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CASE NO.: Appeal (civil)  490 of 2008

PETITIONER: Premkumari & Ors

RESPONDENT: Prahlad Dev & Ors

DATE OF JUDGMENT: 18/01/2008

BENCH: Dr. Arijit Pasayat & P. Sathasivam

JUDGMENT: JUDGMENT (Arising out of SLP (C) No. 7373 OF 2005)

P. Sathasivam, J.

1)      Leave granted.  2)      Whether the Tribunal was right in holding that the  insurer was not liable as the driver had a fake licence is the  question to be decided in this appeal?

3)      BACKGROUND FACTS: One Ramdhan, who was husband of appellant No.1 and  father of appellant Nos. 2 and 3 who were minor children, died  in a motor vehicle accident while he was going on his bicycle  and hit by a truck bearing Registration No. CPW 7344 which  was being driven in a rash and negligent manner by  respondent No.2 herein, owned by respondent No.1 herein and  was insured by respondent No.3 herein \026 National Insurance  Company.  According to the appellants/claimants at the time  of accident, the deceased was aged about 36 years and  working as a carpenter and he was getting an income of  Rs.125/- to Rs.150/- per day.  The claimants filed claim case  No. 154 of 1997 before the Motor Accident Claims Tribunal,  Indore claiming a total compensation of Rs. 7 lacs under  Sections 166A and 140 of the Motor Vehicles Act, 1988.   Respondent No.3 filed a written statement denying the claim  and also pleaded that the driver of the offending vehicle did  not have a valid and effective driving licence on the date of the  accident.  The Tribunal based on the materials placed and the  evidence on record found that death was caused due to rash  and negligent driving of respondent No.2.  On 08.02.2000, the  Tribunal awarded a compensation of Rs.2,56,000/- to the  appellants along with interest @ 9% p.a. from the date of filing  of the claim application.  The respondent No.3-Insurance  Company was exonerated from its liability to pay  compensation on the ground that the driver of the offending  vehicle did not have a valid and effective driving licence on the  date of accident.  4)      Aggrieved by the award of the Tribunal, the claimants  filed Misc. Appeal No. 1665/2002 in the High Court of Madhya  Pradesh, Bench at Indore challenging the quantum of the  award as well as exoneration of respondent No.3-Insurance  Company from its liability of making payment of compensation  to them.  The High Court, considering the merits of the case  and finding that duplicate licence was issued to respondent  No.2 who is not having a valid and effective licence on the date  of the accident, held that Insurance Company was not liable  for the compensation amount as determined.  However,  considering the merits of the case, age and income of the

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deceased and dependents being wife and minor children  enhanced the compensation amount to Rs.3,50,000/- and  directed respondent Nos. 1 and 2 i.e. owner and driver of the  vehicle to pay the same.  The review petition filed by the  appellants in Misc. Civil Case No. 41 of 2004 exonerating   respondent No.3 from its liability has been dismissed by the  High Court by order dated 22.04.2004.  Questioning those  orders, the claimants filed the present appeal after obtaining  leave.  5)      Heard Mr. Vikrant Singh Bais, learned counsel for the  appellants and Ms. Manjeet Chawla, learned counsel for the  3rd respondent and none appeared for respondent Nos. 1 and 2  perused the materials placed before us and the annexures  filed.   6)      In this appeal, the appellants mainly concerned about  the orders of the Tribunal and the High Court exonerating the  Insurance Company from its liability.  Before considering the  relevant decisions of this Court and the issue in question, let  us note certain factual details.  The first respondent is the  owner of the offending vehicle and respondent No.2 is the  driver of the said vehicle, who is none other than the brother  of the first respondent.  Before the Tribunal, the Insurance  Company contended that the driver was not having a valid and  effective driving licence.  Considering the materials in the form  of oral and documentary evidence placed by the Insurance  Company the Tribunal found that opposite party No.2,  namely, driver of the offending vehicle did not have a valid and  effective licence on the date of the accident.  Based on the said  conclusion, it exonerated the Insurance Company from its  liability.  When this specific finding was challenged by way of  review application before the High Court, the judgment of this  Court in United India Insurance Co. Ltd. vs. Lehru and  Others, (2003) 3 SCC 338 was pressed into service.  In the  said judgment, after considering Section 96(2)(b)(ii) of the old  Motor Vehicles Act and similar provision i.e. 149(2)(a)(ii) in the  Motor Vehicles Act, 1988, this Court held as under:- "17. xxx xxx xxx  Thus under sub-section (1) the insurance company must pay  to the person entitled to the benefit of the decree,  notwithstanding that it has become "entitled to avoid or  cancel or may have avoided or cancelled the policy". The  words "subject to the provisions of this section" mean that  the insurance company can get out of the liability only on  grounds set out in Section 149. Sub-section (7), which has  been relied on, does not state anything more or give any  higher right to the insurance company. On the contrary, the  wording of sub-section (7) viz. "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" indicates  that the legislature wanted to clearly indicate that insurance  companies must pay unless they are absolved of liability on  a ground specified in sub-section (2). This is further clear  from sub-section (4) which mandates that conditions, in the  insurance policy, which purport to restrict insurance would  be of no effect if they are not of the nature specified in sub- section (2). The proviso to sub-section (4) is very illustrative.  It shows that the insurance company has to pay to third  parties but it may recover from the person who was primarily  liable to pay. The liability of the insurance company to pay is  further emphasised by sub-section (5). This also shows that  the insurance company must first pay, then it can recover. If  Section 149 is read as a whole it is clear that sub-section (7)  is not giving any additional right to the insurance company.  On the contrary it is emphasising that the insurance  company cannot avoid liability except on the limited grounds

