KSRTC Liable for Compensation to Hired Bus Driver Despite Contractual Indemnity Clause and Lack of Insurance

The claimant (Respondent No. 1), working as a driver for a private bus owned by Respondent No. 2, sustained injuries in an accident on 30.10.2003 while plying on a route for the Appellant (KSRTC).

The bus was hired by KSRTC under an agreement dated 18.02.2003.

The insurance policy for the vehicle had been cancelled by Respondent No. 3 prior to the accident due to premium cheque bounce.

The Commissioner for Employees Compensation awarded Rs. 3,11,970/- with 12% interest, holding KSRTC liable as the principal employer with liberty to recover from the owner.

KSRTC appealed, contending that there was no master-servant relationship and that the contractual recovery clause fastened liability solely on the bus owner.

1. Whether the Commissioner was justified in directing KSRTC to pay compensation despite the absence of a direct master-servant relationship between the appellant and the claimant?

2. Whether the liability for compensation should be fastened on the owner/insurer based on the precedent of UPSRTC v. Kulsum?

3. Whether the terms of the contract, which mandated the owner to maintain valid insurance and bear claims, protected KSRTC from liability toward the third-party claimant?

The court applied Section 30(1) of the Workmen’s Compensation Act, 1923 (now Employees' Compensation Act) regarding appeals.

It examined the doctrine of the "principal employer" under the Act and the principle of vicarious liability in the context of hired vehicles as established in UP State Road Transportation Corporation v. Kulsum and Ors (2011 Kant MAC 588 SC), which holds that when a corporation exercises control over a hired vehicle and earns revenue, it may be held liable for compensation.

The court also relied on the principle of "duty of care" and contractual compliance, noting that KSRTC’s internal agreement terms (Condition 14) prohibited the use of vehicles without valid insurance.

The court reasoned that while the claimant was technically appointed by the owner (Respondent No. 2), he was performing duties under the direct control of KSRTC, which collected fares and earned profits from the operation.

The court highlighted that under Condition No. 14 of the hiring agreement, KSRTC was legally obligated to ensure the bus was not used for operations without a valid comprehensive insurance policy.

Since KSRTC allowed the bus to operate for nearly a year after the agreement—and several months after the insurance was cancelled—without verifying the policy status, it failed in its duty of oversight.

Therefore, KSRTC cannot bypass its liability to the workman by citing a private contract when they permitted the illegal operation of the vehicle on KSRTC routes.

It held that KSRTC is liable to pay the compensation of Rs. 3,11,970/- with 12% interest because they exercised operational control and failed to enforce the insurance mandate.

The court granted KSRTC the liberty to recover the paid amount from the owner of the vehicle (Respondent No. 2) through due process of law.