& Ors Vs. Prahlad Dev & Ors  Insc 56 (18 January 2008)
Arijit Pasayat & P. Sathasivam
out of SLP (C) No. 7373 OF 2005) P. Sathasivam, J.
Whether the Tribunal was right in holding that the insurer was not liable as
the driver had a fake licence is the question to be decided in this appeal?
who was husband of appellant No.1 and father of appellant Nos. 2 and 3 who were
minor children, died in a motor vehicle accident while he was going on his
bicycle and hit by a truck bearing Registration No. CPW 7344 which was being
driven in a rash and negligent manner by respondent No.2 herein, owned by
respondent No.1 herein and was insured by respondent No.3 herein National
Insurance Company. According to the appellants/claimants at the time of
accident, the deceased was aged about 36 years and working as a carpenter and
he was getting an income of Rs.125/- to Rs.150/- per day. The claimants filed
claim case No. 154 of 1997 before the Motor Accident Claims Tribunal, Indore claiming a total compensation of Rs.
7 lacs under Sections 166A and 140 of the Motor Vehicles Act, 1988.
No.3 filed a written statement denying the claim and also pleaded that the
driver of the offending vehicle did not have a valid and effective driving licence
on the date of the accident. The Tribunal based on the materials placed and the
evidence on record found that death was caused due to rash and negligent
driving of respondent No.2. On 08.02.2000, the Tribunal awarded a compensation
of Rs.2,56,000/- to the appellants along with interest @ 9% p.a. from the date
of filing of the claim application. The respondent No.3-Insurance Company was
exonerated from its liability to pay compensation on the ground that the driver
of the offending vehicle did not have a valid and effective driving licence on
the date of accident.
Aggrieved by the award of the Tribunal, the claimants filed Misc. Appeal No.
1665/2002 in the High Court of Madhya Pradesh, Bench at Indore challenging the quantum of the
award as well as exoneration of respondent No.3-Insurance Company from its
liability of making payment of compensation to them. The High Court,
considering the merits of the case and finding that duplicate licence was
issued to respondent No.2 who is not having a valid and effective licence on
the date of the accident, held that Insurance Company was not liable for the
compensation amount as determined. However, considering the merits of the case,
age and income of the deceased and dependents being wife and minor children
enhanced the compensation amount to Rs.3,50,000/- and directed respondent Nos.
1 and 2 i.e. owner and driver of the vehicle to pay the same. The review
petition filed by the appellants in Misc. Civil Case No. 41 of 2004 exonerating
respondent No.3 from its liability has been dismissed by the High Court by
order dated 22.04.2004. Questioning those orders, the claimants filed the
present appeal after obtaining leave.
Heard Mr. Vikrant Singh Bais, learned counsel for the appellants and Ms. Manjeet
Chawla, learned counsel for the 3rd respondent and none appeared for respondent
Nos. 1 and 2 perused the materials placed before us and the annexures filed.
this appeal, the appellants mainly concerned about the orders of the Tribunal
and the High Court exonerating the Insurance Company from its liability. Before
considering the relevant decisions of this Court and the issue in question, let
us note certain factual details. The first respondent is the owner of the
offending vehicle and respondent No.2 is the driver of the said vehicle, who is
none other than the brother of the first respondent. Before the Tribunal, the
Insurance Company contended that the driver was not having a valid and
effective driving licence. Considering the materials in the form of oral and
documentary evidence placed by the Insurance Company the Tribunal found that
opposite party No.2, namely, driver of the offending vehicle did not have a
valid and effective licence on the date of the accident. Based on the said
conclusion, it exonerated the Insurance Company from its liability. When this
specific finding was challenged by way of review application before the High
Court, the judgment of this Court in United India Insurance Co. Ltd. vs. Lehru
and Others, (2003) 3 SCC 338 was pressed into service. In the said judgment,
after considering Section 96(2)(b)(ii) of the old Motor Vehicles Act and
similar provision i.e. 149(2)(a)(ii) in the Motor Vehicles Act, 1988, this
Court held as under:-
xxx xxx xxx Thus under sub-section (1) the insurance company must pay to the
person entitled to the benefit of the decree, notwithstanding that it has
become "entitled to avoid or cancel or may have avoided or cancelled the
policy". The words "subject to the provisions of this section"
mean that the insurance company can get out of the liability only on grounds
set out in Section 149. Sub-section (7), which has been relied on, does not
state anything more or give any higher right to the insurance company. On the
contrary, the wording of sub-section (7) viz. "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" indicates that the legislature wanted
to clearly indicate that insurance companies must pay unless they are absolved
of liability on a ground specified in sub-section (2). This is further clear
from sub-section (4) which mandates that conditions, in the insurance policy,
which purport to restrict insurance would be of no effect if they are not of
the nature specified in sub- section (2). The proviso to sub-section (4) is
shows that the insurance company has to pay to third parties but it may recover
from the person who was primarily liable to pay. The liability of the insurance
company to pay is further emphasised by sub-section (5). This also shows that
the insurance company must first pay, then it can recover. If Section 149 is
read as a whole it is clear that sub-section (7) is not giving any additional
right to the insurance company.
