http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

CASE NO.: Appeal (civil)  2422-2459 of 2001

PETITIONER: NATIONAL INSURANCE CO. LTD

RESPONDENT: ANJANA SHYAM & ORS

DATE OF JUDGMENT: 20/08/2007

BENCH: A.K. MATHUR & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  

[with C.A. Nos. 5992-6026/2002, 4288/2006 and  C.A. No 3824/2007 @ SLP (C) No. 14167 of 2001]

P.K. BALASUBRAMANYAN, J.

1.              Delay condoned and leave granted in SLP(C)  No.14167 of 2001.

2.              A bus bearing registration No. HP-06-1245,  owned by the Tehsil Cooperative Union and insured with  the appellant met with an accident on 4.3.1996.  The  vehicle had a carrying capacity of 42 passengers, one  driver and one conductor and in terms of Section  147(1)(b)(ii) of the Motor Vehicles Act (hereinafter "the  Act") was insured for the 42 passengers.  It goes without  saying that the route permit of the vehicle was for  carrying 42 passengers other than the driver and the  conductor.   

3.              On the day of the accident, the materials  indicate that the bus was overloaded.  There were at  least 90 passengers.  The bus fell off the road into a  nullah leading to the death of 26 including the one who  was driving the vehicle and injuring 63 persons.  The  legal representatives of the deceased and the injured, all  approached the Motor Accident Claims Tribunal claiming  compensation and seeking its adjudging on applications  made under Section 166 of the Motor Vehicles Act, 1988.   The claim was resisted by the owner, the insured and by  the insurance company.  The insurance company mainly  contended that the bus was overloaded; that it was being  driven not by an authorized driver at the time of the  accident; and that the insurance company had no  liability.  Alternatively, it was sought to be pleaded that  the owner having permitted the vehicle to be overloaded  had committed a fundamental breach of the contract of  insurance and therefore the insurance company could  repudiate the policy and hence was not liable for the  compensation that may be adjudged.  The Tribunal had  brushed aside these objections and passed various  awards on the various claims and made the insurance  company liable for paying the amounts covered by all the  awards exceeding the 42 covered by the insurance.  Feeling aggrieved, the insurance company filed 38  appeals challenging the awards.  In the appeals, an

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

application was made seeking impleadment of the State  of Himachal Pradesh.  This was on the basis that the  authorities under the State had failed to check the  overloading of the bus and it was due to the negligence of  the authorities of the State in not checking overloading  and adherence to the conditions of the permit by the  owner of the vehicle and the relevant provisions of the  Act that the accident had occurred and hence the State  must be found to be liable in contributory negligence and  for that purpose it was just and necessary to implead the  State as a party to the proceedings.  An amendment of  the written statement of the company was also sought  for to introduce the plea that the bus carried 90  passengers at the time of the accident as against the  sitting capacity of 42 including the driver and the  conductor and in that situation the liability should be  apportioned between the insurance company, the owner  and the State and the insurance company could be  found liable only to the extent of the insurance it had  provided and it was bound to provide in terms of Section  147 of the Act and in terms of the conditions of the  permit held by the owner of the bus.     The Insurance Company also sought permission to raise  other contentions which were not normally open to it, by  invoking Section 170 of the Act.  The High Court taking  the view that overloading of the bus which had a permit  to ply on the route with only 42 passengers, did not  amount to violation of the route permit or any other law  for which the State Government could be held to be  contributorily negligent and that the insurance company  was liable to pay the amounts as awarded by the  Tribunal since it could not also question the quantum of  compensation awarded.  Thus, the High Court dismissed  the appeals filed by the insurance company.  It also  dismissed the three appeals filed by three different  claimants seeking enhancement of compensation in their  respective cases.  The insurance company has filed Civil  Appeal Nos.2422-2459 of 2001 challenging the decision  of the High Court.   

4.              In the accident giving rise to C.A. Nos.5992- 6026/2002, the vehicle had only the capacity to carry 42  passengers but at the time of the accident, there were 70  passengers in the bus.  The stand of the insurance  company is that only 42 passengers were insured and  they cannot be compelled to meet the award beyond the  contract of insurance itself.  The appeals actually  challenge only the interim awards made in respect of the  claims, even beyond the insured 42.

