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CASE NO.: Appeal (civil)  1731 of 2006

PETITIONER: National Insurance Co. Ltd.

RESPONDENT: Kusum Rai & Ors.

DATE OF JUDGMENT: 24/03/2006

BENCH: S.B. Sinha & P.K. Balasubramanyan

JUDGMENT: J U D G M E N T

(Arising out of SLP(C) No.14306 of 2003)

S.B. SINHA, J :

Leave granted.

       Respondent No. 3 herein is owner of a jeep bearing registration No.  BR 03 P 9011.  The said vehicle admittedly was being used as a taxi and,  thus, a commercial vehicle.  One Ram Lal was working as a Khalasi in the  said taxi.    He used to drive the said vehicle sometimes.  He had a driving  licence.  Driving licence, however, was granted to him for driving a Light  Motor Vehicle.  The said taxi met with an accident on 14.8.2000 at about 1  p.m. as a result whereof a girl aged about 12 years, Km. Anjali Rai, died.   

       On an allegation made in that behalf that the said taxi was being  driven rashly and negligently by the aforementioned Ram Lal, a claim  petition in terms of Sections 163A and 166 of the Motor Vehicles Act, 1988  (for short "the Act") was filed by the First and the Second Respondents  herein.  The said taxi admittedly was insured with the Appellant herein.  One  of the issues raised in the said proceeding was as to whether the driver of the  said jeep was having a valid and effective licence.  Another question which  arose was as to whether the said Ram Lal was driving the said vehicle.

       The learned Tribunal did not go into the said question.  It inter alia  held that the said Ram Lal had been driving the said vehicle having regard to  the fact that he had been shown as the accused in the criminal case.   However, as regard the question as to whether by permitting the said Ram  Lal to drive the said vehicle, the Respondent No. 3 herein violated the terms  and conditions of contract of licence, the learned Tribunal relying on or on  the basis of the decision of this Court in New India Assurance Co., Shimla v.  Kamla and Others [(2001) 4 SCC 342] held that the Insurance Company  cannot get rid of its third party liability as the said question arises only  between the owner of the vehicle and the insurance company.  It was further  held:

"Insurance Company can recover this amount from  owner of vehicle.  This legal proposition is fully  applicable in this matter.  So, Issue No. 3 is  decided in favour of Petitioners."

       The appeal preferred thereagainst by the Appellant herein before the  High Court was dismissed on the premise that no appeal was maintainable  wherefor reliance was placed by the High Court on a decision of this Court  in National Insurance Company Ltd. Chandigarh v. Nicolletta Rohtagi and  Others [JT 2002 (7) SC 251].  As regard the purported statutory liability of

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the Appellant, it was held:

"\005the mere fact that there was violation of the  terms and conditions subject to which the  insurance policy had been issued, cannot have the  effect of exonerating the insurer from the statutory  liability cast upon him in this regard to pay the  amount to the third party victim."

       It was further held:

"It will, therefore, be open to the insurer \026  appellant to initiate an appropriate proceeding for  the refund of the amount paid by it to the claimants  and establish the breach of the terms and  conditions subject to which the insurance policy  had been issued."

                Hence, this appeal.

       The contention raised on behalf of the Appellant was that the High  Court was palpably in error as violation of the terms and conditions of the  contract of insurance is a matter which comes within the purview of any of  the ’statutory defences’ which can be raised by an insurer under sub-section  (2) of Section 149 of the Act.  The statutory bar as regards raising a defence  on the part of the insurance company is confined to the quantum of damages  only.

       The learned counsel appearing on behalf of the Respondent conceded  that the appeal preferred by the Respondent was maintainable.  However,  relying on or on the basis of a decision of this Court in Oriental Insurance  Co. Ltd. v. Nanjappan and Others [2005 SCC (Cri) 148] he argued that the  insurance company may pay the awarded amount to the claimants and  recover the same from the owner of the vehicle.

