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CASE NO.: Appeal (civil)  1140 of 2007

PETITIONER: National Insurance Co. Ltd

RESPONDENT: Laxmi Narain Dhut

DATE OF JUDGMENT: 02/03/2007

BENCH: Dr. ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No.25305 of 2004) WITH  (Civil Appeal NO.1141/2007 @SLP (C) No.1617/2005)  Civil Appeal NO.1142/2007 @SLP (C) No.12857/2005) Civil Appeal NO.1143/2007 @SLP (C) No.15728/2005) Civil Appeal NO.1144/2007 @SLP (C) No. 869/2006) Civil Appeal NO.1145/2007 @SLP (C) No. 5048/2006) Civil Appeal NO.1146/2007 @SLP (C) No.6208/2006) Civil Appeal NO.1147/2007 @SLP (C) No. 11596/2005) Civil Appeal NO.1148/2007 @SLP (C) No.8608/2006) Civil Appeal NO.1149/2007 @SLP (C) No. 16568/2006) Civil Appeal NO.1150/2007 @SLP (C) No. 22203/2005) Civil Appeal NO.1151/2007 @SLP (C) No. 22957/2005)

Dr. ARIJIT PASAYAT, J

       Leave granted.  

       In all these cases identical questions are involved and  therefore the appeals are disposed of by this common  judgment.  

       In each of the impugned judgments the concerned High  Court held that the principles laid down by this Court in  National Insurance Co. Ltd. v. Swaran Singh (2004 (3) SCC  297) is applicable  even to claims other than third party  claims.  Some of these appeals also relate to orders passed by  the National Consumer Disputes Redressal Commission, New  Delhi  (in short the ’Commission’) where a similar view has  been taken.  

       Since there has been elaborate analysis of the factual  position it would be appropriate to decide the basic principles  in law and ask the High Courts/Commissions to decide the  cases afresh keeping in mind the view expressed in the  present judgment.

The decision in Swaran Singh’s case (supra) applied to  claims which involved only the insurance company and the  owner of the vehicle i.e. where there was no third party  involved. It has been highlighted by learned counsel for the  appellants that Swaran Singh’s case (supra) was rendered in  the background of Section 149 of the Motor Vehicles Act, 1988

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(in short the ’Act’) which has no application to  cases where  there is no third party involved.  

       In response, learned counsel appearing for the  respondents have submitted that there can be no difference of  approach in cases where the dispute relates to the claim  relating to the insurer and the insured. According to them,  purposive interpretation of provisions is called for in view of  the fact that the statute itself is a beneficial piece of  legislation.  

       In order to appreciate the rival submissions, few  provisions of the Act and the corresponding provisions in the  Motor Vehicles Act, 1939 (hereinafter referred to as the ’Old  Act’) would be necessary.  

       Section 149 of the Act relates to duty of insurers to  satisfy judgments and awards against persons insured in  respect of third party risks. The language of the provision is  clear that it only relates to third party risk. The corresponding  provision in the Old Act is Section 96. Section 166 of the Act  relates to application for compensation. The same corresponds  to Section 110-A of the Old Act. Section 168 of the Act relates  to award of the Claims Tribunal which corresponds to Section  110-B of the Old Act. Section 170 deals with impleadment of  the insurer in certain cases.  Section 149 of the Act needs to  be noted in full. The same reads as follows:

"149. Duty of Insurers to satisfy judgments  and awards against persons insured in  respect of third party risks- (1) If, after a  certificate of insurance has been issued under  sub-section (3) of Section 147, in favour of the  person by whom a policy has been effected,  judgment or award in respect of any 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) or under the provisions of Section  163-A) is obtained against any person insured  by the policy then, notwithstanding that the  insurer may be entitled to avoid or cancel or  may have avoid or cancelled the policy, the  insurer shall, subject to the provisions of this  section, pay to the person entitled to the  benefit of the decree any sum not exceeding  the sum assured payable thereunder, as if  were the judgment debtor, in respect of the  liability, together with any amount payable in  respect of costs and any sum payable in  respect of interest on that sum by virtue of any  enactment relating to interest on judgments.

(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 or 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

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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-

(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.