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set out in sub-section (2).  18. Now let us consider Section 149(2). Reliance has been  placed on Section 149(2)( a )( ii ). As seen, in order to avoid  liability under this provision it must be shown that there is a  "breach". As held in Skandia (1987) 2 SCC 654 and Sohan  Lal Passi (1996) 5 SCC 21 cases the breach must be on the  part of the insured. We are in full agreement with that. To  hold otherwise would lead to absurd results. Just to take an  example, suppose a vehicle is stolen. Whilst it is being driven  by the thief there is an accident. The thief is caught and it is  ascertained that he had no licence. Can the insurance  company disown liability? The answer has to be an emphatic  "No". To hold otherwise would be to negate the very purpose  of compulsory insurance. The injured or relatives of the   person killed in the accident may find that the decree  obtained by them is only a paper decree as the owner is a  man of straw. The owner himself would be an innocent  sufferer. It is for this reason that the legislature, in its  wisdom, has made insurance, at least third-party insurance,  compulsory. The aim and purpose being that an insurance  company would be available to pay. The business of the  company is insurance. In all businesses there is an element  of risk. All persons carrying on business must take risks  associated with that business. Thus it is equitable that the  business which is run for making profits also bears the risk  associated with it. At the same time innocent parties must  not be made to suffer or loss. These provisions meet these  requirements. We are thus in agreement with what is laid  down in the aforementioned cases viz. that in order to avoid  liability it is not sufficient to show that the person driving at  the time of accident was not duly licensed. The insurance  company must establish that the breach was on the part of  the insured."  "20. When an owner is hiring a driver he will therefore have  to check whether the driver has a driving licence. If the  driver produces a driving licence which on the face of it looks  genuine, the owner is not expected to find out whether the  licence has in fact been issued by a competent authority or  not. The owner would then take the test of the driver. If he  finds that the driver is competent to drive the vehicle, he will  hire the driver. We find it rather strange that insurance  companies expect owners to make enquiries with RTOs,  which are spread all over the country, whether the driving  licence shown to them is valid or not. Thus where the owner  has satisfied himself that the driver has a licence and is  driving competently there would be no breach of Section  149(2)( a )( ii ). The insurance company would not then be  absolved of liability. If it ultimately turns out that the licence  was fake, the insurance company would continue to remain  liable unless they prove that the owner/insured was aware  or had noticed that the licence was fake and still permitted  that person to drive. More importantly, even in such a case  the insurance company would remain liable to the innocent  third party, but it may be able to recover from the insured.  This is the law which has been laid down in Skandia (1987)  2 SCC 654, Sohan Lal Passi (1996) 5 SCC 21 and Kamla  (2001) 4 SCC 342 cases. We are in full agreement with the  views expressed therein and see no reason to take a different  view."  It is clear from the above decision when the owner after  verification satisfied himself that the driver has a valid licence  and driving the vehicle in question competently at the time of  the accident there would be no breach of Section 149(2)(a)(ii),  in that event, the Insurance Company would not then be  absolved of liability.  It is also clear that even in the case that

