Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1171 OF 2002

NATIONAL INSURANCE COMPANY LTD.     ……. Appellant(s) Vs. MEGHJI NARAN SORATIYA & ORS.     ….… Respondent(s)  

WITH CIVIL APPEAL NO. 1172/2002

O R D E R

R.V. Raveendran, J.

The  insurer  has  challenged  the  dismissal  of  its appeals  (against  the  awards  of  Motor  Accident  Claims Tribunal), by the Gujarat High Court on the sole ground that the Tribunal while granting permission to the insurer to  contest  the  claim  under  Section  170  of  the  Motor Vehicles Act, 1988 (‘Act’ for short) did not assign reasons for granting permission.

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2. Chapter XII of the Act relates to Claims Tribunals. Chapter XI relates to insurance of motor vehicles against third  party  risks.  The  scheme,  in  particular,  the provisions  of  section  170  read  with  section  149, contemplate the claimants in a motor accident claim filing the  claim  petition  against  the  driver  and  owner  of  the motor vehicle. The claimants are required to furnish the particulars relating to insurance and the name and address of the insurer, but are not required to implead the insurer as  a  party  to  the  proceedings.  Having  regard  to  the statutory  obligation  imposed  on  the  insurer  to  satisfy judgments and awards against persons insured in respect of third party risks, the tribunal is required to issue notice to  the  insurer  about  the  initiation  of  the  claim proceedings.  When  such  notice  is  given,  the  insurer  can seek impleadment only for the limited purpose of defending the action on the grounds mentioned in sub-section (2) of section 149, that is, breach of a specified condition of the  policy  by  the  insured  (owner  of  the  vehicle)  or voidness/invalidity of the policy by reason of the policy having been obtained by non-disclosure of material facts or by  representation  of  any  fact  which  was  false  in  some

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material particular. An insurer is not entitled to contest the  claim  on  merits  when  it  received  such  notice  under section 149(2).       

3. However, section 170 of the Act requires the Tribunal to implead the insurer as a party to contest the claim in the  following  two  circumstances,   where  it  is  satisfied that : (a) there is collusion between the persons making the claim and the person against whom the claim is made; or (b)  the  person  against  whom  claim  is  made,  failed  to contest the claim. The Tribunal is required to record the reasons in writing while directing the insurer who may be liable in respect of such claim to be impleaded as a party to the proceedings. On being so impleaded in pursuance of an order under section 170 of the Act, the insurer, without prejudice to the provisions contained in sub-section (2) of section 149, has the right to contest the claim on all or any of the grounds that are available to the person against whom the claim has been made.  

4. Thus,  the  insurer  has  two  distinct  and compartmentalised  rights,  while defending against  claims. First is where it wants to repudiate or deny liability as insurer, either on the ground that there is a breach of a

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specified condition of the policy or on the ground that the policy itself is void. Participation under section 149(2) is  only  to  repudiate  or  deny  its  liability  under  the insurance  policy.  Neither  the  issue  of  liability  of  the driver/owner nor the issue of quantum of compensation can be  the  subject matter of  contest by the  insurer who is served a notice under section 149(2). Second is where the insurer  is  impleaded  as  a  respondent  with  the  right  to contest the claim even on merits, either on account of the Tribunal being satisfied that there is collusion between the claimants and the owner/driver, or on account of the owner/driver  who  have  been  impleaded  as  respondents, failing  to  contest  the  proceedings.  When  the  insurer  is impleaded and permitted to contest under section 170 of the Act,  it  can  contest  either  the  quantum  of  compensation claimed or even the liability of the driver/owner to pay compensation. This is in addition to, and without prejudice to its statutory right under section 149(2) to repudiate or deny its liability.   

5. Section 170 therefore proceeds on the assumption that the insurer will not be a party to the claim proceedings and requires for the Tribunal to implead it as a party to contest  the  claim  on  merits  in  the  two  circumstances

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mentioned therein, namely (a) collusion between claimants and  driver/owner;  and  (b)  non-contest  by  driver/owner. Where the insurer is not a party, and it becomes necessary to implead the insurer as a party-respondent under section 170 of the Act, with right to contest the claim on merits, either on the application of the insurer or suo moto, the Tribunal  has  to  make  a  brief  order  recording  reasons showing that either of the two conditions mentioned in the section are satisfied for impleading the insurer as a party.

