REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   7009      OF 2008 (Arising out of SLP (C) No.4301 of 2006)

United India Insurance Co. Ltd. … Appellant

Versus

Santro Devi & Ors. … Respondents

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. One Atma Ram Sharma was the owner of a truck bearing registration

No.HIN-4737.  It  was hypothecated to a Bank.  Atma Ram Sharma died

sometime  in  1991.   The  said  vehicle  was  insured  with  the  appellant.

Renewal  of  the  contract  of  insurance,  however,  used  to  be  done  by  the

Bank.  Despite the death of the said Atma Ram Sharma, no step was taken

either  by  the  Bank  or  by  his  heirs  and  legal  representatives  to  get  the

registration of the vehicle transferred in their names. The insurance policy

also continued to be renewed in the name of Atma Ram Sharma.

3. The  said vehicle  met with  an accident  while  being  driven by Shri

Chhater  Singh  on  15.9.1994  in  which  he  died.   The  legal  heirs  and

representatives of the said Chhater Singh filed an application for grant of

compensation under Section 4 of the Workmen’s Compensation Act, 1923

against the widow of the deceased Atma Ram Sharma as also the appellant-

Insurance Company claiming a sum of Rs.1,22,400/-.

4. Appellant,  having  been  given  notice  by  the  Commissioner  of

Workmen  Compensation,  in  its  reply,  raised  the  following  purported

primary objections :

1. That the para No.1 of the petiion as stated is wrong hence denied.  In fact Shri Atma Ram died in  the  year  1991  and  on  the  date  of  alleged accident no legal insurance policy was in force.  It is  pertinent  to say that  alleged offending vehicle No.HIN-4737  was  fraudulently  got  insured  vide policy No.111302/31/16/21/0065/94 on 12.5.1994 by concealing  the  true facts.   Even according to law the contract cannot be made in favour of dead person.  So under the Indian Contract  Act, 1872 the alleged contract  of  Insurance is  not  liable  to pay any amount of compensation.  The respondent No.1  was  not  insured,  so  as  per  the  terms  and

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conditions of the insurance policy, the company is not bound to indemnify the claim.”

5. The Commissioner, Workmen’s Compensation, having regard to the

pleadings of the parties, framed several issues, issue No.5 whereof reads as

under :

“5. Whether  the  contract  of  insurance  of  the truck in question between Atma Ram & Co. is void and not enforceable as alleged.  … OPP.II”

6. From the  order  of  the  Commissioner,  Workmen  Compensation,  it

does not appear that any witness was examined on behalf of the appellant.

The  learned  Commissioner,  Workmen  Compensation,  determined  issue

No.5 in favour of the respondent, stating :

“Whether the contract of insurance of the truck in question  between  Atma  Ram  and  Co.  is  void? RW1 Rati Ram has deposed in his statement that Shri  Atam Ram was the  owner  of  the  truck and after his death his wife is owner of the said truck. He is general power of attorney of Gumani Devi. He further deposed that the truck was insured with United  India  Insurance  Company  and  copy  of Insurance Cover is Ex.RW1/8.  The driver of ill- fated truck was Chattar  Singh who died in truck accident near Ronhat in year 1994 who was given Rs.2000/- per day (sic).  In cross-examination he admitted  that  Atma  Ram  died  in  1991  and  the

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truck  was  insured  with  SBI Kafetta.   He denied that Chattar Singh was gratuitous passenger in the ill fated truck.  Since the truck was insured with the respondent No.2, therefore, it is the liability of the  Insurance  Co.  to  pay  the  amount  of compensation.  Therefore, this issue is decided in favour  of  the  petitioners  and  against  the respondents.”