(3) Where any such judgment as is referred to  in sub-section (1) is obtained from a Court in a  reciprocating country and in the case of a  foreign judgment is, by virtue of the provisions  of section 13 of the Code of Civil Procedure,  1908 (5 of 1908) conclusive as to any matter  adjudicated upon by it, the insurer (being an  insurer registered under the Insurance Act,  1938 (4 of 1938) and whether or not he is  registered under the corresponding law of the  reciprocating country) shall be liable to the  person entitled to the benefit of the decree in  the manner and to the extent specified in sub- section (1), as if the judgment were given by a  Court in India:

Provided that no sum shall he payable by  the insurer in respect of any such judgment  unless, before the commencement of the  proceedings in which the judgment is given,  the insurer had notice through the Court

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concerned of the bringing of the proceedings  and the insurer to whom notice is so given is  entitled under the corresponding law of the  reciprocating country, to be made a party to  the proceedings and to defend the action on  grounds similar to those specified in sub- section (2).

(4) Where a certificate of insurance has been  issued under sub-section (3) of section 147 to  the person by whom a policy has been effected,  so much of the policy as purports to restrict  the insurance of the persons insured thereby  by reference to any condition other than those  in clause (b) of sub-section (2) shall, as  respects such liabilities as are required to he  covered by a policy under clause (b) of sub- section (1) of section 147, be of no effect:

Provided that any sum paid by the insurer in  or towards the discharge of any liability of any  person which is covered by the policy by virtue  only of this sub-section shall be recoverable by  the insurer from that person.

(5)     If the amount which an insurer becomes  liable under this section to pay 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 he entitled to  recover the excess from that person.

(6)     In this section the expression "material  fact" and "material particular" means,  respectively a fact or particular of  such a  nature as to influence the judgment of a  prudent insurer in determining whether he will  take the risk and, if so, at what premium and  on what conditions, and the expression  "liability covered by the terms of the policy"  means a liability which is covered by the policy  or which would be so covered but for the fact  that the insurer is entitled to avoid or cancel or  has avoided or cancelled  the policy.  

(7)     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.

Explanation: For the purposes of this section,  "Claims Tribunal" means a Claims Tribunal  constituted under Section 165 and "award"  means an award made by that Tribunal under  Section 168."

       In Swaran Singh’s case (supra) on which learned counsel

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for the parties have placed reliance undisputedly related to a  case under Section 149 of the Act. This Court elaborately dealt  with the scope and ambit of Sections 147 and 149 of the Act  and after tracing the history of compulsory insurance and the  rights of the third parties, held that the concerned cases were  mainly concerned with third party rights under the policy. It  was held in that context that any condition in the policy  whereby the right of the third party is taken away would be  void, as noted in para 23 of the judgment.  

       In paras 69 and 70 the principles were culled out in the  following terms:

"The Insurance Company is required to prove  the breach of the condition of the contract of  insurance by cogent evidence. In the event the  Insurance Company fails to prove that there  has been breach of conditions of the policy on  the part of the insured, the Insurance  Company cannot be absolved of its liability.  This Court did not lay down a degree of proof,  but held that the parties alleging the breach  must be held to have succeeded in establishing  the breach of the condition of the contract of  insurance, on the part of the Insurance  Company by discharging its burden of proof.  The Tribunal, must arrive at a finding on the  basis of the materials available on the  records".

       In para 110 also the summary of the findings were  recorded which reads as follows:

(i)     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.

(ii) 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.

(iii) 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

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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 wherefore would be on them.

(v) 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.

(vi) 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.

(vii) 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.

(viii) 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.

(ix) 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

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the Act for enforcement and execution of the  award in favour of the claimants.

(x) 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 Tribunal.

(xi) 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".

       At this juncture, it would be necessary to test the logic  behind Section 149 of the Act. The conditions under the said  provision relate only to third party risks and claims.

       The Indian Law on motor vehicle insurance has is origin  in English Law. Motor Insurance Law in England had its  foundations in the Third Party Rights Against Insurers’ Act,  1930. An illustrious case which related to the said statue is Re  Harrington Motor  Co. ex-parte Chaplin (1928 Ch 105 C.A.)   The principles laid down in the said case need to be noted in  brief. It was inter alia held as follows:

"The liquidator has in hand the 4201. 3s. 10d.,  and the question I have to decide is whether  the plaintiff is entitled to have that sum paid  over to him or whether it constitutes assets  available for the general body of the company’s  creditors? The plaintiff’s claim is put forward  on the ground that there is, or should be, an  equity binding the liquidator to apply the  moneys, towards satisfying the liability in  respect of which they have come to his hands

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and not the less because they are insufficient  to give the plaintiff the full compensation to  which he has been held to be entitled. I fail to  see how any such equity can be raised. The  liquidator, as recipient of the fund, stands in  no fiduciary relation to the plaintiff. The money  has been recovered under a contract made  between the company, and the insurers, to  which the plaintiff was not and could not in  the circumstances have been a party; he has  no concern and was not in any way connected  with the company and, indeed, probably did  not know of its existence until its vehicle  inflicted these injuries upon him. In these  circumstances neither the company nor the  Liquidator can be treated as a trustee for him  in enforcing the claim against the insurers.

