http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: UNITED INDIA INSURANCE CO. LTD.

       Vs.

RESPONDENT: SHRI GIAN CHAND AND OTHERS

DATE OF JUDGMENT:       02/09/1997

BENCH: S. B. MAJMUDAR, B. N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.B. MAJMUDAR, J.      Leave granted.      At the SLP stage itself by order dated 25th March 1997, this Court had directed as under:           "Delay condoned.  Issue Notice      for final  disposal of  the SLP  in      the light of decision of this court      in New India Assurance Co. Ltd. Vs.      Mandar Madhav  Tambe & Ors.  (1996)      2 SCC  328.   Notice on application      for stay wherein there shall be ad-      interim stay  of the  order of  the      High   Court    as   against    the      petitioner,  Insurance   Co.  only,      till further orders".      Pursuant to the notice for final disposal issued in the SLP.   respondent Nos. 1 and 9 who are duly served, have not thought it fit to appear and contest these proceedings.  The contest now,  therefore, survives  between the  appellant  - Insurance company  on the one hand and the claimants who are represented by  learned counsel  Mr. H.  Puri.  Having heard learned counsel  for contesting parties, we are disposing of this appeal finally by this judgment.      A few facts leading to this appeal may be stated at the outset, A  car  which  was  insured  by  respondent  No.9  - original owner,  with  the  appellant  -  Insurance  Company against third  party risk,  met  with  an  accident  on  1st January, 1988,  at about  10.30. a.m.  In the said accident, the deceased,  who was  going  on  a  scooter,  got  fatally injured.   The contesting  respondents  are  the  claimants, being dependants  of deceased.    They  filed  a  claim  for compensation before  the Motor  Accident Claims Tribunal II, Una, in  the State  of Himachal  Pradesh.  The contention of the respondents-claimants was that the vehicle was driven by the driver,  respondent No.1 herein, in a rash and negligent manner and  because  of  such  driving  the  fatal  accident occurred to their bread winner.  The defence of the owner of the vehicle,  viz., respondent  No.9 was that he had already sold and  handed over  this vehicle  to respondent  No.1 and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

therefore, he had nothing to do with this claim.  Respondent No.1. on  the other  hand, submitted  before the Tribunal by filing his  written statement  and  also  by  entering  into witness box, that he had nothing to do with the vehicle.  He neither purchased  it nor  had he driven the same.  However, he stated that he had no licence to drive the vehicle at the relevant time  when  the  accident  occurred.    So  far  as respondent No.  9, who is the insured, was concerned, he did not think  it fit  to enter the witness box.  The defence of the appellant  - Insurance  Company was that whatever may be the liability of respondent Nos. 1 and 9 regarding the claim for compensation,  so  far  as  the  appellant  -  Insurance Company is  concerned, it  stood exonerated by the exclusion clause in  the Insurance  Policy which  did not  permit  the insured to  hand over  the vehicle for purpose of driving to an unlicensed driver.  The Tribunal after recording avidence came to  the conclusion  that the accident was caused due to rash and negligent driving f the car by respondent No.1. who was on  the wheel  at the relevant time.  It did not believe the case of respondent No.9 that he had sold and handed over the vehicle  to respondent  No.1 and  had nothing to do with the vehicle.  This finding was reached especially in view of the act that respondent No.9 did not think it fit to come to the witness box to support his case.  Consequently the claim for compensation  was  computed  and  was  made  payable  by respondent Nos.  1 and  9. However,  so far as the Insurance Company was  concerned, the  Tribunal took the view that the appellant  -  Insurance  Company  got  exonerated  from  its liability on  account of  the fact that respondent No.9. the insured, had  permitted the  vehicle  to  be  driven  by  an unlicensed driver,  viz., respondent  No.1 and therefore, he had committed  breach of the relevant term of the Policy and that entitled  the Insurance  Company to  get the benefit of the exclusion  clause available  as a defence to the Company under Section  96 (2)  (b) of  the Motor Vehicles Act, 1939. In the  result, the Tribunal while awarding Rs. 58, 400/- as compensation, in  favour of  the  respondents  -  claimants, against respondent No.1 and the present respondent No.9. who was respondent  No.2 before  the  Tribunal,  exonerated  the appellant - Insurance Company from its liability to meet the claim amount awarded in favour of the claimants.      That resulted  into an  appeal before the High Court by respondent No.1  the driver  of the vehicle.  In that appeal it was  contended by him, amongst others, that the Insurance Company should  have been  made liable to meet the claim and was wrongly  exonerated by the Tribunal.  That contention of respondent No.1  was accepted  by the  High Court in appeal, though on  other contention on merits the appeal was held to be liable  to be  dismissed.   It was only partly allowed to the extent  that the  appellant - Insurance Company was held liable jointly  and severally  to pay along with the insured and the  driver the amount of compensation to the claimants. For coming  to the  said conclusion  against the appellant - Insurance Company,  the High Court placed strong reliance on a decision of a Bench of two learned judges of this Court in Skandia Insurance  Company Ltd. Vs. Kokilaben Chandravadan & Ors. (1987 (2) SCC 654.      The aforesaid  decision of  the High  Court is  on  the anvil of scrutiny before us in the present appeal.      In support  of the  appeal,  learned  counsel  for  the appellant -  Insurance Company submitted that the High Court had committed  a patent error of law in passing the impugned order against  the Insurance Company.  For his submission he placed reliance  on two decisions of this Court in New India Assurance Co.  Ltd. Vs.  Mandar Madhav Tambe & Ors. 1996 (2)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