7. A  sum  of  Rs.1,42,465/-  was  directed  to  be  paid  by  way  of

compensation.   An  appeal  preferred  thereagainst  by the  appellant  herein

under Section 30 of the Workmen Compensation Act has been dismissed by

the High Court relying on or on the basis of the decision of this Court in

Rikhi Ram & Anr. v. Sukhrania (Smt.) & Ors. [(2003) 3 SCC 97], stating :

“It is thus clear that whether intimation is given or not given to the Insurance Company with regard to the transfer of a vehicle.  The Insurance Company under the  provisions  of  the  Motor Vehicles  Act, 1988 is liable to pay compensation.  The Insurance Company at the time when it renewed the policy of  insurance  and  accepted  the  premium  should have verified whether Atma Ram was alive or not. In the present  case the premium appears to have been paid by the bank with which the vehicle was hypothecated.”

8. Mr.  Vishnu  Mehra,  learned  counsel  appearing  on  behalf  of  the

appellant, would submit that the contract of insurance having been entered

into on or about 13.5.1994 in the name of the deceased Atma Ram Sharma,

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it  was void ab initio and in that view of the matter, the appellant had no

statutory or contractual  liability to reimburse the owner of the vehicle in

relation thereto.

9. Mr. Attri, learned counsel appearing on behalf of the respondent, on

the other hand, would contend that a certificate of insurance having been

issued by the Insurance Company, it  could not have repudiated the claim

having already accepted the amount of premium.   

10. The Motor Vehicles Act, 1988 was enacted to consolidate and amend

the law relating to motor vehicles.  Chapter XI of the Motor Vehicles Act

provides for insurance of motor vehicles against third party risks.   

Section  145  is  the  definition  section,  clause  (b)  whereof  defines

‘certificate  of  insurance’  to  mean  a  certificate  issued  by  an  authorized

insurer in pursuance of sub-section (3) of Section 147 and includes a cover

note complying with such requirements as may be prescribed, and where

more than one certificate has been issued in connection with a policy, or

where a copy of a certificate has been issued, all those certificates or that

copy,  as the case  may be.   Clause (d)  of  Section 145 defines  ‘policy of

insurance’ which include a certificate of insurance.

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Section 146 mandates that no person, except as a passenger, shall use

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  the  said  Chapter.   Section  147  provides  for  the

requirements of policies and limits of liability in the following terms :

“(a)  is  issued by a  person  who  is  an  authorised insurer; or

(b)  insurer  the  person  or  classes  of  persons specified  in  the  policy to  the  extent  specified  in sub-  section (2)-

(i) against any liability which may be incurred by him in respect of the death of or bodily   injury to any person,  including owner of the goods or his authorised representative  carried in the vehicle] or damage to any property of a third party caused by or arising  out of the use of the vehicle in a public place;

(ii)  against  the  death  of  or  bodily  injury  to  any passenger of a public service vehicle  caused by or arising out  of  the  use  of  the vehicle  in  a  public place.”

The proviso appended thereto reads as under :

“Provided that a policy shall not be required-

(i) to cover liability in respect of the death, arising out of and in the course of his employment, of  the

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employee of a person insured by the policy or in respect  of  bodily  injury  sustained  by  such   an employee arising out  of and in the course of his employment  other  than  a  liability  arising   under the  Workmen's  Compensation  Act,  1923  (8  of 1923) in respect of the death of, or bodily   injury to, any such employee-

(a) engaged in driving the vehicle, or

(b)  if  it  is  a  public  service  vehicle  engaged  as conductor of the vehicle or in examining   tickets on the vehicle, or

(c) if it  is  a goods carriage,  being carried in the vehicle, or

(ii) to cover any contractual  liability.”

11. The insurer could deny its liability on limited grounds as envisaged

under sub-section (2) of Section 149 of the Act.  One of the grounds which

is available to the insurance company for denying its statutory liability is

that the policy is void having been obtained by reason of non-disclosure of a

material fact or by a representation of fact which was false in some material

particular.

