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CASE NO.: Appeal (civil)  6178 of 2004

PETITIONER: National Insurance Co. Ltd.                              

RESPONDENT: Chella Bharathamma & Ors.                                        

DATE OF JUDGMENT: 21/09/2004

BENCH: ARIJIT PASAYAT & C.K. THAKKER

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No.13208/2003)

(With C.A.6179/2004 @SLP(C) No. 13210/2003)

ARIJIT PASAYAT, J.

Leave granted.

National Insurance Company limited (hereinafter referred to as  the ’insurer’) calls in question legality of the judgment rendered by a  learned Single Judge of the Andhra Pradesh High Court holding the  insurer to be liable for indemnifying the award of compensation.

Background facts in nutshell are as follows :

Three persons were traveling in an auto rickshaw which met with  an accident on 9.5.1992.  Two persons lost their lives while one was  seriously injured.  Claim petitions were filed by the legal  representatives of the two deceased persons while the injured filed  separate petition claiming compensation in terms of Section 166 of the  Motor Vehicles Act, 1988 (in short the ’Act’)  The auto rickshaw in  question belonged to Challa Atchayya (hereinafter referred to as the  ’insured’).  The insurer resisted the claim on the ground that the  insured had not obtained permit to ply the vehicle and therefore in  terms of the policy of the insurance the insurer had no liability.  The  Motor Vehicle Accident Claims Tribunal, Krishna at Vijayawada (in short  the ’Tribunal’) accepted the plea.  It however, held that the insured  was liable to pay compensation which was fixed at Rs. 1,24,000/- in the  case of the death while in case injured’s claim  a  sum of Rs. 2,000/-  was directed to be paid.  The judgment was challenged in appeal before  the Division Bench of the High Court of Andhra Pradesh at Hyderabad  questioning the correctness of the view regarding non-liability of the  insurer.  The High court by the impugned judgment held that the insurer  was liable to indemnify the award.

In support of the appeal learned counsel for the appellant\026 insurer submitted that the High Court has lost sight of the fact that  plying the vehicle without requisite permit is a breach of a specific  condition of the policy and, therefore, the insurer had no liability.   It was pointed out that Section 149 of the Act deals with the defences  available to the insurer.    Reference was also made to Section 66 of the Act relating to the  necessity for permits. The High Court’s view that since the vehicle was  subject-matter of insurance and the policy was in operation; insurer’s  liability is really of no consequence.  The defence available to the

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insurer is when the policy subsists and stress of the High Court on  that is really beside the point.

Per contra, learned counsel for the respondent-claimants  submitted that in one case at hand two young children of the deceased  were the beneficiary of the award.  The widow of the deceased, during  the pendency of the appeal before this Court, has also expired.  In one  of the cases, old parents of the deceased are the claimants.  In this  view of the matter, considering the small amounts awarded, this is not  a fit case for interference.

Section 149(2)(a) (i) relates to a vehicle not covered by a  permit to ply for hire or reward. Section 149(2) reads as follows :

" 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 of 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 \026  

       (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."

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Section 66 of the Act is also relevant. Same reads as follows:

"66. Necessity for permits \026 (1) No owner of a motor  vehicle shall use or permit the use of the vehicle as  a transport vehicle in any public place whether or not  such vehicle is actually carrying any passengers or  goods save in accordance with the conditions of a  permit granted or countersigned by a Regional or State  Transport Authority or any prescribed authority  authorizing him the use of the vehicle in that place  in the manner in which the vehicle is being used:

       Provided that a stage carriage permit shall,  subject to any conditions that may be specified in the  permit, authorize the use of the vehicle as a contract  carriage:

       Provided further that a stage carriage permit  may, subject to any conditions that may be specified  in the permit, authorize the use of the vehicle as a  goods carriage either when carrying passengers or not:

       Provided also that a goods carriage permit shall,  subject to any conditions that may be specified in the  permit, authorize the holder to use the vehicle for  the carriage of goods for or in connection with a  trade or business carried on by him.

(2)     The holder of a goods carriage permit may use the  vehicle, for drawing of any trailer or semi-trailer  not owned by him, subject to such conditions as may be  prescribed:

       Provided that the holder of a permit of any  articulated vehicle may use the prime-mover of that  articulated vehicle for any other semi-trailer.

(3)     The provisions of sub-section (1) shall not apply  \026

(a)     to any transport vehicle owned by the Central  Government or a State Government and used for  Government purposes unconnected with any commercial  enterprise;

(b)     to any transport vehicle owned by a local  authority or by a person acting under contract with a  local authority and used solely for road cleansing,  road watering or conservancy purposes;

(c)     to any transport vehicle used solely for police,  fire brigade or ambulance purposes;

(d)     to any transport vehicle used solely for the  conveyance of corpses and the mourners accompanying  the corpses;

(e)     to any transport vehicle used for towing a  disable vehicle or for removing goods from a disabled  vehicle to a place of safety;

(f) to any transport vehicle used for any other public  purpose as may be prescribed by the State Government

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in this behalf;

(g) to any transport vehicle used by a person who  manufactures or deals in motor vehicles or builds  bodies for attachment to chassis, solely for such  purposes and in accordance with such conditions as the  Central Government may, by notification in the  Official Gazette, specify in this behalf;

(h)omitted

(i)     to any goods vehicle, the gross vehicle weight of  which does not exceed 3,000 kilograms;

(j)     subject to such conditions as the Central  Government may, by notification in the Official  Gazette, specify, to any transport vehicle purchased  in one State and proceeding to a place, situated in  that State or in any other State, without carrying any  passenger or goods;

(k)     to any transport vehicle which has been  temporarily registered under section 43 while  proceeding empty to any place for the purpose of  registration of the vehicle;

(l)     omitted.

