Commercial fleet owners owe heightened diligence in verifying licences; fake licences justify insurers’ recovery rights.

On 17 January 2012, respondent no. 3 was cycling near J&K Bus Stop, Dilshad Garden, when goods carrier truck No. DL-1-GB-3815, owned by the appellant and driven by respondent no. 2, hit him from behind, causing injuries.

The MACT awarded the claimant ₹2,19,808 with 9% interest and held the driver negligent.

Although the vehicle was insured with respondent no. 1, the insurer contended that the driver did not possess a valid and effective driving licence.

Licence No. 166/5/M107 (“licence no. 1”), seized from the driver at the time of the accident, was verified by the Mathura Licensing Authority and found to be fake; the police consequently added an offence under Section 471 IPC.

Subsequently, the driver produced another licence, No. 1051/OR/SKNO/08 (“licence no. 2”), issued by the Sant Kabir Nagar Licensing Authority and verified as valid.

The MACT nevertheless granted the insurer recovery rights because the insurer’s evidence remained uncontroverted and the appellant failed to prove due diligence in verifying the driver’s licence.

The vehicle owner appealed against the grant of recovery rights.

Whether the subsequent production and verification of licence no. 2 established that the owner had discharged its duty to verify the driver’s licence and consequently defeated the insurer’s claim for recovery rights.

Whether the appellant, being a commercial transport operator, was required to demonstrate a higher degree of diligence in verifying the authenticity of the driver’s licence.

Whether the insurer was entitled to recover the compensation from the owner and driver after satisfying the award on account of the breach relating to the driver’s licence.

Section 149(2)(a)(ii) of the Motor Vehicles Act permits an insurer to defend liability where the vehicle was driven by a person who was not duly licensed, subject to proof of the relevant policy breach.

Under United India Insurance Co. Ltd. v. Lehru, (2003) 3 SCC 338, an owner must verify that the driver holds a licence and assess his competence, but is ordinarily not required to discover that an apparently genuine licence was fraudulently or unauthorisedly issued; the insurer remains liable to third parties, with possible recovery from the insured where the breach is established.

National Insurance Co. Ltd. v. Geeta Bhatt, (2008) 12 SCC 426, requires the owner to make reasonable inquiry regarding whether the driver holds a valid and effective licence and recognises the insurer’s right to pay the claimant and recover the amount from the owner and driver where breach is proved.

The Court further applied the principle that commercial fleet operators bear a higher standard of diligence in verifying drivers’ licences, as stated in United India Insurance Co. Ltd. v. Sarjo & Ors., 2026:DHC:5182.

It also relied on Reliance General Insurance Co. Ltd. v. Om Prakash & Ors., 2026 INSC 767, concerning the importance of a valid driving licence and the application of the “pay and recover” principle where the owner fails to ensure licence validity.

The Court held that licence no. 1 was the licence seized from the driver at the time of the accident and had been conclusively verified as fake by the Mathura Licensing Authority.

The later production of licence no. 2 did not establish that it was the licence shown to or verified by the appellant when the driver was engaged, nor did it explain the driver’s possession and use of the fake licence.

Although the appellant asserted that it had conducted a driving test and seen the licence, it led no evidence demonstrating the nature of the verification undertaken or proving that licence no. 2 had been examined at the time of appointment.

Since the appellant was a commercial carrier, the Court applied the heightened standard of diligence applicable to commercial fleet operators.

Its failure to produce evidence of adequate verification, coupled with the established fake licence, constituted a breach of the insurance policy.

Accordingly, the insurer remained responsible to satisfy the claimant’s award but was entitled to recover the amount from the owner and driver under the principles in Lehru and Geeta Bhatt.

It held that the appellant’s status as a commercial carrier imposed a higher duty of diligence, which it failed to discharge, and that the subsequent verification of licence no. 2 did not cure the breach arising from the driver’s possession of the fake licence no. 1.

The statutory deposit, if any, was directed to be refunded to the appellant, and pending applications were rendered infructuous.