S.IYYAPAN vs. M/S UNITED INDIA INSURANCE CO.LD.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO… 4834 OF 2013 (Arising out of Special Leave Petition (Civil) No.5091 of 2009) S. IYYAPAN Appellant (s) VERSUS M/S UNITED INDIA INSURANCE COMPANY LTD. AND ANOTHER Respondent(s) JUDGMENT M.Y. Eqbal, J. : Leave granted. JUDGMENT 2. The right of the victim of a road accident to claim compensation is a statutory one. The Parliament in its wisdom inserted the relevant provisions in the Motor Vehicles Act in order to protect the victims of road accident travelling in the vehicle or using the road and thereby made it obligatory that no motor vehicle shall be used unless the vehicle is compulsorily insured against third party risk. In 1 Page 1 this background, can an Insurance Company disown its liability on the ground that the driver of the vehicle although duly licensed to drive light motor vehicle but there was no

as commercial vehicle. This is the sole question arises for consideration in this appeal. 3. This appeal by special leave arises in the following circumstances. 4. On 23.5.1998, at about 8.30 P.M., when the deceased named Charles was riding his bicycle from east to west and reached in front of one house, one Sivananayaitha Perumal (driver of the vehicle who remained ex parte in the proceedings) came from west to east direction driving a JUDGMENT Mahindra van at high speed and dashed against Charles and ran away without stopping the vehicle. Charles, who was admitted in a hospital, succumbed to the injuries sustained by him. It is evident from the Motor Vehicle Inspector’s Report that the accident did not occur due to mechanical defect. On the claim petition filed by deceased’s wife (respondent No.2 herein), the Motor Accidents Claims 2 Page 2 Tribunal (Principal District Judge) at Kanyakumari (in short, “Tribunal”), after considering the evidence on record, awarded a compensation of Rs.2,42,400/- with interest at

respondents before the Tribunal jointly and severally. The Tribunal was of the view that the person possessing licence to drive light motor vehicle is entitled to drive Mahindra maxi cab. 5. Insurance company preferred an appeal before the High Court challenging the judgment and award of the Tribunal. The Insurance Company did not dispute the quantum of compensation, but questioned the liability itself submitting that the driver of the vehicle was not having a JUDGMENT valid driving licence to drive the vehicle on that day. Insurance company referred the decisions of this Court in New India Assurance Company Ltd. v. Prabhu Lal 2008 (1) SCC 696 and Sardari & Ors. v. Sushil Kumar & Ors. 2008 ACJ 1307 and submitted that a person having licence to drive light motor vehicle is not authorized to drive a commercial vehicle. 3 Page 3 6. Per contra , on behalf of the claimant, this Court’s decisions in Ashok Gangadhar Maratha v. Oriental

Insurance Co. Ltd. v. Annappa Irappa Nesaria alias Nesaragi and ors. , 2008 (3) SCC 464 were referred and it was contended that a person who is having a licence to drive light motor vehicle can drive the commercial vehicle also. 7. After hearing the learned counsel on either side and considering the aforesaid decisions, the High Court relying upon Sardari’s case ( supra ), observed that since the vehicle was being used as a taxi, which is a commercial vehicle, the driver of the said vehicle was required to hold an JUDGMENT appropriate licence. Hence, there being a breach of the condition of the contract of insurance, the Insurance Company is not liable to pay any compensation to the claimant. The view taken by the High Court is quoted hereinbelow:- “It has not been disputed that the vehicle was being used as a taxi, 4 Page 4

JUDGMENT 8. Time and again this Court on various occasions considered the aim and object of making the insurance 5 Page 5 compulsory before a vehicle is put on the road. Indisputably a new chapter was inserted in the Motor Vehicles Act only with an intention of welfare measure to be taken to ensure

Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan , (1987) 2 SCC 654, this Court observed as under:- “13. In order to divine the intention of the legislature in the course of interpretation of the relevant provisions there can scarcely be a better test than that of probing into the motive and philosophy of the relevant provisions keeping in mind the goals to be achieved by enacting the same. Ordinarily it is not the concern of the legislature whether the owner of the vehicle insures his vehicle or not. If the vehicle is not insured any legal liability arising on account of third party risk will have to be borne by the owner of the vehicle. Why then has the legislature insisted on a person using a motor vehicle in a public place to insure against third party risk by enacting Section 94? Surely the obligation has not been imposed in order to promote the business of the insurers engaged in the business of automobile insurance. The provision has been inserted in order to protect the members of the JUDGMENT 6 Page 6