12. Indisputably, apart from raising a general and vague plea of fraud, no

particulars  thereof  had  been  disclosed.   The  contract  of  insurance  was

entered into by the Bank with the appellant.  The premium was paid by the

bank.  The contract of insurance might have been drawn in the name of the

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deceased Atma Ram Sharma but no witness has been examined on behalf of

the appellant alleging that they were not aware thereabout.   

13. When questioned,  Mr.  Mehra,  very fairly  stated  that  the  insurance

policy was an old one and it was being renewed from year to year.  If the

appellant had been renewing the insurance policy on year to year basis on

receipt of a heavy amount of premium with the knowledge that the owner of

the vehicle has expired and the name of his legal heirs and representatives

had  not  been  transferred  in  the  registration  book  maintained  by  the

aurhorities  under  the  Motor  Vehicles  Act,  in  our  opinion,  the  appellant

cannot be heard to say that it was not bound to satisfy the claim of a third

party.

14. The provisions of compulsory insurance have been framed to advance

a social object.  It is in a way part of the social justice doctrine.  When a

certificate of insurance is issued, in law, the insurance company is bound to

reimburse the owner.  There cannot be any doubt whatsoever that a contract

of insurance must fulfill the statutory requirements of formation of a valid

contract but in case of a third party risk, the question has to be considered

from a different angle.

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15. Section  146  provides  for  statutory  insurance.   An  insurance  is

mandatorily  required  to  be  obtained  by  the  person  in  charge  of  or  in

possession of the vehicle.  There is no provision in the Motor Vehicles Act

that  unless  the  name(s)  of  the  heirs  of  the  owner  of  a  vehicle  is/are

substituted on the certificate of insurance or in the certificate of registration

in place of the original owner (since deceased), the motor vehicle cannot be

allowed to be used in a public place.  Thus, in a case where the owner of a

motor  vehicle  has  expired,  although  there  does  not  exist  any  statutory

interdict for the person in possession of the vehicle to ply the same on road;

but there being a statutory injunction that the same cannot be plied unless a

policy of insurance is obtained, we are of the opinion that the contract of

insurance would be enforceable.  It would be so in a case of this nature as

for the purpose of renewal of insurance policy only the premium is to be

paid.  It is not in dispute that quantum of premium paid for renewal of the

policy is in terms of the provisions of the Insurance Act, 1938.

16. The vehicle was hypothecated to a nationalized bank.  The certificate

of registration,  presumably, therefore,  carried the name of the bank also.

The bank admittedly paid the premium.

17. We, therefore, fail to see any reason as to how the appellant could

avoid its statutory liability.  Our attention has been drawn to Section 155 of

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the Motor Vehicles Act by Mr. Mehra to contend that the statutory liability

of  the  insurance  company  arises  only  when  the  original  contract  of

insurance was entered into by and between the owner and the insurer and

not in a case of this nature.

18. Section 155 of the Act, in our opinion, cannot be said to have any

application in a situation of this nature.  We may notice the provisions of

Section 157 of the Act in terms whereof in a case of transfer of a motor

vehicle, the certificate of insurance and the policy shall be deemed to have

been  transferred  in  favour  of  the  person  to  whom the  motor  vehicle  is

transferred with effect from the date of its transfer.

19. We  have  noticed  hereinbefore  that  no  witness  was  examined  on

behalf of the appellant.   Only a competent officer informed in the matter

could have disclosed as to whether the widow of late Atma Ram Sharma

had signed any document or whether the fact that Atma Ram Sharma had

expired in the year 1991 came to be known to the officers of the appellant

only after the accident had taken place.  If despite knowledge of the fact that

Atma Ram Sharma had died in the year 1991, the insurance company, with

its eyes wide open, had been accepting the amount of premium every year

from the widow of the said late Atma Ram Sharma or from the Bank, in our

opinion, a contract by necessary implication, had come into being.  Even in

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a  case  of  this  nature,  the  doctrine  of  ‘acceptance  sub  silentio’  shall  be

applicable.   