5.              In the accident giving rise to C.A.  No.4288/2006 the vehicle was insured for 38 passengers  and two more including the driver and the conductor.   There were more than 70 passengers at the time of the  accident.  The insurance company contends that its  liability is limited to the claim of 38 passengers.

6.              In the civil appeal arising from SLP(C) 14167 of  2001, the claim was one arising out of the accident that  has given rise to Civil Appeal Nos.2422-2459/2001.  The  appeal before the High Court was disposed of in the light  of the earlier judgment from out of which C.A. Nos.  2422-2459 have arisen.

7.              Learned counsel for the insurance company

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

did not pursue his argument before us that overloading  the bus was a breach of a specified condition of the  insurance in that it was a user of the insured vehicle for  a purpose not allowed by the permit under which the  vehicle is used where the vehicle is a transport vehicle.   His only contention in all these appeals was that the  insurance company having insured 42 passengers in two  of the cases and 38 passengers in another, the liability of  the insurance company cannot be enlarged and the  liability is confined only to the 42 passengers insured.  It  was submitted that there is nothing in the Act which  justifies the imposing of the liability on the insurance  company in respect of persons who were not at all  covered by the insurance policy and in respect of whom  there was no obligation on the owner of the vehicle to  take coverage of insurance in terms of Section 147 of the  Act.  Counsel submitted, however much we may keep in  mind that the relevant provisions of the Motor Vehicles  Act are for the benefit of third parties or passengers of a  transport vehicle injured in an accident, the same did  not contain any provision which could enlarge the  liability of the insurance company compelling it to cover  more persons than it had contracted to cover.

8.              Counsel for the respondents in these appeals  submitted that the victims of an accidents are not to be  driven to chase the mirage of recovery of compensation  or damages from the owner of the vehicle and it is to  ensure that the victims are paid compensation, whatever  might be the inter se rights and obligations of the owner  of the vehicle and the insurance company, that the  relevant provisions are made.  Counsel relied on Section  149 of the Act to contend that once an award is passed,  it was the duty of the insurer to satisfy the judgment and  award and viewed from that angle, the insurance  company was bound to pay the victims the entire  amount covered by the various awards.

9.              Before us, there were attempts by learned  counsel for the insurance company to suggest the  adoption of a formula in cases of over-loaded vehicles  meeting with the accidents and more people than those  covered by the policy getting killed or injured.  Counsel  for the respondent submitted that that was not an  acceptable formula and it was not practicable to adopt  the same.  We shall consider that aspect at a later stage  if it becomes necessary.

9.              Under Section 146 of the Motor Vehicles Act,  1988, no vehicle can be plied on the road without taking  out an insurance against third party risk.  Section  147(1)(b)(ii) provides that in order to comply with the  requirements of Chapter XI of the Act, a policy of  insurance must be a policy which insures persons or  classes of persons, specified in the policy to the extent  specified in sub-section (2) of that Section 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 limit in terms of Section  147(2)(a) of the Act is the amount of liability incurred.   Under Section 149(1) of the Act, the insurance company  has the obligation, subject to the provisions of that  Section, to satisfy the decree or award made by the  concerned court or Tribunal on claims by third parties.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

Section 149(2) of the Act provides that no sum shall be  payable by an insurer unless notice of the proceedings  had been given to the insurance company before the  commencement of the proceedings through the court or  the Claims Tribunal, and that it shall not be liable if  there has been a breach of a specified condition of the  policy as indicated in that sub-section. These cover use  of the vehicle 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 use for  organized racing and speed testing, or use for a purpose  not allowed by the permit under which the vehicle is  used where the vehicle is a transport vehicle, or use  without side-car being attached where the vehicle is a  motor cycle, or there is a breach of 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 a condition  excluding liability for injury caused or contributed to by  conditions of war, civil war, riot or civil commotion, or  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.   Under sub-section (5), it is provided that if  the amount which an insurer becomes liable to pay  under this Section 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 person.  Therefore, on the scheme of the  Act, the insurance company, if it is not able to establish  that there is a fundamental breach of a condition which  would enable it to disclaim liability, it may have to pay  the amount of compensation adjudged by a Claims  Tribunal subject of course to its rights to recover from  the insured, the owner of the vehicle such excess as it is  obliged to pay.  