JUDGMENT 7 Page 7

JUDGMENT 8 Page 8 9. The defence which the insurer is entitled to take in a case for compensation arising out of the motor vehicles accident was provided under Section 96 of the old Act which

Motor Vehicles Act, 1988 made it mandatory on the part of the insurer to satisfy the judgments and awards against persons insured in respect of third party risk. For better appreciation, Section 149 is reproduced herein below:- “(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 (l) of section 147 (being a liability covered by the terms of the policy) or under the provisions of section 163A is obtained against any person insured by the policy, then, notwithstanding that the insurer may be entitled to avoid or cancel or may have avoided 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 he were the judgment debtor, in respect of the liability, together with any amount payable in JUDGMENT 9 Page 9 respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.

(a) that there has been a breach of a specified condition of the policy, being one of the following conditions, namely: — JUDGMENT (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 1 Page 10 (b) for organised racing and speed testing, 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 disqualification; or (iii) a condition excluding liability for injury caused or contributed to by conditions of war, civil war, riot or civil commotion; or JUDGMENT (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 1 Page 11

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 specified in sub-section (2). JUDGMENT (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 be covered by a policy under clause (b) of sub- section (1) of section 147, be of no effect: 1 Page 12

(5). ……. (6). …….” 10. Section 149(2)(a)(ii) gives a right to the insurer to take a defence that person driving the vehicle at the time of accident was not duly licensed. In other words, Section 149(2)(a)(ii) puts a condition excluding driving by any person who is not duly licensed. The question arose before JUDGMENT this Court as to whether the Insurance Company can repudiate its liability to pay the compensation in respect of the accident by a vehicle taking a defence that at the relevant time it was being driven by a person having no licence. While considering this point, this Court in the case of Skandia Insurance Co. Ltd. ( supra ) observed:- 1 Page 13 “12. The defence built on the exclusion clause cannot succeed for three reasons, viz.:

( 2 ) Even if it is treated as an absolute promise, there is substantial compliance therewith upon an express or implied mandate being given to the licensed driver not to allow the vehicle to be left unattended so that it happens to be driven by an unlicensed driver. ( 3 ) The exclusion clause has to be “ read down ” in order that it is not at war with the “ main purpose ” of the provisions enacted for the protection of victims of accidents so that the promisor is exculpated when he does everything in his power to keep the promise.” JUDGMENT 11. To examine the correctness of the aforesaid view, the matter was referred to a 3-Judge Bench because of the 1 Page 14 stand taken by the Insurance Company that the insurer shall be entitled to defend the action on the ground that there has been a breach of specified condition of policy i.e. the vehicle

and in that case the Insurance Company cannot be held to be liable to indemnify the owner of the vehicle. The 3-Judge Bench of this Court in the case of Sohan Lal Passi v. P. Sesh Reddy & Ors. , (1996) 5 SCC 21 after interpreting the provisions of Section 96(2)(b)(ii) of the Act corresponding to Section 149 of the new Act, observed as under:- “12 . …. …… According to us, Section 96(2)( b )( ii ) should not be interpreted in a technical manner. Sub-section (2) of Section 96 only enables the insurance company to defend itself in respect of the liability to pay compensation on any of the grounds mentioned in sub-section (2) including that there has been a contravention of the condition excluding the vehicle being driven by any person who is not duly licensed. This bar on the face of it operates on the person insured. If the person who has got the vehicle insured has allowed the vehicle to be driven by a person who is not duly licensed then only that clause shall be JUDGMENT 1 Page 15

JUDGMENT 12. In the case of Ashok Gangadhar Maratha v. Oriental Insurance Co. Ltd. , 1999 (6) SCC 620, the appellant was the owner of a truck weighing less than the maximum limit prescribed in Section 2(21) of the Motor 1 Page 16 Vehicles Act. The said truck was, therefore, a light motor vehicle. It was registered with the respondent insurer for a certain amount and for a certain period. Within the

completely damaged. The appellant’s claim against the respondent was rejected by the National Consumer Disputes Redressal Commission. The National Commission accepted the respondent’s contention that the truck was a goods carriage or a transport carriage and that the driver of the truck, who was holding a driving licence in Form 6 to drive light motor vehicles only, was not authorized to drive a transport vehicle and, therefore, the insured having committed breach of the terms of insurance policy and the JUDGMENT provisions of the Act, the respondent insurer was not liable to indemnify the insured. Allowing the appeal, this Court held as under:- “14. Now the vehicle in the present case weighed 5920 kilograms and the driver had the driving licence to drive a light motor vehicle. It is not that, therefore, the insurance policy covered a transport vehicle which meant a goods carriage. 1 Page 17