20. This  Court  furthermore  in  some  of  its  decisions  noticed  the

distinction  between  a  statutory  contract  of  insurance  and  a  contract  of

insurance simplicitor.  It is in that view of the matter, this Court in  Rikhi

Ram (supra), held :

“4. A perusal of Sections 94 and 95 would further show  that  the  said  provisions  do  not  make compulsory  insurance  to  the  vehicle  or  to  the owners.  Thus,  it  is  manifest  that  compulsory insurance  is  for  the benefit  of  third  parties.  The scheme of the Act shows that an insurance policy can  cover  three  kinds  of  risks  i.e.  owner  of  the vehicle,  property  (vehicle)  and  third  party.  The liability  of  the  owner  to  have  compulsory insurance is only in regard to the third party and not to the property. Section 95(5) of the Act runs as follows:

“95.  (5)  Notwithstanding  anything elsewhere  contained  in  any  law,  a  person issuing  a  policy  of  insurance  under  this section  shall  be  liable  to  indemnify  the person or classes of person specified in the policy in respect of any liability which the policy purports to cover in the case of that person or those classes of person.”

5. The  aforesaid  provision  shows  that  it  was intended to cover two legal objectives. Firstly, that no one who was not a party to a contract would bring an action on a contract; and secondly, that a person who has no interest in the subject-matter of

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an insurance can claim the benefit of an insurance. Thus,  once  the  vehicle  is  insured,  the  owner  as well as any other person can use the vehicle with the  consent  of  the  owner.  Section  94  does  not provide that any person who will use the vehicle shall insure the vehicle in respect of his separate use.”

21. We  may,  furthermore,  notice  that  recently  this  Court  in  National

Insurance  Co.  Ltd. v.  Laxmi  Narain  Dhut [(2007)  3  SCC  700]  held  as

under :

“17. Section  149 is  part  of  Chapter  XI which is titled “Insurance of Motor Vehicles against Third- Party Risks”. 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.

XXX XXX XXX

23. 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.

24. 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  licence  has  to  be considered differently in respect of the third party and in respect of own damage claims.”

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Yet  again,  another  Bench  of  this  Court  in  Oriental  Insurance

Company Ltd. v. Meena Variyal & Ors. [(2007) 5 SCC 428], opined :

“12. Chapter  XI  of  the  Act  bears  a  heading, “Insurance of  Motor  Vehicles  against  third-party risks”.  The  definition  of  “third  party”  is  an inclusive one since Section 145(g) only indicates that  “third  party” includes  the Government.  It  is Section  146  that  makes  it  obligatory  for  an insurance to be taken out before a motor vehicle could  be  used  on  the  road.  The  heading  of  that section  itself  is  “Necessity  for  insurance  against third-party risk”. No doubt, the marginal heading may not be conclusive. It is Section 147 that sets out  the  requirement  of  policies  and  limits  of liability.  It  is  provided  therein  that  in  order  to comply with the requirements of Chapter XI of the Act, a policy of insurance must be a policy which is  issued  by  an  authorised  insurer;  or  which insures the person or classes of persons specified in the policy to the extent specified in sub-section (2) against any liability which may be incurred by the  owner  in  respect  of  the  death  of  or  bodily injury or damage to any property of a third party caused by or arising out of the use of the vehicle in a  public  place.  With  effect  from  14-11-1994, injury  to  the  owner  of  goods  or  his  authorised representative  carried  in  the  vehicle  was  also added. The policy had to cover death of or bodily injury to any passenger of a public service vehicle caused by or arising out of the use of the vehicle in a public place. Then, as per the proviso, the policy shall not be required to cover liability in respect of the death, arising out of and in the course of his employment, of the employee of a person insured by  the  policy  or  in  respect  of  bodily  injury sustained by such an employee arising out of and in  the  course  of  his  employment,  other  than  a

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liability  arising  under  the  Workmen’s Compensation Act, 1923 in respect of the death of, or  bodily  injury  to,  an  employee  engaged  in driving the vehicle, or who is a conductor, if it is a public  service  vehicle  or  an  employee  being carried  in  a  goods  vehicle  or  to  cover  any contractual  liability.  Sub-section  (2)  only  sets down the limits of the policy.