Here the right of the company to be  indemnified was created by a contract to which  the plaintiff is no party, and I cannot see upon  what ground he can be held to have any valid  claim either at law or in equity to the moneys  in the hands of the liquidator.  

In spite of a strenuous and able and, I  may add, helpful argument on the part of Mr.  Stable, we feel compelled to dismiss this  appeal, and to hold that the decision of Eve J.  was right. It is, perhaps, unfortunate that one  should have to give a judgment which would,  at first sight, appear to run counter to what 1  might call the common-sense view of the  proceedings. None the less it is necessary for  us to administer the law as it stands, and if  any alteration is to be made in it that must be  made by the proper authorities and by the  proper means.

On careful consideration of the  authorities I would only say that that view,  however cogent it might at first sight appear, is  untenable. The company had insured  themselves against what are commonly called  third party risks with the Universal Automobile  Insurance Company, and they had paid the  premiums.

The liquidation of a company or the  bankruptcy of an individual bars the right of a  creditor to proceed any further against the  company or the bankrupt.

There is an absolute break in the  relationship between the creditor who has  suffered the accident and the insurance  company, and there cannot be a privity under  which, when the bankruptcy or liquidation  supervenes, you can cancel out the defendants  and then say that a privity arises between the  creditor and the insurance company and that  the latter has to make good this principal sum  to the former It is, therefore, clear to my mind,  after considering the nature of the bar to  further proceedings-namely, by bankruptcy-

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that there is an absolute break in the relation  or suggested relation between the creditor and  the insurance company. The money which is  being received and which will be distributed by  the liquidator is a sum which the debtors, the  company, have secured should be paid to them  in certain events, but which has been secured  by their own contract made with the insurance  company, and not by any intervention of the  creditor, Mr. Chaplin, although it was in  consequence of an accident which he suffered  that the loss arose, in respect of which the  insurance company has made the payment.

It may be that the present case is one  that ought to be provided for by the  Legislature. But as the authorities stand it is  impossible, I think, to vary the order of Eve J.,  which was made upon a true reading of the  authorities, and for these reasons it appears to  me that this appeal must be dismissed, even  though one may regret that it is not possible to  earmark this sum and to say that the  liquidator ought to be allowed to receive it and  to pay it over, inasmuch as it was the  misfortune of Mr. Chaplin which caused this  sum to be received, a sum which will enure to  the benefit of all the creditors of the company  and not to the particular advantage of the man  who suffered the loss which quantified the risk  which the insurance company had taken. The  appeal must be dismissed with costs.

ATKIN L.J. In this case I am of the  opinion that the applicant has a real grievance,  and if it were possible to decide for him I  should very willingly do so. But it appears to  me that the general rules of law which govern  cases of insurance and indemnity have been  laid down in such terms that it is impossible to  make an exception in the particular class of  cases of which this forms one, and I am bound  to say that 1 myself should be well satisfied if,  by the decision of a higher tribunal or by  legislation, the general rule of law were altered  so as to cover this particular case".    

       In a later case i.e. Hood’s Trustees v. Southern Union  General Insurance Co. of Australasia Ltd. (1928 Ch 793) the  Chancery Division noted the plight of the third party victims  and observed as follows:

       "As it seems to me it does not differ  substantially from the position in In re  Harrington Motor Co.

In giving judgment Atkin L.J. said that he  thought that the appellant had a real  grievance; but the general rule of law was too  strong to allow the Court to make any  exception, however the Court might  sympathize with the appellant. The position in  law was quite clear, and it was that the  appellant had no right or claim against the  insurance company or against money paid by

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the insurance company. The assured had a  direct right of recourse against the insurance  company, but a third party had no such right,  because there was no privity between him and  the insurance company, and it was difficult to  see how a special right could be said to exist  against the insurance company, or any right to  claim money paid over by the insurance  company, merely because the assured  happened to be in financial difficulties.