11.             Section 149 of the Act speaks of the judgment  or award in respect of the liability as is required to be  covered by a policy under clause (b) of sub-section (1) of  Section 147 of the Act having to be satisfied.  Section  147(1)(b) compels insuring the person or classes of  persons specified in the policy to the extent specified in  sub-section (ii) of that Section.  The case on hand will  come under sub-clause (ii) of clause (b) of Section 147 (1)  of the Act which obliges the owner to take out insurance  compulsorily 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.

12.             Section 58 of the Act makes special provisions  in regard to transport vehicles.  Sub-Section (2) provides  that a registering authority, when registering a transport  vehicle, shall enter in the record of registration and in  the certificate of registration various particulars.  Clause  (d) provides that if the vehicle is used or adapted to be  used for carriage of passengers, the number of  passengers for whom accommodation is provided.  Thus  the registration of the vehicle, which alone makes it  usable on the road, records the number of passengers to  be carried and the certificate of registration also contains  that entry.  So, an insurance company insuring the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

passengers carried in a vehicle in terms of Section  147(1)(b)(ii) of the Act, can only insure such number of  passengers as are shown in the certificate of registration.   The position is reinforced by Section 72 of the Act, which  deals with grant of stage carriage permits.  Sub-Section  (2) provides that when a permit is decided to be granted  for a stage carriage, the Regional Transport Authority  can attach to the permit one or more of the conditions  specified therein.  Clause (vii) is the condition regarding  the maximum number of passengers that may be carried  in a stage carriage.  Overloading also invites a  consequence which can be termed penal.  Section 86 of  the Act provides for cancellation of a permit if any  condition contained in the permit is breached.   Therefore, the apparent wide words of Section  147(1)(b)(ii) of the Act have to be construed harmoniously  with the other provisions of the Act, namely, Sections 58  and 72 of the Act.  As early as in 1846, Dr. Lushington  in Queen V. Eduljee Byramjee [(1846) 3 MIA 468]  posited that to ascertain the true meaning of a clause in  a statute the court must look at the whole statute, at  what precedes and at what succeeds and not merely at  the clause itself.  This Court has accepted this approach  in innumerable cases. Thus, the expression ’any  passenger’ must be understood as passenger authorized  to be carried in the vehicle and ’use of the vehicle’ as  permitted use of the vehicle.  Affording of insurance for  more number of passengers than permitted, would be  illegal since in that case the manifest intention would be  the overloading of the vehicle, something not  contemplated by law.  Thus, it is not possible to accept a  contention that the insurance can be taken to cover  more passengers than permitted by the certificate of  registration and the permit as a stage carriage and that  it will cover all the passengers overloaded.  Of course, in  these cases, there is no dispute that the insurance cover  took in only the permitted number of passengers.  

13.             In this situation, the insurance taken out for  the number of permitted passengers can alone determine  the liability of the insurance company in respect of those  passengers.  In terms of Section 149 of the Act, the duty  of the insurer is only to satisfy judgments and awards  against persons insured in respect of the third party  risk.  Obviously, this is to the extent the third party risk  is coverable and is covered.  Section 149 of the Act  speaks of judgment or award being obtained against any  person insured by the policy and the liability of the  insurer to pay to the person entitled to the benefit of the  decree any sum not exceeding the sum assured payable  thereunder subject to any claim the insurer may have  against the owner of the vehicle.   Section 149 could not  be understood as compelling an insurance company to  make payment of amounts covered by decrees not only  in respect of the number of persons covered by the policy  itself but even in respect of those who are not covered by  the policy and who have been loaded into the vehicle  against the terms of the permit and against the terms of  the condition of registration of the vehicle and in terms  of violation of a statute.   