13. In the case of New India Assurance Company, Shimla v . Kamla & Others , (2001) 4 SCC 342, a fake licence had happened to be renewed by the statutory authorities and the question arose as to whether Insurance Company would be liable to pay compensation in respect of motor accident which occurred while the vehicle was driven by a person holding such a fake JUDGMENT licence. Answering the question, this Court discussed the provisions of Sections 146, 147 and 149 of the Act and observed:- “21 . A reading of the proviso to sub- section (4) as well as the language employed in sub-section (5) would indicate that they are intended to safeguard the interest of an insurer who otherwise has no liability to pay any amount to the insured but for the provisions contained in Chapter 1 Page 18

22. To repeat, the effect of the above provisions is this: when a valid insurance policy has been issued in respect of a vehicle as evidenced by a certificate of insurance the burden is on the insurer to pay to the third parties, whether or not there has been any breach or violation of the policy conditions. But the amount so paid by the insurer to third parties can be allowed to be recovered from the insured if as per the policy conditions the insurer had no liability to pay such sum to the insured. 23. It is advantageous to refer to a two- Judge Bench of this Court in Skandia Insurance Co. Ltd. v. Kokilaben Chandravadan (1987 )2 SCC 654 . Though the said decision related to the corresponding provisions of the predecessor Act (Motor Vehicles Act, 1939) the observations made in the judgment are quite germane now as the corresponding provisions are materially the same as in the Act. Learned Judges pointed out that the insistence of the legislature that a motor vehicle can be used in a public place only if that vehicle is covered by a policy of insurance is not for the purpose of promoting the business of the insurance company but to JUDGMENT 1 Page 19

25. The position can be summed up thus: The insurer and the insured are bound by the conditions enumerated in the policy and the insurer is not liable to the insured if there is violation of any policy condition. But the insurer who is made statutorily liable to pay compensation to third parties on account of the certificate of insurance issued shall be entitled to recover from the insured the amount paid to the third parties, if there was any breach of policy conditions on account of the vehicle being driven without a valid driving licence. Learned counsel for the insured contended that it is enough if he establishes that he made all due enquiries and believed bona fide that the driver employed by him had a valid driving licence, in which case there was no breach of the policy condition. As we have not decided on JUDGMENT 2 Page 20

14. In the case of National Insurance Co. Ltd. v. Swaran Singh & Ors. , (2004) 3 SCC 297, a 3-Judge Bench of this Court held as under:- “47 . If a person has been given a licence for a particular type of vehicle as specified therein, he cannot be said to have no licence for driving another type of vehicle which is of the same category but of different type. As for example, when a person is granted a licence for driving a light motor vehicle, he can drive either a car or a jeep and it is not necessary that he must have driving licence both for car and jeep separately. JUDGMENT 48. Furthermore, the insurance company with a view to avoid its liabilities is not only required to show that the conditions laid down under Section 149(2)( a ) or ( b ) are satisfied but is further required to establish that there has been a breach on the part of 2 Page 21

xxx xxx xxx 73 . The liability of the insurer is a statutory one. The liability of the insurer to satisfy the decree passed in favour of a third party is also statutory. JUDGMENT xxx xxx xxx 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 2 Page 22 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.

( 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. JUDGMENT ( 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 2 Page 23 vehicle; the burden of proof wherefor would be on them.