Upon what grounds of equity or legal  logic can it be argued that, because the law, on  grounds of public policy, compels the creditor,  the liability to whom is the event upon which  the right of a bankrupt or of an insolvent  company to payment of the sum covered by  the contract arises, to be content with such  share of the assets of the bankrupt or the  company in liquidation as a pari passu  distribution between creditors will give, these  assets are not to include the payment due  under the contract? "That seems to me," said  Atkin L.J., "to be a direct statement by the  learned Lord Justice; indeed a statement of the  law that the third party is compelled by the  law to be content with such a share of the  assets as a pari passu distribution between the  creditors will give.

Now so far as this case is concerned  everything which has been said applies here.

It seems to make no difference in  principle, whether the person whose claim  gives rise to a claim for indemnity, is able  against the assured to claim a dividend in the  bankruptcy of the assured, or whether his  claim is not provable in that bankruptcy at all  - that seems to make no difference. In re  Harrington Motor Co. was the case of the  liquidation of a company in which the claimant  was in the position of being able, at any rate,  to claim a dividend, he did get something out  of it, he could not claim to be paid in full, but  he could claim his dividend. Here, by reason of  the fact that the particular claim is not  provable in this bankruptcy, he will never get  anything in this bankruptcy, he cannot make a  claim in this bankruptcy, but that does not  seem to affect the principle.

I think I must take the principles which  are indicated in In re Harrington Motor Co. as  being the more appropriate to the particular  case I am now deciding. The result of that is  that I must come to the conclusion - however  unfortunate - that in fact the benefit of the  indemnity vested in the trustee,  notwithstanding that the claim of Caddy was  not provable in the first bankruptcy."

       The Third Party Rights Against Insurer’s Act, 1930  appears to have been enacted to set right, anomalies in the  law. It was provided in the said Act that where the insured  

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was insured against the third party risk, then in the event of  his being made bankrupt, his rights against the insurer,  notwithstanding anything in any Act or rule of law to the  contrary, are transferred and vest in the third party to whom  the liability has been incurred.  

       The High Court and the Commission seem to have  proceeded on the basis that the defences available to insured  are only those provided in Section 149(2) of the Act and the  said provision has to be interpreted strictly in view of the fact  that it is a social legislation.  

       Section 149 is part of Chapter XI which is titled  "Insurance of Motor Vehicles against Third Parties". 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.  

       It is also to be noted that the terms of the policy have to  be construed as it is and there is no scope for adding or  subtracting something. However liberally the policy may be  construed, such liberalism cannot be extended to permit  substitution of words which are not intended. (See United  India Insurance Co. Ltd. V Harchand Rai Chandan Lal (2004  (8) SCC 644 and Polymat India (P) Ltd. V. National Insurance  Company Ltd. and Ors. (2005 (9) SCC 174).

       The primary stand of the insurance company is that the  person driving the vehicle did not have a valid driving license.  In Swaran Singh’s case (supra) the following situations were  noted:   

(i)     the driver had a license but it was fake; (ii)    the driver had  no license at all; (iii)   the driver originally had a valid license but it had  expired as on the date of the accident and had not  been renewed; (iv)    the license was for a class of vehicles other than  that which was the insured vehicle; (v)     the license was a learner’s license.  

Category (i) may cover two types of situations. First, the  license itself was fake and the second is where originally that  license is fake but there has been a renewal subsequently in  accordance with law.  

       Chapter II contains Sections 3, 4 and 5 of the Act relating  to licensing of drivers driving the motor vehicles.  

       Where the claim relates to own damage claims, it cannot  be adjudicated by the insurance company. But it has to be  decided by an other forum i.e. forum created under the  Consumer Protection Act, 1985 (in short the ’CP Act’). Before  the Tribunal, there were essentially three parties i.e. the  insurer, insured and the claimants. On the contrary, before  the consumer forums there were two parties i.e. owner of the  vehicle and the insurer. The claimant does not come in  to the  picture. Therefore, these are cases where there is no third  party involved.  

       According to learned counsel for the appellants, in such  cases the logic i.e. let the insurer pay and recover from the  insured company does not apply.  

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       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.  

       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 license has to be considered  differently in respect of third party and in respect of own  damage claims.  