6. But in practice, virtually in all claim petitions, the insurer is impleaded as a party respondent alongwith the driver and owner. Consequently, many Tribunals instead of issuing the special notice under section 149(2) notifying the insurer of the lodging of a claim against the insured (so as to give the insurer an option to deny the validity of the policy or repudiate its liability under the policy under any of the grounds mentioned in section 149(2) of the Act), issues regular notice to the insurer. As a result, in practice  the  insurers  file  their  reply  in  all  claim petitions. They raise the grounds available under section 149(2),  if  such  grounds  exist.  Otherwise  they  generally traverse the averments in the claim statement, though not permitted to contest on merits. But where one of the two

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circumstances  mentioned  in  section  170  exists,  that  is collusion or non-contest on the part of driver/owner, then the insurer who is already a party, files an application under section 170 of the Act seeking permission to contest, which is routinely granted. Where the insurer is already a party  respondent  in  the  claim  petition  and  it  makes  an application  seeking  permission  to  contest  the  claim  on merits on the ground that the driver and owner have failed to contest the claim, even a one-line order or non-reasoned order may be sufficient as the Tribunal can satisfy itself about the need to grant the permission by a perusal of the record, without anything more. But where the driver/owner are defending the claim, but the insurer seeks permission on the ground that there is collusion between the claimants and the driver/owner, it may be necessary for the tribunal to record reasons to show that it is satisfied  that there is  collusion,  before  granting  permission.  Where applications  under  section  170  of  the  Act  filed  by  the insurer specifically alleged that the driver/owner failed to  contest  the  claim  and  therefore  it  was  seeking permission, the same is verifiable from the record. On such verification,  the  Tribunal  may  pass  a  separate  order  or even endorse the order “granted” on the application itself. Even  if  any  reason  was  to  be  recorded,  all  that  the

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Tribunal is required to say is : “Permission is granted as driver/owner  have  failed  to  contest  the  claim”.  In  such cases, failure to record reasons can not render the order invalid or illegal as the record on the face of it would show the claim was not being defended by the driver/owner. Procedural requirements should not be stretched to absurd levels to defeat the ends of justice itself.  

7. There is a prevalent view that a rethink on sections 149  and  170 of the  Act is necessary.  As noticed above, Sections 149 contemplates claim petitions being filed only against  the  driver  and  the  owner,  and  the  driver/owner alone  contesting  the  claim  on  merits.  The  insurer  is required to satisfy the award made by the Tribunal, even if it is not impleaded as a party to the claim proceedings. But in practice, the insurer is invariably made a party to the  claim  proceedings,  presumably  to  avoid  any  kind  of delay. It is also a reality that drivers who are primarily liable  seldom  contest  the  proceedings  either  because  of their financial incapacity or because they know that the burden will be borne vicariously by the owner and by the insurer under the policy of insurance. It is also a reality that many of the owners do not appear and contest the claim

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proceeding, or even if they appear and file a reply, do not defend  the  claim  by  effectively  cross-examining  the claimant’s  witnesses  and  by  leading  defence  evidence. Owners are complacent as they have an insurance cover and know that the insurer will bear the liability. In practice therefore the insurer has to keep on goading the owner to contest the matter and place necessary evidence. Section 170 provides that if the driver/owner fail to contest the claim, the Tribunal may permit the insurer to contest the claim. But what, if the driver/owner file a reply but fail to effectively participate in the proceedings? What if the counsel  for  driver/owner  are  present  but  resort  to  only cursory cross-examination?  What if the driver/owner do not at  all  lead defence evidence?  What if there  is a well- planned collusion that does not meet the eye? Where the insurer does not get permission under section 170, there is a reasonable chance of the defence to the claim being far from satisfactory. Judicial notice can also be taken of the fact that there have been several false claims by claimants in  collusion  with  the  owners/drivers  of  vehicle  and/or Police and/or doctors. The question raised is whether it is proper  to  prohibit  the  insurer,  which  is  to  bear  the liability statutorily and contractually, from participating in the process of adjudication of liability and assessment

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of  compensation?  Or  the  statute  having  made  the  insurer directly  liable  to  the  claimants,  should  the  insurer  be given a direct right to contest the claim on merits without the technical requirement of permission? Should the insurer always be at the mercy of the owner to contest the claim ? These  are  matters  that  invite  serious  consideration, particularly by the Parliament and Law Commission and other stake-holders. Be that as it may.