(m)     to any transport vehicle which, owing to flood,  earthquake or any other natural calamity, obstruction  on road, or unforeseen circumstances, is required to  be diverted through any other route, whether within or  outside the State, with a view to enabling it to reach  its destination;

(n)     to any transport vehicle used for such purposes  as the Central or State Government may, by order,  specify;

(o)     to any transport vehicle which is subject to a  hire-purchase, lease or hypothecation agreement and  which owing to the default of the owner has been taken  possession of by or on behalf of, the person with whom  the owner has entered into such agreement, to enable  such motor vehicle to reach its destination; or

(p)     to any transport vehicle while proceeding empty  to any place for purpose of repair.

(4)     Subject to the provisions of sub-section (3),  sub-section (1) shall, if the State Government by rule  made under section 96 so prescribes, apply to any  motor vehicle adapted to carry more than nine persons  excluding the driver."   

In New India Assurance Co. Ltd. v. Asha Rani and Ors. (2003 (2)  SCC 223) it was observed as follows: "We may consider the matter from another angle.  Section 149(2) of the 1988 Act enables the insurers to  raise defences against the claim of the claimants. In  terms of clause (c) of sub-section (2) of section 149  of the Act one of the defences which is available to  the insurer is that the vehicle in question has been

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used for a purpose not allowed by the permit under  which the vehicle was used. Such a statutory defence  available to the insurer would be obliterated in view  of the decision of this court in Satpal Singh’s case  (2000 (1) SCC 237)."  

Similarly, in  National Insurance Co. Ltd., Chandigarh v.  Nicolletta Rohtagi and Ors. (2002 (7) SCC 456), the scope of Section  149 (2) of the Act was elaborated.  It was, inter alia, observed as  follows: "To answer the question, it is necessary to find out  on what grounds the insurer is entitled to  defend/contest against a claim by an injured or  dependants of the victims of a motor vehicle  accident. Under Section 96(2) of the 1939 Act which  corresponds to Section 149(2) of the 1988 Act, an  insurance company has no right to be a party to an  action by the injured person or dependants of the  deceased against the insured. However, the said  provision gives the insurer the right to be made a  party to the case and to defend it. It is,  therefore, obvious that the said right is a creature  of the statute and its content depends on the  provisions of the statute. After the insurer has  been made a party to a case or claim, the question  arises, what are the defences available to it under  the statute ? The language employed in enacting sub- section (2) of Section 149 appears to be plain and  simple and there is no ambiguity in it. It shows  that when an insurer is impleaded and has been given  notice of the case, he is entitled to defend the  action on grounds enumerated in the sub-section,  namely, sub-section (2) of Section 149 of the 1988  Act, and no other ground is available to him. The  insurer is not allowed to contest the claim of the  injured or heirs of the deceased on other ground  which is available to an insured or breach of any  other conditions of the policy which do not find  place in sub-section (2) of Section 149 of the 1988  Act. If an insurer is permitted to contest the claim  on other grounds it would mean adding more grounds  of contest to the insurer than what the statute has  specifically provided for.  Sub-section (7) of Section 149 of the 1988 Act  clearly indicates in what manner sub-section (2) of  Section 149 has to be interpreted. Sub-section (7)  of Section 149 provides that 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. The expression "manner" employed in  sub-section (7) of Section 149 is very relevant  which means an insurer can avoid its liability only  in accordance with what has been provided for in  sub-section (2) of Section 149. It, therefore, shows  that the insurer can avoid its liability only on the  statutory defences expressly provided in sub-section  (2) of Section 149 of the 1988 Act. We are,  therefore, of the view that an insurer cannot avoid  its liability on any other grounds except those

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mentioned in sub-section (2) of Section 149 of the  1988 Act."

       As was observed in the said case the statutory defences which are  available to the insurer to contest the claim are confined to those  provided in sub-section (2) of Section 149.   

High Court was of the view that since there was no permit, the  question of violation of any condition thereof does not arise.  The  view is clearly fallacious.  A person without permit to ply a vehicle  cannot be placed at a better pedestal vis-‘-vis one who has a permit,  but has violated any condition thereof. Plying of a vehicle without a  permit is an infraction.  Therefore, in terms of Section 149(2) defence  is available to the insurer on that aspect.  The acceptability of the  stand is a matter of adjudication.  The question of policy being  operative had no relevance for the issue regarding liability of  insurer. High Court was, therefore, not justified in holding the  insurer liable.         The residual question is what would be the appropriate direction.   Considering the beneficial object of the Act, it would be proper for  the insurer to satisfy the award, though in law it has no liability. In  some cases the insurer has been given the option and liberty to recover  the amount from the insured. For the purpose of recovering the amount  paid from the owner, the insurer shall not be required to file a suit.  It may initiate a proceeding before the concerned Executing Court as if  the dispute between the insurer and the owner was the subject matter of  determination before the Tribunal and the issue is decided against the  owner and in favour of the insurer. Before release of the amount to the  claimants, owner of the offending vehicle shall furnish security for  the entire amount which the insurer will pay to the claimants. The  offending vehicle shall be attached, as a part of the security. If  necessity arises the Executing Court shall take assistance of the  concerned Regional Transport Authority. The Executing Court shall pass  appropriate orders in accordance with law as to the manner in which the  owner of the vehicle shall make payment to the insurer. In case there  is any default it shall be open to the Executing Court to direct  realization by disposal of the securities to be furnished or from any  other property or properties of the owner of the vehicle i.e. the  insured.  In the instant case considering the quantum involved we leave  it to the discretion of the insurer to decide whether it would take  steps for recovery of the amount from the insured.           The appeals are disposed of with the above observation. There  will be no order as to costs.