       It would be appropriate to take note of what was stated in  Complete Insulations (P) Ltd. v. New India Assurance Co. Ltd.  (1996 (1) SCC 221). In paras 9 and 10 it was observed as  follows:

"9. Section 157 appears in Chapter XI entitled  "Insurance of Motor vehicles against Third  Party Risks" and comprises Sections 145 to  164. Section 145 defines certain expressions  used in the various provisions of that Chapter.   The expression "Certificate of Insurance"  means a certificate issued by the authorised  insurer under Section 147(3). "Policy of  Insurance"  includes a certificate of insurance.  Section 146(1) posits that "no person shall use  except as a passenger, 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  this chapter". Of course this provision does not  apply to vehicles owned by the Central or State  Government and used for Government  purposes not connected with any commercial  enterprise. This provision corresponds to  Section 94 of the old Act. Section 147 provides  that the policy of insurance to be issued by the  authorized insurer must insure the specified  person or classes of persons against any  liability incurred in respect of death of or  bodily injury to any person or damage to any  property of a third party as well as against the  death of or bodily injury caused to any  passenger of a public service vehicle caused by  or arising out of the use of the vehicle in a  public place. This provision is akin to Section  95 of the old Act. It will be seen that the  liability extends to damage to  any property of  a third party and not damage to the property  of the owner of the vehicle, i.e., the insured.  Sub-section (2) stipulates the extent of liability  and in the case of property of a third party the  limit of liability is Rupees six thousand only.  The proviso to that sub-section continues the  liability fixed under the policy for four months  or till the date of its actual expiry, whichever is  earlier, Sub-section (3) next provides that  the  policy of insurance shall be of no effect unless  and until the insurer has  issued a certificate  of insurance in the prescribed form. The next

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important provision which we may notice is  Section 156 which sets out the effect of the  certificate of insurance. It says that when the  insurer issues the certificate of insurance,  then even if the policy of insurance has not as  yet been issued the insurer shall, as between  himself and any other person except the  insured be deemed to have issued to the  insured a policy of insurance conforming in all  respects with the description and particulars  stated in the certificate. It is obvious on a plain  reading of this provision that the legislature  was anxious to protect third-party interest.  Then comes Section 157 which we extracted  earlier. This provision lays down that when the  owner vehicle in relation whereto a certificate  of insurance is issued transfers to another  person the ownership of the motor vehicle, the  certificate of insurance together with the policy  described therein shall be deemed to have  been transferred in favour of the new owner of  the vehicle with effect from the date of transfer.  Sub-section (2) requires the transferee to apply  within fourteen days from the date of transfer  to the insurer for making necessary changes in  the certificate of insurance and the policy  described therein in his favour. These are the  relevant provisions of Chapter XI which have a  bearing on the question of insurer’s liability in  the present case.

10. There can be no doubt that the said  chapter provides for compulsory insurance of  vehicles to cover third-party risks. Section 146  forbids the use of a vehicle in a public place  unless there is in force in relation to the use of  that vehicle a policy of insurance complying  with the requirements of that chapter. Any  breach of this provision may attract penal  action. In the case of property, the coverage  extends to property of a third party i.e. a  person other than the insured. This is clear  from Section 147(1)(b)(i) which clearly refers to  "damage to any property of a third party" and  not damage to the property of the ’insured’  himself. And the limit of liability fixed for  damage to  property of a third party is Rupees  six thousand only as pointed out earlier. That  is why even the Claims Tribunal constituted  under Section 165 is invested with jurisdiction  to adjudicate upon claims for compensation in  respect of accidents involving death of or  bodily injury to persons arising out of the use  of motor vehicles, or damage to any property of  a third party so arising, or both. Here also it is  restricted to damage to third-party property  and not the property of the insured."  

The restrictions relating to appeal in terms of Section 173  (2) does not apply to own damage cases.  

       A plea has been taken about the desirability of purposive  construction.  

       "Golden Rule" of interpretation of statutes is that statutes

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are to be interpreted according to grammatical and ordinary  sense of the word in grammatical or liberal meaning  unmindful of consequence of such interpretation. It was the  predominant method of reading statutes. More often than not,  such grammatical and literal interpretation leads to unjust  results which the Legislature never intended. The golden rule  of giving undue importance to grammatical and literal  meaning of late gave place to ’rule of legislative intent’. The  world over, the principle of interpretation according to the  legislative intent is accepted to be more logical.  