SCC 328  as well  as on an earlier decision of this Court in Kashiram Yadav  & Anr.  Vs. Oriental  Fire & Insurance Co. & Ors. 1989  (4) SCC  128, while  Mr.  Puri,  learned  counsel appearing for the contesting respondents - claimants pitched his faith  strongly on the earlier decision of this Court in 1987 (2)  SCC supra  as well as a latter decision of a Bench of three  learned Judges of this Court in Sohanlal Passi Vs. P Sosh Reddy & Ors 1996 (5) SCC 21.      In  order  to  resolve  this  controversy  between  the parties,  it  must  be  observed  at  the  outset  that  the aforesaid decisions  clearly indicate  two distinct lines of cases.   The first line of cases consists of fact situations wherein the  insured are alleged to have committed breach of the condition  of Insurance  Policy, which required them not to permit  the vehicle to be driven by an unlicensed driver. Such a  breach is  held  to  be  a  valid  defence  for  the Insurance Company  to get exonerated from meeting the claims of  third   parties  who  suffer  on  account  of  vehicular accidents which  may injure  them personally  or  which  may injure them  personally or  which may  deprive them of their bread winner  on account  of such  accidents caused  by  the insured vehicles.   The  other line  of cases deals with the insured owners  of offending  motor vehicles that cause such accidents wherein  the insured owners of the vehicles do not themselves commit breach of any such condition and hand over the vehicles  for driving  to licensed  drivers who on their own and  without permission,  express  or  implied,  of  the insured, hand  over vehicles  or act  in such a way that the vehicles get  available  to  unlicensed  drivers  for  being driven by  the latter  and which  get involved  in vehicular accidents by the driving of such unlicensed drives.  In such cases the  insurance  company  cannot  get  benefit  of  the exclusionary clause  and will  remain  liable  to  meet  the claims of  third parties  for  accidental  injuries  whether fatal or  otherwise. The  decisions of this Court in Skandia Insurance  Co.  (supra)  and  in  Sohan  Lal  Passi  (supra) represent this  second line  of cases while the decisions of this Court  in  New  India  Assurance  Co.  (supra)  and  in Kashiram Yadav (supra) represent the first line of cases      In the case of Skandia Insurance Co. Ltd. Vs. Kokilaben Chandravandan &  Ors. (1987  (2) SCC 654 (supra), a Bench of two learned  Judges of  this Court speaking through Thakkar, J. held  that when the insured had handed over vehicle to be driven by licensed driver and even if the licensed driver on his own  and  because  of  his  negligence  had  allowed  an unlicensed Cleaner to drive the vehicle it could not be said that there was any breach committed by the insured, so as to attract the  exclusion clause  in favour  of  the  Insurance company as  contemplated under  Section 96  (2) (b)  of  the Motor Vehicles  Act, 1939.  In paragraph 14 of the Report it was observed that:      "The word  ’breach’ in  the  expression  "breach  of  a specified condition  of the  policy’ in Section 96(2) (b) is of great  significance.    ’Breach’  means  infringement  or violation of  a promise  or obligation’.   This  induces  an inference that  the violation or infringement on the part of the promisor must be willful infringement or violation, sub- clause (ii)  of clause  (b) of  Section  96(2)  enjoins  the insurer to  establish that the breach was on the part of the insured and  that it  was the  insured  who  was  guilty  of violating the  promise or  infringement of the contract.  It is only  when the  insured himself  places  the  vehicle  in charge of a person who does not hold a driving licence, that it can  be said  that he  is ’guilty’  of the  breach of the promise that  the vehicle  will  be  driven  by  a  licensed