13. As we understand Section 147(1) of the Act, an insurance policy thereunder need not cover the liability in respect of death or injury arising out of and  in  the  course  of  the  employment  of  an employee  of  the  person  insured  by  the  policy, unless  it  be  a  liability  arising  under  the Workmen’s Compensation Act, 1923 in respect of a driver, also the conductor, in the case of a public service vehicle, and the one carried in the vehicle as owner of the goods or his representative, if it is a goods vehicle. It is provided that the policy also shall  not  be  required  to  cover  any  contractual liability. Uninfluenced by authorities, we find no difficulty  in  understanding  this  provision  as  one providing  that  the  policy  must  insure  an  owner against any liability to a third party caused by or arising out  of  the  use  of  the vehicle  in  a  public place,  and  against  death  or  bodily  injury to  any passenger of a public service vehicle caused by or arising out of the use of vehicle in a public place. The proviso clarifies  that  the policy shall  not  be required  to  cover  an employee of  the insured  in respect of bodily injury or death arising out of and in  the  course  of  his  employment.  Then,  an exception is provided to the last foregoing to the effect that the policy must cover a liability arising under the Workmen’s Compensation Act, 1923 in respect  of  the  death  or  bodily  injury  to  an employee who is engaged in driving the vehicle or who  serves  as  a  conductor  in  a  public  service vehicle or an employee who travels in the vehicle of  the  employer  carrying  goods  if  it  is  a  goods

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carriage. Section 149(1), which casts an obligation on an insurer to satisfy an award, also speaks only of award in respect of 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). This provision cannot therefore be used to enlarge the liability if it does not exist in terms of Section 147 of the Act.

14. The object of the insistence on insurance under Chapter  XI  of  the  Act  thus  seems  to  be  to compulsorily  cover  the  liability  relating  to  their person or properties of third parties and in respect of employees of the insured employer, the liability that  may  arise  under  the  Workmen’s Compensation Act, 1923 in respect of the driver, the  conductor  and  the  one  carried  in  a  goods vehicle carrying goods.”

22. We are not oblivious of a decision of this Court in Deddappa & Ors.

V.  Branch  Manager,  National  Insurance  Co.  Ltd. [(2008)  2  SCC  595],

wherein  this  Court,  having  regard to  the fact  situation  obtaining  therein,

opined :

“20. A contract  is  based  on  reciprocal  promise. Reciprocal  promises  by the parties  are  condition precedents  for  a  valid  contract.  A  contract furthermore must be for consideration.”

In this case, the statute itself takes care of validity of the contract.  It

is  mandatory.   Once  a  valid  contract  is  entered  into,  only  because  of  a

mistake  or  otherwise,  the  name  of  the  original  owner  has  not  been

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mentioned  in  the  certificate  of  registration  and/or  the  documents  of

hypothecation of the vehicle with the bank had still been continuing in his

name, it cannot be said that the contract itself is void unless it was shown

that in obtaining the said contract a fraud had been practised.  Not only the

particulars  of  fraud  had  not  been  pleaded,  but  even  no  witness  was

examined on behalf of the appellant.  It cannot, thus, be said that a case of

fraud in the matter of entering into the contract of insurance had been made

out by the appellant.   

23. For the reasons aforementioned, there is no infirmity in the impugned

judgment.  The appeal is dismissed accordingly with costs.  Counsel’s fee

assessed at Rs.25,000/-.

……………………………….J. [S.B. Sinha]

..…………………………..…J. [Cyriac Joseph]

New Delhi; December 02, 2008

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