        When the law to be applied in a given case prescribes  interpretation of statute, the Court has to ascertain the facts  and then interpret the law to apply to such facts.  Interpretation cannot be in a vacuum or in relation to  hypothetical facts. It is the function of the legislature to say  what shall be the law and it is only the Court to say what the   law is-

In JT. Registrar of Co-op. Societies v. T.A. Kuttappan  (2000 (6) SCC 127), Associated Timber Industries v. Central  Bank of India (2000 (7) SCC 73),  Allahabad Bank v. Canara  Bank (2000 (4) SCC 406), K.Duraiswamy v. State of Tamil  Nadu (2001 (2) SCC 538), Reserve Bank of India v. Peerless  General Finance and Investment Co. Ltd. (1987 (1) SCC 424),  Chief Justice of A.P. v. L. V. A. Dikshitulu (AIR 1979 SC 193),  Kehar Singh v. State (Delhi Admn.) (AIR 1988 SC 1883), and  Indian Handicrafts v. Union of India (2003 (7) SCC 589), this  court applied the principle of purposive construction.  In Reserve Bank of India’s case (supra) this Court  observed:

"Interpretation must depend on the text and  the context, They are the bases of  interpretation. One may well say if the text is  the texture, context is what gives the colour.  Neither can be ignored. Both are important.  That interpretation is best which makes the  textual interpretation match the contextual. A  statute is best interpreted when we know why  it was enacted. With this knowledge, the  statute must be read, first as a whole and then  section by section, clause by clause, phrase by  phrase and word by word. If a statute is looked  at, in the context of its enactment, with the  glasses of the statute-maker, provided by such  context, its scheme, the sections, clauses,  phrases and words may take colour and  appear different than when the statute is  looked at without the glasses provided by the  context. With these glasses we must look at  the Act as a whole and discover what each  section, each clause, each phrase and each  word is meant and designed to say as to fit  into the scheme of the entire Act. No part of a  statute and no word of a statute can be  construed in isolation, Statutes have to be  construed so that every word has a place and  everything is in its place.

In Dikshitulu’s case (supra) a Constitution Bench of this  Court observed as under: "The primary principle of interpretation is that  a constitutional or statutory provision should  be construed ’according to the intent of they

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that made it’ (Code). Normally, such intent is  gathered from the language of the provision. If  the language of the phraseology employed by  the legislation is precise and plain and thus by  itself, proclaims the legislative intent in  unequivocal terms, the same must be given  effect to, regardless of the consequences that  may follow. But if the words used in the  provision are imprecise, protean, or evocative  or can reasonably bear meaning more than  one, the rule of strict grammatical  construction ceases to be a sure guide to reach  at the real legislative intent. In such a case, in  order to ascertain the true meaning of the  terms and phrases employed, it is legitimate  for the court to go beyond the arid literal  confines of the provision and to call in aid  other well-recognised rules of construction  such as its legislative history, the basic  scheme and framework of the statute as a  whole, each portion throwing light on the rest,  the purpose of the legislation, the object  sought to be achieved and the consequences  that may flow from the adoption of one in  preference to the other possible  interpretation".

In Kehar Singh v. State (Delhi Admn.)  it was held:

"During the last several years, the ’golden rule’  has been given a goby. We now look for the  ’intention’ of the legislature or the ’purpose’ of  the statute. First we examine the words of the  statute. If the words are precise and cover the  situation on hand, we do not go further. We  expound those words in the natural and  ordinary sense of the words. But if the words  are ambiguous, uncertain or any doubt arises  as to the terms employed, we deem it as our  paramount duty to put upon the language of  the legislature rational meaning. We then  examine every word, every section and every  provision. We examine the Act as a whole. We  examine the necessity which gave rise to the  Act. We took at the mischiefs which the  legislature intended to redress. We look at the  whole situation and not just one-to-one  relation. We will not consider any provision out  of the framework of the statute. We will not  view the provisions as abstract principles  separated from the motive force behind. We  will consider the provisions in the  circumstances to which they owe their origin.  We will consider the provisions to ensure  coherence and consistency within the law as a  whole and to avoid undesirable consequences".