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

driver.   The insurer  cannot escape  from the obligation to identify  the  insured  when  some  mishap  occurs  by  some mischance.   When the insured has done everything within his power inasmuch  as he  has engaged a licensed driver and has placed the  vehicle in  charge of  the licensed driver, with the express  or implied  mandate to drive himself, it cannot be said  that the insured is guilty of any breach.  In a way the question  is as  to whether  the  promise  made  by  the insured is  an absolute  promise or whether he is exculpated on the basis of some legal doctrine".      We fail  to appreciate  h the aforesaid decision can be of any  avail to  learned  counsel  for  the  respondents  - claimants on the peculiar facts of the present case.  it has been clearly  held by  the Tribunal  as well  as by the High Court that  respondent No.1  who was  permitted to drive the vehicle by  respondent No.9, the insured, was admittedly not having any  driving  licence.    It  was  not  the  case  of respondent No.9,  the insured,  that he  did not  know  that respondent No.1  whom the  vehicle was being handed over was not having  a valid  licence.  In fact, once he did not step in the  witness box  to prove his case, an adverse inference had necessarily  to be  drawn against him to the effect that the vehicle  had been handed over by him for being driven by an unlicensed  driver, respondent No.1  That finding reached by the  Tribunal as well as by the High Court must result in exonerating the  Insurance Company  of its obligation as the statutory defence  became available  to it.  The High Court, even though agreeing with the finding of fact reached by the Tribunal, has in our view, by misconstruing the ratio of the decision of  this court  in Skandia  Insurance Co.  Ltd. Vs. Kokilaben Chandravadan  & ors.  (1987 (2)  SCC 654. (supra), erroneously held  that the said defence was not available to the Insurance Company on the facts of the present case.      Even that  apart, a,  Bench of  three learned Judges of this Court  in 1996  (5) SCC  21 (supra) while upholding the ratio of the decision of this Court in Skandia Insurance Co. Ltd, Vs.  Kokilaben Chandravadan  & Ors.  (1987 (2)  SCC 654 (supra) has also taken the same view.      Even apart  from these  Judgments, which do not improve the case  of the  respondents, strong reliance was placed on two other judgments of this Court by the learned counsel for the appellant.   As  noted earlier  they represent the first line of  cases. In Kashiram Yadav & Anr. Vs. Oriental Fire & General Insurance  Co. &  Ors. (1989 (4) SCC 128) a bench of two  learned   Judges  of   this  Court,   speaking  through Jagannatha Shetty,  J. distinguished the decision in Skandia Insurance Co.  Ltd. Vs.  Kokilaben Chandravadan & Ors. (1987 (2) SCC  654 (supra) and took the view that when the insured had handed  over the  vehicle to  an unlicensed  driver, the Insurance Company  would get exonerated and the ratio of the decision  in   Skandia  Insurance  Co.  Ltd.  Vs.  Kokilaben Chandravadan &  Ors. (1987  (2) SCC 654 (supra), would be of no assistance  to  the  claimants  in  such  a  case.    The situation in  the present  case is  almost parallel  to  the situation which  was examined  by this  Court in  Kashi  Ra, yadav Vs. Oriental Fire & General Insurance Co. & Ors. (1989 (4) SCC  128 (supra).   There  is also  a letter decision of this Court in New India Assurance Co. Ltd. Vs. Mandar Madhav Tambe & Ors. 1996 (2) SCC 328, wherein a Bench of two leaned Judges of  this Court to which one of us. B.N. Kirpal J. was a party,  examined a  similar fact situation and came to the conclusion that  "the  exclusion  clause  in  the  Insurance Policy makes  it clear  that the  Insurance Company,  in the event of  an accident,  would be  liable only if the vehicle was being driven by a person holding a valid driving licence

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

or a  permanent driving  licence  "other  than  a  learner’s licence".   The use of the words "permanent driving licence" in the insurance policy was to emphasise that a temporary or a learner’s  licence-holder would  not  be  covered  by  the insurance policy."      Under the  circumstances when  the insured  had  handed over the  vehicle for  being driven by an unlicenced driver, the  Insurance   Company  would   get  exonerated  from  its liability to  meet the  claims of third party who might have suffered on  account of  vehicular accident  caused by  such unlicensed driver.     In view  of the aforesaid two sets of decisions of  this Court,  which deal  with  different  fact situations, it cannot be said that the decisions rendered by this  Court   in  Skandia   Insurance  Co.   Ltd.  Kokilaben Chandravadan &  Ors.  (1987  (2)  SCC  54  (supra)  and  the decision of the Bench of 3 learned judges in 1996 (5) SCC 21 (supra) in  any way  conflict with the decisions rendered by this Court  in the cases of New India Assurance Company Ltd. Vs. Mandar  Madhav Tambe & ors. 1996 (2) SCC 328 (supra) and Kashiram Yadav  & Anr. Vs. Oriental Fire & General Insurance Co. & Anr. 1989 (4) SCC 128.      In the  result, therefore, this appeal is allowed.  The decision of  the High  Court under  appeal to  the extent it refused to  exonerate the  Insurance Company  will stand set aside and  it is held that the appellant - Insurance Company is not liable to meet the claim of the respondent claimants. The claim  petition will  stand rejected against appellant - Insurance Company.   The respondent - claimants will however be entitled  to recover  the awarded  amount of compensation from respondent Nos. 1 and 9.      As there  was already a stay in favour of the appellant pending these  proceedings and  consequently claimants  have not been  paid any  amount  by  the  appellant,  no  further question arises  in so  far as  the claim  of the  Insurance Company in the present appeal is concerned.