       In a proceeding arising out of a claim petition filed under Section 166  of the Motor Vehicles Act, the insurance company is a necessary party as it  is required to indemnify the owner or driver of the vehicle.  Even in a case  where the owner colludes with the claimants or is not otherwise represented,  the insurance company can contest the matter on merits of the claim petition  upon obtaining leave of the court as is provided under sub-section (2) of  Section 170 of the Act.  However, there does not exist any embargo in  raising a defence which comes within the purview of sub-section (2) of  Section 149 of the Act which reads as under:

"149. Duty of insurers to satisfy judgments and award  against persons insured in respect of third party risks.

               (1)             xxx             xxx             xxx (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 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:\027 (a)  that there has been a breach of a specified   condition of the policy, being one of the

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following       conditions, namely:\027  (i)    a condition excluding the use of the vehicle\027 (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 organised 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 disqualification; 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 nondisclosure of a material fact  or by a representation of fact which was false in  some material particular."

       It has not been disputed before us that the vehicle was being used as a  taxi.  It was, therefore, a commercial vehicle.  The driver of the said vehicle,  thus, was required to hold an appropriate licence therefor.  Ram Lal who  allegedly was driving the said vehicle at the relevant time, as noticed  hereinbefore, was holder of a licence to drive a Light Motor Vehicle only.   He did not possess any licence to drive a commercial vehicle.  Evidently,  therefore, there was a breach of condition of the contract of insurance.  The  Appellant, therefore, could raise the said defence.

       We have noticed hereinbefore that the Tribunal has not gone into the  said question.  It proceeded on the basis that the case was covered by Kamla  (supra).  The correctness of the said decision came up for consideration  before this Court in National Insurance Co. Ltd. v. Swaran Singh and Others  [(2004) 3 SCC 297] wherein this Court clearly held:

"The owner of a motor vehicle in terms of Section  5 of the Act has a responsibility to see that no  vehicle is driven except by a person who does not  satisfy the provisions of Section 3 or 4 of the Act.  In a case, therefore, where the driver of the  vehicle, admittedly, did not hold any licence and  the same was allowed consciously to be driven by  the owner of the vehicle by such person, the  insurer is entitled to succeed in its defence and  avoid liability. The matter, however, may be  different where a disputed question of fact arises as  to whether the driver had a valid licence or where  the owner of the vehicle committed a breach of the  terms of the contract of insurance as also the  provisions of the Act by consciously allowing any  person to drive a vehicle who did not have a valid  driving licence. In a given case, the driver of the  vehicle may not have any hand in it at all e.g. a  case where an accident takes place owing to a

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mechanical fault or vis major. (See Jitendra  Kumar)"

       In Swaran Singh (supra), to which one of us was a party, this Court  noticed an earlier decision of this Court, namely, Malla Prakasarao v. Malla  Janaki and Others [(2004) 3 SCC 343] wherein one of the members of the  Bench, V.N. Khare, J. (as the learned Chief Justice then was) was a member.   In that case, it was held:

"1. It is not disputed that the driving licence of the  driver of the vehicle had expired on 20-11-1982  and the driver did not apply for renewal within 30  days of the expiry of the said licence, as required  under Section 11 of the Motor Vehicles Act, 1939.  It is also not disputed that the driver of the vehicle  did not have driving licence when the accident  took place. According to the terms of the contract,  the Insurance Company has no liability to pay any  compensation where an accident takes place by a  vehicle, driven by a driver without a driving  licence. In that view of the matter, we do not find  any merit in the appeal."