8. Coming to these cases, we are satisfied that the grant of permission by the Tribunal to the insurer to contest the proceedings does not call for interference. In the first case, both the driver and owner, though served, remained absent and did not contest the claim. In the second case, the  driver  was deleted from  the array of  parties as he could not be served and the owner entered appearance, but did not file statement of objections or contest the claim. The insurer specifically alleged in the applications under section  170  that  the  driver/owner  failed  to  contest  the claim and therefore it was seeking permission.  

9. Even assuming that order granting permission required recording of reasons, if the order failed to record reasons

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on being challenged, the High Court could either set aside the permission granted, with a direction to the Tribunal to reconsider the applications and pass a reasoned order, or in special circumstances, itself consider whether the case warranted the grant of permission and decide the question. But under no circumstances, the Tribunal’s permission to contest the claim, can be equated to or treated as denial of permission to contest the claim, merely on the ground that reasons were not recorded. Further, where the order granting  the  permission  to  contest  is  not  challenged  at all, the High Court can not dismiss the appeal filed by the insurer  on  merits,  on  the  ground  that  Tribunal  did  not assign reasons while granting permission under Section 170 of the Act.  Consequently, the orders of the High Court dismissing the appeals only on the ground that the Tribunal did not record reasons for granting permission, are liable to be set aside.  

10. Having regard to the fact that the two appeals relate to accidents which took place in the years 1991 and 1996 and the appeals have been pending in this Court for nearly seven  years,  we  propose  to  consider  and  dispose  of  the appeals on merits, instead of relegating the parties to one more round of litigation before the High Court.  

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      Civil Appeal No. 1171/2002

11. The  claim  related to the  death of a  mason aged 58 years in a motor accident which occurred in the year 1991. His son and daughter-in-law were the claimants and claimed a  compensation  of  Rs.  3  lakhs.  The  Tribunal  after considering the evidence, held that the deceased was aged 55 to 58 years, that his income was Rs. 2,250/- per month and that he was contributing  Rs.1500/- per month to the family.   It  however  restricted  the  annual  loss  of dependency  to  Rs.15,000/-  instead  of  Rs.18000/-  and  by applying  a  multiplier  of  10,  arrived  at  the  loss  of dependency  as  Rs.  1,50,000/-.   It  awarded  Rs.  15,000/- towards loss of estate, Rs. 5,000/- for funeral expenses, Rs.5,000/-  towards  medicines/treatment  (as  the  deceased underwent treatment for a short period in a hospital before death). Thus it determined the compensation payable as Rs. 1,75,000/- and awarded the same with interest @ 15% per annum from the date of petition.

12. The learned counsel for the appellant submitted that when there was no clear and conclusive evidence that the married  son  and  daughter-in-law  were  dependent  on  the

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deceased, the Tribunal erred in restricting the deduction towards  the  living/personal  expenses  of  the  deceased  to only  one-third.   He  also  submitted  that  award  of  Rs. 15,000/- towards loss of estate was excessive.  There is some  merit  in  the  said  contentions.  We  will  therefore reassess  the  compensation.  The  Tribunal  found  that  the income  of  the  deceased  was  Rs.  2,250/-  per  month  or Rs.27,000/- per annum.  There is no serious challenge to this finding. On the facts and circumstances of the case, 50%  should  have  been  deducted  towards  the  personal  and living expenses of the deceased and not one-third. Thus, the  contribution  to  the  family  (or  the  saving  by  the deceased  even  assuming  that  the  claimants  were  fully dependant) would have been Rs. 13,500/- per annum. There is nothing wrong in the multiplier applied (that is 10) as it is in consonance with the principles laid down in  General Manager,  Kerala  State  Road  Transport  Corpn. v.  Susamma Thomas [1994 (2) SCC 176] and  U.P. State Road Transport Corpn. v.  Trilok Chandra [1996 (4) SCC 362].   Therefore, the total loss of dependency would be Rs. 1,35,000/-.  By adding Rs.5,000/- each under the heads of loss of estate, funeral  expenses  and  cost  of  treatment,  the  total compensation is determined as Rs. 1,50,000/-.

