http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 11  

CASE NO.: Appeal (civil)  648 of 2008

PETITIONER: Oriental Insurance Co. Limited

RESPONDENT: Prithvi Raj

DATE OF JUDGMENT: 24/01/2008

BENCH: Dr. ARIJIT PASAYAT & P. SATHASIVAM

JUDGMENT: J U D G M E N T (Arising out of S.L.P. (C) No.12607 of 2005)

DR. ARIJIT PASAYAT, J:   1.              Heard learned counsel for the parties.   

2.              Leave granted.

3.      Challenge in this appeal is to the order passed by  the National Consumer Disputes Redressal Commission, New  Delhi (in short ‘the Commission’) allowing the First Appeal  filed by the appellant before it (the respondent herein).  He is  hereinafter referred to as the complainant.  Before the  Himachal Pradesh State Consumer Disputes Redressal  Commission (in short the State Commission), the complainant  had filed a complaint alleging that a Mini Bus owned by the  complainant met with an accident during the period when the  Insurance Cover/policy issued by the appellant-Insurance  Company was in currency.  The incident was reported to the  Insurance Company but the claim was not settled on the  ground that the Driver of the offending vehicle did not have a  valid and operating driving license.  The complainant took the  stand that there was a renewal of the driving license which  was valid and legal and, therefore, the claim could not have  been repudiated by the Insurance Company. The State  Commission rejected the plea, categorically holding that there  was no valid license issued by the R.T.A, Hyderabad, as  claimed by the Driver.            4.      In appeal by the impugned order, a contrary view  was taken and it was held that it was accepted, as rightly  noted by the State Commission, that the licensing authority at  Hyderabad had not issued any license as claimed. Yet, in view  of the fact that there was a renewal at Tinsukhia, the claim  could not have been refused by the insurance company.   Reliance was placed on a decision of this Court in United  India Insurance Co. Limited Vs. Lehru and Ors. (2003 (3) SCC  338) in support of the view.   

5.      Learned counsel for the appellant-insurance  company submitted that Lehru’s case (supra) related to a  third party claim and not an own damage claim.           6.      Learned counsel for the respondent, on the other  hand, relied on a decision of this Court in  Lal Chand Vs.  Oriental Insurance Co. Ltd. (2006 (8) SCALE 531) to contend  that the view taken by the National Commission was correct.  Reliance has also been placed on a decision of this Court in   National Insurance Co. Ltd. Vs. Swaran Singh & Ors. (2004 (3)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 11  

SCC 297).

7.      It is to be noted that Swaran Singh’s case (supra)  was rendered in the background of Section 149 of the Motor  Vehicles Act, 1988 (in short the ‘Act’).

8.      This Court had occasion to deal with a similar issue  in National Insurance Co. Ltd. Vs. Laxmi Narain Dhut (2007  (3) SCR 579).  It was inter alia held as follows:

\0238.  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 11  

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- (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 be 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 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 11  

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."

\0239. In Swaran Singh’s case (supra) on  which learned counsel for the parties  have placed reliance undisputedly  related to a case under Section 149 of  the Act. This Court elaborately dealt with

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 11  

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.  

10 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".

11. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 11  

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 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 11  

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.

(x) 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 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".

12.     At this juncture, it would be necessary  to test the logic behind Section 149 of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 11  

Act. The conditions under the said provision  relate only to third party risks and claims.  

17.     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.  

18.     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).  

19.     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.  

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

24      .       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.

25.     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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 11  

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 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 11  

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."  

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

38.     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:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 11  

"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".

39.     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.\024                9.      The above aspects were highlighted recently in Laxmi  Narain Dhut case (supra).          10.     In the instant case, the State Commission has  categorically found that the evidence on record clearly  established that the licensing authority had not issued any  license, as was claimed by the Driver and the respondent.   The evidence of Shri A.V.V. Rajan, Junior Assistant of the  Office of the Jt. Commissioner & Secretary, RTA, Hyderabad  who produced the official records clearly established that no  driving license was issued to Shri Ravinder Kumar or  Ravinder Singh in order to enable and legally permit him to  drive a motor vehicle.  There was no cross examination of the  said witness.  The National Commission also found that there  was no defect in the finding recorded by the State  Commission in this regard.   

11.     It appears that pursuant to the orders dated  14.07.2005 passed by this Court, the entire amount awarded  was deposited in this Court.  Since, we have held that the  appellant-Insurance Company has no liability, the amount  deposited be returned to the appellant-Insurance Company  with accrued interest, if any.          12.     The appeal is allowed.  No costs.