A statute is an edict of the Legislature and in construing  a statute, it is necessary to seek the intention of its maker. A  statute has to be construed according to the intent of those  who make it and the duty of the court is to act upon the true  intention of the Legislature.  If a statutory provision is open to  more than one interpretation the Court has to choose that

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interpretation which represents the true intention of the  Legislature. This task very often raises difficulties because of  various reasons, inasmuch as the words used may not be  scientific symbols having any precise or definite meaning and  the language may be an imperfect medium to convey one’s  thought or that the assembly of Legislatures consisting of  persons of various shades of opinion purport to convey a  meaning which may be obscure. It is impossible even for the  most imaginative Legislature to foresee all situations  exhaustively and circumstances that may emerge after  enacting a statute where its application may be called for.  Nonetheless, the function of the Courts is only to expound and  not to legislate. Legislation in a modern State is actuated with  some policy to curb some public evil or to effectuate some  public benefit. The legislation is primarily directed to the  problems before the Legislature based on information derived  from past and present experience. It may also be designed by  use of general words to cover similar problems arising in  future. But, from the very nature of things, it is impossible to  anticipate fully the varied situations arising in future in which  the application of the legislation in hand may be called for,  and, words chosen to communicate such indefinite referents  are bound to be in many cases lacking in clarity and precision  and thus giving rise to controversial questions of construction.  The process of construction combines both literal and  purposive approaches. In other words the legislative intention  i.e., the true or legal meaning of an enactment is derived by  considering the meaning of the words used in the enactment  in the light of any discernible purpose or object which  comprehends the mischief and its remedy to which the  enactment is directed. (See District Mining Officer and Ors. v.  Tata Iron & Steel Co. & Anr. JT 2001 (6) SC 183).  

It is also well settled that to arrive at the intention of the  legislation depending on the objects for which the enactment  is made, the Court can resort to historical, contextual and  purposive interpretation leaving textual interpretation aside.  

Francis Bennion in his book "Statutory Interpretation"  described "purposive interpretation" as under:

"A purposive construction of an enactment is  one which gives effect to the legislative purpose  by-

(a) following the literal meaning of the  enactment where that meaning is in  accordance with the legislative purpose, or

(b) applying a strained meaning where the  literal meaning is not in accordance with the  legislative purpose."

More often than not, literal interpretation of a statute or  a provision of a statute results in absurdity. Therefore, while  interpreting statutory provisions, the Courts should keep in  mind the objectives or purpose for which statute has been  enacted. Justice Frankfurter of U.S. Supreme Court in an  article titled as Some Reflections on the Reading of Statutes  (47 Columbia Law Reports 527), observed that, "legislation has  an aim, it seeks to obviate some mischief, to supply an  adequacy, to effect a change of policy, to formulate a plan of  Government. That aim, that policy is not drawn, like nitrogen,  out of the air; it is evidenced in the language of the statutes,  as read in the light of other external manifestations of

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purpose".          The inevitable conclusion therefore is that the decision in  Swaran Singh’s case (supra) has no application to own damage  cases. The effect of fake license has to be considered in the  light of what has been stated by this Court in New India  Assurance Co., Shimla v. Kamla and Ors. (2001 (4) SCC 342).  Once the license is a fake one the renewal cannot take away  the effect of fake license. It was observed in Kamla’s case  (supra) as follows:

"12. As a point of law we have no manner of  doubt that a fake licence cannot get its forgery  outfit stripped off merely on account of some  officer renewing the same with or without  knowing it to be forged. Section 15 of the Act  only empowers any Licensing Authority to  "renew a driving licence issued under the  provisions of this Act with effect from the date  of its expiry". No Licensing Authority has the  power to renew a fake licence and, therefore, a  renewal if at all made cannot transform a fake  licence as genuine. Any counterfeit document  showing that it contains a purported order of a  statutory authority would ever remain  counterfeit albeit the fact that other persons  including some statutory authorities would  have acted on the document unwittingly on the  assumption that it is genuine".

As noted above, the conceptual difference between third  party right and own damage cases has to be kept in view.  Initially, the burden is on the insurer to prove that the license  was a fake one. Once it is established the natural  consequences have to flow.  

       In view of the above analysis the following situations  emerge:

1.      The decision in Swaran Singh’s case (supra) has no  application to cases other than third party risks.  2.      Where originally the license was a fake one, renewal  cannot cure the inherent fatality.   3       In case of third party risks the insurer has to  indemnify the amount and if so advised to recover the  same from the insured. 4.          The concept of purposive interpretation has no  application to cases relatable to Section 149 of the Act.  

The High Courts/Commissions shall now consider the matter  afresh in the light of the position in law as delineated above.  

       The appeals are allowed as aforesaid with no order as to  costs.