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the licence was fake, the Insurance Company would continue  to remain liable unless they prove that the owner was aware or  noticed that the licence was fake and still permitted him to  drive.  7)      Learned counsel for the appellants placing reliance on a  three-Judge Bench decision of this Court in National  Insurance Co. Ltd. vs. Swaran Singh and Others, (2004) 3  SCC 297 contended that in view of marshalling of the case  laws and principles arrived therein, the Insurance Company  cannot escape its liability to indemnify the owner even in the  case of breach of licence conditions.  After analyzing the  relevant provisions in the old Motor Vehicles Act as well as the  1988 Act and the entire case laws, this Court summarized its  findings as under: "110. The summary of our findings to the various issues as  raised in these petitions is 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 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 wherefor 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

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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 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."  Among the above findings, for our purpose clause (iii) and (iv)  are relevant.  8)      The effect and implication of the principles laid down in  Swaran Singh’s case (supra) has been considered and  explained by one of us (Dr. Justice Arijit Pasayat)  in National  Insurance Co. Ltd. vs. Laxmi Narain Dhut, (2007) 3 SCC  700.  The following conclusion in para 38 are relevant: "38. In view of the above analysis the following situations  emerge:  1. The decision in Swaran Singh case has no application to  cases other than third-party risks.  2. Where originally the licence was a fake one, renewal  cannot cure the inherent fatality.

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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."  9)      In the subsequent decision Oriental Insurance Co. Ltd.  vs. Meena Variyal and Others, (2007) 5 SCC 428 which is  also a two-Judge Bench while considering the ratio laid down  in Swaran Singh’s case (supra) concluded that in a case where  a person is not a third party within the meaning of the Act, the  Insurance Company cannot be made automatically liable  merely by resorting to Swaran Singh’s case (supra).  While  arriving at such a conclusion the Court extracted the analysis  as mentioned in para 38 of Laxmi Narain Dhut (supra) and  agreed with the same.  In view of consistency, we reiterate the  very same principle enunciated in Laxmi Narain Dhut (supra)  with regard to interpretation and applicability of Swaran  Singh’s case (supra).  10)     In the case of National Insurance Co. Ltd. vs. Kusum  Rai and Others, (2006) 4 SCC 250, the vehicle was being  used as a taxi.  It was, therefore, a commercial vehicle.  The  driver of the said vehicle was required to hold an appropriate  licence therefore.  Ram Lal, who allegedly was driving the said  vehicle at the relevant time, was holder of a licence to drive  light motor vehicle only.  He did not possess any licence to  drive a commercial vehicle.  Therefore, there was a breach of  condition of the contract of insurance.  In such circumstances,  the Court observed that the appellant-National Insurance Co.  Ltd., therefore, could raise the said defence while considering  the stand of the Insurance Company.  This Court, pointing out  the law laid down in Swaran Singh (supra) concluded that the  owner of the vehicle cannot contend that he has no liability to  verify the fact as to whether the driver of the vehicle possessed  a valid licence or not.  However, taking note of the fact that the  owner has not appeared, the victim was aged only 12 years,  the claimants are from a poor background and to avoid  another round of litigation applying the decision in Oriental  Insurance Co. Ltd. vs. Nanjappan, (2004) 13 SCC 224 and  finding that though the appellant-Insurance Company was not  liable to pay the claimed amount as the driver was not  possessing a valid licence and the High Court committed an  error in holding otherwise, in the peculiar facts and  circumstances of the case and in exercise of jurisdiction under  Article 136 of the Constitution declined to interfere with the  impugned judgment therein and permitted the appellant- Insurance Company to recover the amount from the owner of  the vehicle.  11)     In the light of the various principles, the factual finding  of the Tribunal, namely, the second respondent, driver was not  holding a valid licence on the date of the accident and also of  the fact that the appellants are none else than widow and  minor children of the deceased, we pass the following order:- (i)     In view of the order of this Court dated 08.12.2006  granting stay of further proceedings of the recovery  initiated by the Insurance Company for refund of  the amount of Rs.50,000/- with interest claimed to  have been paid to the appellants, we make it clear  that the appellants need not repay the said amount  in spite of our conclusion which is in favour of the  Insurance Company.  However, we permit the third  respondent-Insurance Company to recover the said  amount from the owner of the vehicle in the same  manner as was directed in Nanjappan (supra); (ii)    The appellants are permitted to proceed and recover  the rest of the amount from the owner and driver of

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the vehicle \026 respondent Nos. 1 and 2 herein in  accordance with law.

12)     The appeal is disposed of with the above directions.  No  costs.