Insurer cannot recover compensation from the owner without proving wilful breach of policy conditions.

The claimants, parents of deceased Sapna, aged approximately 15–16 years, filed a petition under Section 166 of the Motor Vehicles Act, 1988, alleging that Sapna died in an accident on 30.03.2015 while travelling in vehicle No. HP-06A-4881, which was driven rashly and negligently. An FIR was registered at Police Station Kumarsain.

The Motor Accident Claims Tribunal awarded ₹8,26,000 with interest at 9% per annum, directing the insurer to pay the amount initially, with liberty to recover it from the vehicle owner, Ram Lal, on the ground that the driver did not possess a valid and effective driving licence.

Ram Lal appealed under Section 173 of the Motor Vehicles Act, contending that the insurer had failed to prove any wilful breach of the insurance policy and that the driver possessed a licence which appeared valid.

The insurer relied principally upon an RTI response and verification report from the District Transport Office, Tuensang, Nagaland, stating that the licence was not issued by that office. The owner objected to the admissibility and proof of these documents.

1. Whether the insurer proved that the owner had committed a fundamental and wilful breach of the insurance policy by knowingly permitting a person holding a fake or invalid driving licence to drive the offending vehicle?

2. Whether the Tribunal was justified in relying upon the unproved report and RTI documents of the District Transport Office without examining the issuing officer and without providing an adequate opportunity of rebuttal?

3. Whether the compensation awarded by the Tribunal constituted “just compensation” and, if not, what amount and rate of interest were appropriate?

The Court applied Sections 166, 149(2)(a)(ii) and 173 of the Motor Vehicles Act, 1988. Under Section 149(2)(a)(ii), an insurer seeking to avoid liability must establish not merely that the driver lacked a valid licence, but that the insured committed a wilful breach by knowingly permitting such person to drive.

Relying on United India Insurance Co. Ltd. v. Lehru, National Insurance Co. Ltd. v. Swaran Singh, Nirmala Kothari v. United India Insurance Co. Ltd., Pappu v. Vinod Kumar Lamba, and Rishi Pal Singh v. New India Assurance Co. Ltd., the Court held that an owner is ordinarily required to verify that the driver possesses a licence which appears genuine and is not expected to investigate its authenticity with licensing authorities throughout the country, unless circumstances create reason for suspicion; knowledge of the licence being fake or invalid is essential for establishing wilful breach.

The Court also applied the principles of natural justice and evidentiary fairness, holding that a report submitted by a public authority cannot substitute for the sworn deposition of its author where the document is disputed and requires proof.

For compensation, the Court applied Sarla Verma v. Delhi Transport Corporation regarding the multiplier and deductions, and Magma General Insurance Co. Ltd. v. Nanu Ram regarding consortium payable to the parents of a deceased child.

The Court held that the insurer failed to prove a wilful breach by the owner. Ram Lal had produced the driving licence of his son, the driver, and stated that his son regularly drove vehicles, including apple-loaded vehicles to Chandigarh. Although the licence was ultimately alleged to be fake, the insurer neither established that Ram Lal knew of its invalidity nor even put a specific suggestion to him that he had knowingly entrusted the vehicle to an unlicensed driver.

The RTI response and verification report did not cure this deficiency. The insurer’s witness had no personal knowledge of the licence verification, the officer who allegedly issued the report was not examined, and the documents were relied upon despite objections having been left undecided. The Tribunal’s procedure of treating the DTO’s report and affidavit as evidence, without examination and cross-examination of the concerned officer or an opportunity to rebut the material, violated basic procedural fairness.

Even proof that the licence was fake would not, by itself, establish the owner’s knowledge or a fundamental breach of the policy.

On quantum, the Court accepted the Tribunal’s calculation of ₹7,56,000 for loss of contribution, based on an assumed income of ₹5,000 per month, 40% future prospects, 50% deduction for personal expenses and multiplier 18. It further held that both parents were entitled to consortium, increasing that component from ₹40,000 to ₹80,000. The total compensation therefore became ₹8,66,000. The interest rate was reduced from 9% to 7.5% per annum in view of prevailing bank rates.

The compensation was enhanced from ₹8,26,000 to ₹8,66,000, comprising loss of contribution, loss of estate, funeral expenses and parental consortium, with interest at 7.5% per annum from the date of filing of the claim petition until realization. The ultimate liability to pay the compensation and interest was fastened upon the insurer.