated by
the insurance company. But it has to be decided by an other forum i.e. forum
created under the Consumer Protection Act, 1985 (in short the 'CP Act'). Before
the Tribunal, there were essentially three parties i.e. the insurer, insured
and the claimants. On the contrary, before the consumer forums there were two
parties i.e. owner of the vehicle and the insurer. The claimant does not come
in to the picture. Therefore, these are cases where there is no third party
According to learned counsel for the appellants, in such cases the logic
i.e. let the insurer pay and recover from the insured company does not apply.
As noted above, there is no contractual relation between the third party and
the insurer. Because of the statutory intervention in terms of Section 149, the
same becomes operative in essence and Section 149 provides complete insulation.
In the background of the statutory provisions, one thing is crystal clear
i.e. the statute is beneficial one qua the third party. But that benefit cannot
be extended to the owner of the offending vehicle. The logic of fake license
has to be considered differently in respect of third party and in respect of
own damage claims.
It would be appropriate to take note of what was stated in Complete
Insulations (P) Ltd. v. New India Assurance Co. Ltd.
(1996 (1) SCC 221). In paras 9 and 10 it was observed as follows:
"9. Section 157 appears in Chapter XI entitled "Insurance of Motor
vehicles against Third Party Risks" and comprises Sections 145 to 164.
Section 145 defines certain expressions used in the various provisions of that
The expression "Certificate of Insurance"
means a certificate issued by the authorised insurer under Section 147(3).
"Policy of Insurance" includes a certificate of insurance.
Section 146(1) posits that "no person shall use except as a passenger,
or cause or allow any other person to use, a motor vehicle in a public place,
unless there is in force in relation to the use of the vehicle by that person
or that other person, as the case may be, a policy of insurance complying with
the requirements of this chapter". Of course this provision does not apply
to vehicles owned by the Central or State Government and used for Government
purposes not connected with any commercial enterprise. This provision
corresponds to Section 94 of the old Act. Section 147 provides that the policy
of insurance to be issued by the authorized insurer must insure the specified
person or classes of persons against any liability incurred in respect of death
of or bodily injury to any person or damage to any property of a third party as
well as against the death of or bodily injury caused to any passenger of a
public service vehicle caused by or arising out of the use of the vehicle in a
public place. This provision is akin to Section 95 of the old Act. It will be
seen that the liability extends to damage to any property of a third party and
not damage to the property of the owner of the vehicle, i.e., the insured.
Sub-section (2) stipulates the extent of liability and in the case of
property of a third party the limit of liability is Rupees six thousand only.
The proviso to that sub-section continues the liability fixed under the
policy for four months or till the date of its actual expiry, whichever is
earlier, Sub-section (3) next provides that the policy of insurance shall be of
no effect unless and until the insurer has issued a certificate of insurance in
the prescribed form. The next important provision which we may notice is
Section 156 which sets out the effect of the certificate of insurance. It says
that when the insurer issues the certificate of insurance, then even if the
policy of insurance has not as yet been issued the insurer shall, as between
himself and any other person except the insured be deemed to have issued to the
insured a policy of insurance conforming in all respects with the description and
particulars stated in the certificate. It is obvious on a plain reading of this
provision that the legislature was anxious to protect third-party interest.
Then comes Section 157 which we extracted earlier. This provision lays down
that when the owner vehicle in relation whereto a certificate of insurance is
issued transfers to another person the ownership of the motor vehicle, the
certificate of insurance together with the policy described therein shall be
deemed to have been transferred in favour of the new owner of the vehicle with
effect from the date of transfer.
Sub-section (2) requires the transferee to apply within fourteen days from
the date of transfer to the insurer for making necessary changes in the
certificate of insurance and the policy described therein in his favour. These
are the relevant provisions of Chapter XI which have a bearing on the question
of insurer's liability in the present case.
10. There can be no doubt that the said chapter provides for compulsory
insurance of vehicles to cover third-party risks. Section 146 forbids the use
of a vehicle in a public place unless there is in force in relation to the use
of that vehicle a policy of insurance complying with the requirements of that
chapter. Any breach of this provision may attract penal action. In the case of
property, the coverage extends to property of a third party i.e. a person other
than the insured. This is clear from Section 147(1)(b)(i) which clearly refers
to "damage to any property of a third party" and not damage to the
property of the 'insured' himself. And the limit of liability fixed for damage
to property of a third party is Rupees six thousand only as pointed out
earlier. That is why even the Claims Tribunal constituted under Section 165 is
invested with jurisdiction to adjudicate upon claims for compensation in
respect of accidents involving death of or bodily injury to persons arising out
of the use of motor vehicles, or damage to any property of a third party so
arising, or both. Here also it is restricted to damage to third-party property
and not the property of the insured."