14.             It is true that the provisions in Chapter XI of  the Act are intended for the benefit of third parties with a  view to ensure that they receive the fruits of the awards  obtained by them straightaway with an element of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

certainty and not to make them wait for a prolonged  recovery proceeding as against the owner of the vehicle.   But from that, it would not be possible to take the next  step and find that the insurance company is bound to  cover liabilities not covered by the contract of insurance  itself.  The Act only imposes an obligation to take out  insurance to cover third party risks and in the case of  stage carriages, the passengers to be carried in the  vehicle and the passengers to be carried in the vehicle  can be understood only as passengers authorized or  permitted to be carried in the vehicle.   

15.             In spite of the relevant provisions of the  statute, insurance still remains a contract between the  owner and the insurer and the parties are governed by  the terms of their contract.  The statute has made  insurance obligatory in public interest and by way of  social security and it has also provided that the insurer  would be obliged to fulfil his obligations as imposed by  the contract and as overseen by the statute  notwithstanding any claim he may have against the  other contracting party, the owner, and meet the claims  of third parties subject to the exceptions provided in  Section 149(2) of the Act.  But that does not mean that  an insurer is bound to pay amounts outside the contract  of insurance itself or in respect of persons not covered by  the contract at all.  In other words, the insured is  covered only to the extent of the passengers permitted to  be insured or directed to be insured by the statute and  actually covered by the contract.  The High Court has  considered only the aspect whether by overloading the  vehicle, the owner had put the vehicle to a use not  allowed by the permit under which the vehicle is used.   This aspect is different from the aspect of determining  the extent of the liability of the insurance company in  respect of the passengers of a stage carriage insured in  terms of Section 147(1)(b)(ii) of the Act.  We are of the  view that the insurance company can be made liable  only in respect of the number of passengers for whom  insurance can be taken under the Act and for whom  insurance has been taken as a fact and not in respect of  the other passengers involved in the accident in a case of  overloading.

16.             Then arises the question, how to determine the  compensation payable or how to quantify the  compensation since there is no means of ascertaining  who out of the overloaded passengers constitute the  passengers covered by the insurance policy as permitted  to be carried by the permit itself.  As this Court has  indicated, the purpose of the Act is to bring benefit to the  third parties who are either injured or dead in an  accident.  It serves a social purpose.  Keeping that in  mind, we think that the practical and proper course  would be to hold that the insurance company, in such a  case, would be bound to cover the higher of the various  awards and will be compelled to deposit the higher of the  amounts of compensation awarded to the extent of the  number of passengers covered by the insurance policy.   Illustratively, we may put it like this.  In the case on  hand, 42 passengers were the permitted passengers and  they are the ones who have been insured by the  insurance company.  90 persons have either died or got  injured in the accident.  Awards have been passed for  varied sums.  The Tribunal should take into account, the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

higher of the 42 awards made, add them up and direct  the insurance company to deposit that lump sum.  Thus,  the liability of the insurance company would be to pay  the compensation awarded to 42 out of the 90  passengers.  It is to ensure that the maximum benefit is  derived by the insurance taken for the passengers of the  vehicle, that we hold that the 42 awards to be satisfied  by the insurance company would be the 42 awards in  the descending order starting from the highest of the  awards.  In other words, the higher of the 42 awards will  be taken into account and it would be the sum total of  those higher 42 awards that would be the amount that  the insurance company would be liable to deposit.  It will  be for the Tribunal thereafter to direct distribution of the  money so deposited by the insurance company  proportionately to all the claimants, here all the 90, and  leave all the claimants to recover the balance from the  owner of the vehicle.  In such cases, it will be necessary  for the Tribunal, even at the initial stage, to make  appropriate orders to ensure that the amount could be  recovered from the owner by ordering attachment or by  passing other restrictive orders against the owner so as  to ensure the satisfaction in full of the awards that may  be passed ultimately.  

17.             In these cases, we find that this Court has not  issued notices to the claimants.  We are therefore not in  a position to vary the decision of the High Court as  regards the claimants.  But, we have clarified the law on  the question and we grant the insurance company a  decree to recover the excess amount that it has  deposited, from the owner, who has been issued notice  and who has contested these appeals.  Obviously, the  principle indicated by us here will have to be applied by  the Tribunal in the case from which the appeal against  the interim award has been filed by the insurance  company.

18.             Thus, the appeals are allowed to the extent  indicated above.  There will be no order as to costs.