contrary it is emphasising that the insurance company cannot avoid liability
except on the limited grounds set out in sub-section (2).
Now let us consider Section 149(2). Reliance has been placed on Section 149(2)(
a )( ii ). As seen, in order to avoid liability under this provision it must be
shown that there is a "breach". As held in Skandia (1987) 2 SCC 654
and Sohan Lal Passi (1996) 5 SCC 21 cases the breach must be on the part of the
insured. We are in full agreement with that. To hold otherwise would lead to
absurd results. Just to take an example, suppose a vehicle is stolen. Whilst it
is being driven by the thief there is an accident. The thief is caught and it
is ascertained that he had no licence. Can the insurance company disown
liability? The answer has to be an emphatic "No". To hold otherwise
would be to negate the very purpose of compulsory insurance. The injured or
relatives of the person killed in the accident may find that the decree
obtained by them is only a paper decree as the owner is a man of straw. The
owner himself would be an innocent sufferer. It is for this reason that the
legislature, in its wisdom, has made insurance, at least third-party insurance,
compulsory. The aim and purpose being that an insurance company would be
available to pay. The business of the company is insurance. In all businesses
there is an element of risk. All persons carrying on business must take risks
associated with that business. Thus it is equitable that the business which is
run for making profits also bears the risk associated with it. At the same time
innocent parties must not be made to suffer or loss. These provisions meet
these requirements. We are thus in agreement with what is laid down in the
aforementioned cases viz. that in order to avoid liability it is not sufficient
to show that the person driving at the time of accident was not duly licensed.
The insurance company must establish that the breach was on the part of the
When an owner is hiring a driver he will therefore have to check whether the
driver has a driving licence. If the driver produces a driving licence which on
the face of it looks genuine, the owner is not expected to find out whether the
licence has in fact been issued by a competent authority or not. The owner
would then take the test of the driver. If he finds that the driver is
competent to drive the vehicle, he will hire the driver. We find it rather
strange that insurance companies expect owners to make enquiries with RTOs,
which are spread all over the country, whether the driving licence shown to
them is valid or not. Thus where the owner has satisfied himself that the
driver has a licence and is driving competently there would be no breach of
Section 149(2)( a )( ii ). The insurance company would not then be absolved of
liability. If it ultimately turns out that the licence was fake, the insurance
company would continue to remain liable unless they prove that the
owner/insured was aware or had noticed that the licence was fake and still
permitted that person to drive. More importantly, even in such a case the
insurance company would remain liable to the innocent third party, but it may
be able to recover from the insured.
is the law which has been laid down in Skandia (1987) 2 SCC 654, Sohan Lal Passi
(1996) 5 SCC 21 and Kamla (2001) 4 SCC 342 cases. We are in full agreement with
the views expressed therein and see no reason to take a different view."
clear from the above decision when the owner after verification satisfied
himself that the driver has a valid licence and driving the vehicle in question
competently at the time of the accident there would be no breach of Section
149(2)(a)(ii), in that event, the Insurance Company would not then be absolved
of liability. It is also clear that even in the case that the licence was fake,
the Insurance Company would continue to remain liable unless they prove that
the owner was aware or noticed that the licence was fake and still permitted
him to drive.