       This Court in Swaran Singh (supra) clearly laid down that the liability  of the insurance company vis-a-vis the owner would depend upon several  factors.  The owner would be liable for payment of compensation in a case  where the driver was not having a licence at all.  It was the obligation on the  part of the owner to take adequate care to see that the driver had an  appropriate licence to drive the vehicle.  The question as regards the liability  of the owner vis-a-vis the driver being not possessed of a valid licence was  considered in Swaran Singh (supra) stating:

"Section 3 of the Act casts an obligation on a  driver to hold an effective driving licence for the  type of vehicle which he intends to drive. Section  10 of the Act enables the Central Government to  prescribe forms of driving licences for various  categories of vehicles mentioned in sub-section (2)  of the said section. The various types of vehicles  described for which a driver may obtain a licence  for one or more of them are: (a) motorcycle  without gear, (b) motorcycle with gear, (c) invalid  carriage, (d) light motor vehicle, (e) transport  vehicle, (f) road roller, and (g) motor vehicle of  other specified description. The definition clause  in Section 2 of the Act defines various categories  of vehicles which are covered in broad types  mentioned in sub-section (2) of Section 10. They  are "goods carriage", "heavy goods vehicle",  "heavy passenger motor vehicle", "invalid  carriage", "light motor vehicle", "maxi-cab",  "medium goods vehicle", "medium passenger  motor vehicle", "motor-cab", "motorcycle",  "omnibus", "private service vehicle", "semi- trailer", "tourist vehicle", "tractor", "trailer" and  "transport vehicle". In claims for compensation for  accidents, various kinds of breaches with regard to  the conditions of driving licences arise for  consideration before the Tribunal as a person  possessing a driving licence for "motorcycle  without gear", [sic may be driving a vehicle] for  which he has no licence. Cases may also arise  where a holder of driving licence for "light motor  vehicle" is found to be driving a "maxi-cab",

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"motor-cab" or "omnibus" for which he has no  licence. In each case, on evidence led before the  Tribunal, a decision has to be taken whether the  fact of the driver possessing licence for one type of  vehicle but found driving another type of vehicle,  was the main or contributory cause of accident. If  on facts, it is found that the accident was caused  solely because of some other unforeseen or  intervening causes like mechanical failures and  similar other causes having no nexus with the  driver not possessing requisite type of licence, the  insurer will not be allowed to avoid its liability  merely for technical breach of conditions  concerning driving licence."

       The matter came up for consideration again before a Division Bench  of this Court in National Insurance Corporation Ltd. V. Kanti Devi (Mrs.)  and Others [(2005) 5 SCC 789] wherein this Court upon consideration of the  observations made in Swaran Singh (supra) opined:

"12. The decision in Swaran Singh case was not  before either MACT or the High Court when the  respective orders were passed. Therefore, we think  it proper to remit the matter to MACT for fresh  consideration. It shall permit the parties to lead  such further evidence as they may intend to lead.  The matter shall be decided keeping in view the  principle enunciated by this Court in Swaran Singh  case."

       In a case of this nature, therefore, the owner of a 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, in this case the owner has not appeared.  The victim was  aged only 12 years.  The claimants are from a poor background.  They must  have suffered great mental agony.  Therefore, we are of the opinion that it  may not be appropriate to push them into another round of litigation  particularly when it may be difficult for them to secure the presence of the  owner of the vehicle.   

       In Nanjappan (supra), this Court opined:

"8. Therefore, while setting aside the judgment of  the High court we direct in terms of what has been  stated in Baljit Kaur’s case (supra) that the insurer  shall pay the quantum of compensation fixed by  the Tribunal, about which there was no dispute  raised, to the respondents-claimants within three  months from today. The for the purpose of  recovering the same from the insured, 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 insured, owner of the vehicle shall  be issued a notice and he shall be required to  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

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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 insured, 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, the insured.  The appeal is disposed of in the aforesaid terms,  with no order as to costs."

       Although, thus, we are of the opinion that the Appellant was not liable  to pay the claimed amount as the driver was not possessing a valid licence  and the High Court was in error in holding otherwise, we decline to interfere  with the impugned award, in the peculiar facts and circumstances of the  case, in exercise of our jurisdiction under Article 136 of the Constitution of  India but we direct that the Appellant may recover the amount from the  owner in the same manner as was directed in Nanjappan (supra).

       For the reasons aforementioned, we decline to interfere with the  impugned judgment.  The appeal is dismissed accordingly.