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13. We find that the award of interest at 15% per annum was excessive.  We are of the view that award of interest at 9% per annum would be appropriate, just and reasonable.

14. We therefore, allow the appeal, set aside the order of the High Court and reduce the award to Rs. 1,50,000/- with interest at 9% per annum from the date of petition to date of deposit.   

Re : CA No. 1172/2002

15. The claim related to the death of a bus conductor aged 23 years in a motor accident in 1996. The claimants were his  widow  aged  22  years,  two  minor  children  aged  three years and one year and parents.  The claimants stated that the  deceased  was  earning  Rs.  3,000/-  per  month  plus Rs.600/- as bhatta charges; that the deceased was pursuing his studies for Master’s degree, and that he would have earned Rs. 5,000/- to 6,000/- by securing other employment, after completing his studies.  The Tribunal held that the deceased would have earned at least Rs. 5,000/- per month on  completing  his  studies.   After  deducting  one-third towards personal and living expenditure of the deceased, it arrived at the contribution to the family as Rs. 3334/- per

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month or Rs.48,008/- per annum.  It applied a multiplier of 16  and  arrived  at  the  total  loss  of  dependency  as  Rs. 6,40,128/-.  By adding Rs. 20,000/- towards loss of estate, Rs.  10,000/-  towards  loss  of  consortium  and  Rs.  2,000/- towards funeral expenses, the Tribunal determined the total compensation as Rs. 6,72,128/- and awarded the same with interest at Rs. 15% from the date of petition till the date of deposit.   

16. The learned counsel for the insurer submitted that in view  of  the  admissions  and  evidence  that  deceased  was getting a salary of Rs. 3,000/- , the Tribunal ought not to take  the  income  at  a  figure  more  than  Rs.  3,000/-  per month.  But having regard to the fact that the claimants had produced evidence to show that the deceased had passed B.A. and was studying for securing a M.A. degree, we are of the  view  that  the  Tribunal  was  justified  in  assuming  a higher income at the time of death instead of the actual earning at the time of his death.  But the amount assessed as income cannot be a fancy figure. It should be realistic and should be close to the actual earning (vide  Susamma Thomas (supra) and  Sarala Dixit v. Balwant Yadav -- AIR 1996 SC 1274). On the facts and circumstances, we are of the view that the income should be taken as Rs. 4,000/- per

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month (Rs. 48,000/- per annum).  Only one-fourth of the income  (instead  of  the  standard  one-third)  has  to  be deducted  towards  personal  and   living  expenses  of  the deceased,  having  regard  to  his  larger  family.  Thus  the contribution to the family would have been Rs. 36,000/- per annum.   By  applying  a  multiplier  of  17,  the  loss  of dependency would be Rs. 6,12,000/-.  By adding Rs, 5,000/- each under the heads of loss of estate, loss of consortium and funeral expenses, the total compensation would be Rs. 6,27,000/-.   As  the  rate  of  interest  awarded  (15%  per annum) is excessive, we reduce it to 9% per annum.   

17. We  accordingly  allowed  this  appeal,  set  aside  the order of the High Court and modify the award by reducing it to Rs. 6,27,000/- with interest at 9% per annum from the date of petition till date of relief. We direct that the compensation  be  apportioned  in  the  ratio  of  40%  to  the widow, 20% each to the two minor children and the mother. The  Tribunal  shall  make  appropriate  consequential directions relating to bank deposits.

_________________J [R. V. Raveendran]

_________________J [H.L. Dattu]

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New Delhi; February 26, 2009.

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