Learned counsel for the appellants placing reliance on a three-Judge Bench
decision of this Court in National Insurance Co. Ltd. vs. Swaran Singh and
Others, (2004) 3 SCC 297 contended that in view of marshalling of the case laws
and principles arrived therein, the Insurance Company cannot escape its
liability to indemnify the owner even in the case of breach of licence
conditions. After analyzing the relevant provisions in the old Motor Vehicles
Act as well as the 1988 Act and the entire case laws, this Court summarized its
findings as under:
The summary of our findings to the various issues as raised in these petitions
is as follows:
Chapter XI of the Motor Vehicles Act, 1988 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 object.
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.
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 wherefor would be on them.
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.
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.
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.
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 decree.
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
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
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."
the above findings, for our purpose clause (iii) and (iv) are relevant.
effect and implication of the principles laid down in Swaran Singh's case
(supra) has been considered and explained by one of us (Dr. Justice Arijit Pasayat)
in National Insurance Co. Ltd. vs. Laxmi Narain Dhut, (2007) 3 SCC 700. The
following conclusion in para 38 are relevant:
In view of the above analysis the following situations emerge:
decision in Swaran Singh case has no application to cases other than
Where originally the licence was a fake one, renewal cannot cure the inherent
case of third-party risks the insurer has to indemnify the amount, and if so
advised, to recover the same from the insured.
concept of purposive interpretation has no application to cases relatable to
Section 149 of the Act."
the subsequent decision Oriental Insurance Co. Ltd. vs. Meena Variyal and
Others, (2007) 5 SCC 428 which is also a two-Judge Bench while considering the
ratio laid down in Swaran Singh's case (supra) concluded that in a case where a
person is not a third party within the meaning of the Act, the Insurance
Company cannot be made automatically liable merely by resorting to Swaran
Singh's case (supra). While arriving at such a conclusion the Court extracted
the analysis as mentioned in para 38 of Laxmi Narain Dhut (supra) and agreed
with the same. In view of consistency, we reiterate the very same principle
enunciated in Laxmi Narain Dhut (supra) with regard to interpretation and
applicability of Swaran Singh's case (supra).
the case of National Insurance Co. Ltd. vs. Kusum Rai and Others, (2006) 4 SCC
250, the vehicle was being used as a taxi. It was, therefore, a commercial
vehicle. The driver of the said vehicle was required to hold an appropriate licence
therefore. Ram Lal, who allegedly was driving the said vehicle at the relevant
time, was holder of a licence to drive light motor vehicle only. He did not
possess any licence to drive a commercial vehicle. Therefore, there was a
breach of condition of the contract of insurance. In such circumstances, the
Court observed that the appellant-National Insurance Co. Ltd., therefore, could raise the said defence while
considering the stand of the Insurance Company. This Court, pointing out the
law laid down in Swaran Singh (supra) concluded that the owner of the vehicle
cannot contend that he has no liability to verify the fact as to whether the
driver of the vehicle possessed a valid licence or not. However, taking note of
the fact that the owner has not appeared, the victim was aged only 12 years,
the claimants are from a poor background and to avoid another round of
litigation applying the decision in Oriental Insurance Co. Ltd. vs. Nanjappan,
(2004) 13 SCC 224 and finding that though the appellant-Insurance Company was
not liable to pay the claimed amount as the driver was not possessing a valid licence
and the High Court committed an error in holding otherwise, in the peculiar
facts and circumstances of the case and in exercise of jurisdiction under
Article 136 of the Constitution declined to interfere with the impugned
judgment therein and permitted the appellant- Insurance Company to recover the
amount from the owner of the vehicle.
the light of the various principles, the factual finding of the Tribunal,
namely, the second respondent, driver was not holding a valid licence on the
date of the accident and also of the fact that the appellants are none else
than widow and minor children of the deceased, we pass the following order:-
view of the order of this Court dated 08.12.2006 granting stay of further
proceedings of the recovery initiated by the Insurance Company for refund of
the amount of Rs.50,000/- with interest claimed to have been paid to the
appellants, we make it clear that the appellants need not repay the said amount
in spite of our conclusion which is in favour of the Insurance Company.
However, we permit the third respondent-Insurance Company to recover the said
amount from the owner of the vehicle in the same manner as was directed in Nanjappan
The appellants are permitted to proceed and recover the rest of the amount from
the owner and driver of the vehicle respondent Nos. 1 and 2 herein in
accordance with law.
The appeal is disposed of with the above directions. No costs.
Pages: 1 2