The restrictions relating to appeal in terms of Section 173 (2) does not
apply to own damage cases.
A plea has been taken about the desirability of purposive construction.
"Golden Rule" of interpretation of statutes is that statutes are
to be interpreted according to grammatical and ordinary sense of the word in
grammatical or liberal meaning unmindful of consequence of such interpretation.
It was the predominant method of reading statutes. More often than not, such
grammatical and literal interpretation leads to unjust results which the
Legislature never intended. The golden rule of giving undue importance to
grammatical and literal meaning of late gave place to 'rule of legislative intent'.
The world over, the principle of interpretation according to the legislative
intent is accepted to be more logical.
When the law to be applied in a given case prescribes interpretation of
statute, the Court has to ascertain the facts and then interpret the law to
apply to such facts.
Interpretation cannot be in a vacuum or in relation to hypothetical facts.
It is the function of the legislature to say what shall be the law and it is
only the Court to say what the law is- In JT. Registrar of Co-op. Societies v.
T.A. Kuttappan (2000 (6) SCC 127), Associated Timber Industries v. Central Bank
of India (2000 (7) SCC 73), Allahabad Bank v. Canara Bank (2000 (4) SCC 406),
K.Duraiswamy v. State of Tamil Nadu (2001 (2) SCC 538), Reserve Bank of India
v. Peerless General Finance and Investment Co. Ltd. (1987 (1) SCC 424), Chief
Justice of A.P. v. L. V. A. Dikshitulu (AIR 1979 SC 193), Kehar Singh v. State
(Delhi Admn.) (AIR 1988 SC 1883), and Indian Handicrafts v. Union of India
(2003 (7) SCC 589), this court applied the principle of purposive construction.
In Reserve Bank of India's case (supra) this Court observed:
"Interpretation must depend on the text and the context, They are the
bases of interpretation. One may well say if the text is the texture, context
is what gives the colour.
Neither can be ignored. Both are important.
That interpretation is best which makes the textual interpretation match the
contextual. A statute is best interpreted when we know why it was enacted. With
this knowledge, the statute must be read, first as a whole and then section by
section, clause by clause, phrase by phrase and word by word. If a statute is
looked at, in the context of its enactment, with the glasses of the
statute-maker, provided by such context, its scheme, the sections, clauses,
phrases and words may take colour and appear different than when the statute is
looked at without the glasses provided by the context. With these glasses we
must look at the Act as a whole and discover what each section, each clause, each
phrase and each word is meant and designed to say as to fit into the scheme of
the entire Act. No part of a statute and no word of a statute can be construed
in isolation, Statutes have to be construed so that every word has a place and
everything is in its place.
In Dikshitulu's case (supra) a Constitution Bench of this Court observed as
"The primary principle of interpretation is that a constitutional or
statutory provision should be construed 'according to the intent of they that
made it' (Code). Normally, such intent is gathered from the language of the
provision. If the language of the phraseology employed by the legislation is
precise and plain and thus by itself, proclaims the legislative intent in
unequivocal terms, the same must be given effect to, regardless of the
consequences that may follow. But if the words used in the provision are
imprecise, protean, or evocative or can reasonably bear meaning more than one,
the rule of strict grammatical construction ceases to be a sure guide to reach
at the real legislative intent. In such a case, in order to ascertain the true
meaning of the terms and phrases employed, it is legitimate for the court to go
beyond the arid literal confines of the provision and to call in aid other
well-recognised rules of construction such as its legislative history, the
basic scheme and framework of the statute as a whole, each portion throwing
light on the rest, the purpose of the legislation, the object sought to be
achieved and the consequences that may flow from the adoption of one in
preference to the other possible interpretation".
In Kehar Singh v. State (Delhi Admn.) it was held:
"During the last several years, the 'golden rule' has been given a
goby. We now look for the 'intention' of the legislature or the 'purpose' of
the statute. First we examine the words of the statute. If the words are
precise and cover the situation on hand, we do not go further. We expound those
words in the natural and ordinary sense of the words. But if the words are
ambiguous, uncertain or any doubt arises as to the terms employed, we deem it
as our paramount duty to put upon the language of the legislature rational
meaning. We then examine every word, every section and every provision. We
examine the Act as a whole. We examine the necessity which gave rise to the
Act. We took at the mischiefs which the legislature intended to redress. We
look at the whole situation and not just one-to-one relation. We will not
consider any provision out of the framework of the statute. We will not view
the provisions as abstract principles separated from the motive force behind.
We will consider the provisions in the circumstances to which they owe their
We will consider the provisions to ensure coherence and consistency within
the law as a whole and to avoid undesirable consequences".