( 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. JUDGMENT ( 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 2 Page 24

( 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 JUDGMENT 2 Page 25

( 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.” 15. In the case of National Insurance Co. Ltd. v. JUDGMENT Kusum Rai and Others , (2006) 4 SCC 250, the respondent was the owner of a jeep which was admittedly used as a taxi and thus a commercial vehicle. One Ram Lal was working as a Khalasi in the said taxi and used to drive the vehicle some times. He had a driving licence to drive light motor vehicle. The taxi met with an accident resulting 2 Page 26 in the death of a minor girl. One of the issues raised was as to whether the driver of the said jeep was having a valid and effective driving licence. The Tribunal relying on the

Kamla (supra) held that the insurance company cannot get rid of its third party liability. It was further held that the insurance company can recover this amount from the owner of the vehicle. Appeal preferred by the insurance company was dismissed by the High Court. In appeal before this Court, the insurance company relying upon the decision in Oriental Insurance Co. Ltd. v. Nanjappan , 2004 (13) SCC 224 argued that the awarded amount may be paid and be recovered from the owner of the vehicle. The Insurance JUDGMENT Company moved this Court in appeal against the judgment of the High Court which was dismissed. 16. In the case of National Insurance Company Ltd. v. Annappa Irappa Nesaria alias Nesaragi and Others , 2008 (3) SCC 464, the vehicle involved in the accident was a matador having a goods carriage permit and was insured 2 Page 27 with the insurance company. An issue was raised that the driver of the vehicle did not possess an effective driving licence to drive a transport vehicle. The Tribunal held that

claim. In appeal filed by the insurance company, the High Court dismissed the appeal holding that the claimants are third parties and even on the ground that there is violation of terms and conditions of the policy the insurance company cannot be permitted to contend that it has no liability. This Court after considering the relevant provisions of the Act and definition and meaning of light goods carriage, light motor vehicles, heavy goods vehicles, finally came to conclusion that the driver, who was holding the licence duly granted to JUDGMENT drive light motor vehicle, was entitled to drive the light passenger carriage vehicle, namely, the matador. This Court observed as under: “20. From what has been noticed hereinbefore, it is evident that “transport vehicle” has now been substituted for “medium goods vehicle” and “heavy goods vehicle”. The light 2 Page 28

17. The heading “Insurance of Motor Vehicles against Third Party Risks” given in Chapter XI of the Motor Vehicles Act, 1988 (Chapter VIII of 1939 Act) itself shows the intention of the legislature to make third party insurance compulsory and to ensure that the victims of accident arising out of use of motor vehicles would be able to get compensation for the death or injuries suffered. The provision has been inserted in order to protect the persons travelling in vehicles or using the road from JUDGMENT the risk attendant upon the user of the motor vehicles on the road. To overcome this ugly situation, the legislature has made it obligatory that no motor vehicle shall be used unless a third party insurance is in force. 18. Reading the provisions of Sections 146 and 147 of the Motor Vehicles Act, it is evidently clear that in certain 2 Page 29 circumstances the insurer’s right is safeguarded but in any event the insurer has to pay compensation when a valid certificate of insurance is issued notwithstanding the fact that the insurer may

Section 149 of the Motor Vehicles Act, the insurer can defend the action inter alia on the grounds, namely, (i) the vehicle was not driven by a named person, (ii) it was being driven by a person who was not having a duly granted licence, and (iii) person driving the vehicle was disqualified to hold and obtain a driving licence. Hence, in our considered opinion, the insurer cannot disown its liability on the ground that although the driver was holding a licence to drive a light motor vehicle but before driving light motor vehicle used as commercial vehicle, no endorsement JUDGMENT to drive commercial vehicle was obtained in the driving licence. In any case, it is the statutory right of a third party to recover the amount of compensation so awarded from the insurer. It is for the insurer to proceed against the insured for recovery of the amount in the event there has been violation of any condition of the insurance policy. 3 Page 30 19. In the instant case, admittedly the driver was holding a valid driving licence to drive light motor vehicle. There is no dispute that the motor vehicle in question, by which accident took

get any endorsement in the driving licence to drive Mahindra Maxi Cab, which is a light motor vehicle, the High Court has committed grave error of law in holding that the insurer is not liable to pay compensation because the driver was not holding the licence to drive the commercial vehicle. The impugned judgment is, therefore, liable to be set aside. 20. We, therefore, allow this appeal, set aside the impugned judgment of the High Court and hold that the insurer is JUDGMENT liable to pay the compensation so awarded to the dependants of the victim of the fatal accident. However, there shall be no order as to costs. …………………………….J. (Surinder Singh Nijjar) 3 Page 31 …………………………….J. (M.Y. Eqbal) New Delhi, July 1, 2013. JUDGMENT 3 Page 32