A statute is an edict of the Legislature and in construing a statute, it is
necessary to seek the intention of its maker. A statute has to be construed
according to the intent of those who make it and the duty of the court is to
act upon the true intention of the Legislature. If a statutory provision is
open to more than one interpretation the Court has to choose that
interpretation which represents the true intention of the Legislature. This
task very often raises difficulties because of various reasons, inasmuch as the
words used may not be scientific symbols having any precise or definite meaning
and the language may be an imperfect medium to convey one's thought or that the
assembly of Legislatures consisting of persons of various shades of opinion
purport to convey a meaning which may be obscure. It is impossible even for the
most imaginative Legislature to foresee all situations exhaustively and
circumstances that may emerge after enacting a statute where its application
may be called for.
Nonetheless, the function of the Courts is only to expound and not to
legislate. Legislation in a modern State is actuated with some policy to curb
some public evil or to effectuate some public benefit. The legislation is
primarily directed to the problems before the Legislature based on information
derived from past and present experience. It may also be designed by use of
general words to cover similar problems arising in future. But, from the very
nature of things, it is impossible to anticipate fully the varied situations
arising in future in which the application of the legislation in hand may be
called for, and, words chosen to communicate such indefinite referents are
bound to be in many cases lacking in clarity and precision and thus giving rise
to controversial questions of construction.
The process of construction combines both literal and purposive approaches.
In other words the legislative intention i.e., the true or legal meaning of an
enactment is derived by considering the meaning of the words used in the
enactment in the light of any discernible purpose or object which comprehends
the mischief and its remedy to which the enactment is directed. (See District
Mining Officer and Ors. v.
Tata Iron & Steel Co. & Anr. JT 2001 (6) SC 183).
It is also well settled that to arrive at the intention of the legislation
depending on the objects for which the enactment is made, the Court can resort
to historical, contextual and purposive interpretation leaving textual interpretation
Francis Bennion in his book "Statutory Interpretation"
described "purposive interpretation" as under:
"A purposive construction of an enactment is one which gives effect to
the legislative purpose by- (a) following the literal meaning of the enactment
where that meaning is in accordance with the legislative purpose, or (b)
applying a strained meaning where the literal meaning is not in accordance with
the legislative purpose."
More often than not, literal interpretation of a statute or a provision of a
statute results in absurdity. Therefore, while interpreting statutory
provisions, the Courts should keep in mind the objectives or purpose for which
statute has been enacted. Justice Frankfurter of U.S. Supreme Court in an
article titled as Some Reflections on the Reading of Statutes (47 Columbia Law
Reports 527), observed that, "legislation has an aim, it seeks to obviate
some mischief, to supply an adequacy, to effect a change of policy, to
formulate a plan of Government. That aim, that policy is not drawn, like
nitrogen, out of the air; it is evidenced in the language of the statutes, as
read in the light of other external manifestations of purpose".
The inevitable conclusion therefore is that the decision in Swaran Singh's
case (supra) has no application to own damage cases. The effect of fake license
has to be considered in the light of what has been stated by this Court in New
India Assurance Co., Shimla v. Kamla and Ors. (2001 (4) SCC 342).
Once the license is a fake one the renewal cannot take away the effect of
fake license. It was observed in Kamla's case (supra) as follows:
"12. As a point of law we have no manner of doubt that a fake licence
cannot get its forgery outfit stripped off merely on account of some officer
renewing the same with or without knowing it to be forged. Section 15 of the
Act only empowers any Licensing Authority to "renew a driving licence
issued under the provisions of this Act with effect from the date of its
expiry". No Licensing Authority has the power to renew a fake licence and,
therefore, a renewal if at all made cannot transform a fake licence as genuine.
Any counterfeit document showing that it contains a purported order of a
statutory authority would ever remain counterfeit albeit the fact that other
persons including some statutory authorities would have acted on the document
unwittingly on the assumption that it is genuine".
As noted above, the conceptual difference between third party right and own
damage cases has to be kept in view.
Initially, the burden is on the insurer to prove that the license was a fake
one. Once it is established the natural consequences have to flow.
In view of the above analysis the following situations emerge:
1. The decision in Swaran Singh's case (supra) has no application to cases
other than third party risks.
2. Where originally the license was a fake one, renewal cannot cure the
3 In case of third party risks the insurer has to indemnify the amount and
if so advised to recover the same from the insured.
4. The concept of purposive interpretation has no application to cases
relatable to Section 149 of the Act.
The High Courts/Commissions shall now consider the matter afresh in the
light of the position in law as delineated above.
The appeals are allowed as aforesaid with no order as to costs.
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