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IN THE SUPREME COURT OF INDIA

CIVIL  APPELLATE  JURISDICTION

CIVIL APPEAL NO. 8276 OF 2009

Pepsu  Road Transport Corporation … Appellant (s)   

Versus

National Insurance Company … Respondent (s)

J U D G M E N T  

KURIAN, J.:   

1. Breach of conditions under Section 149(2)(a) of the Motor  

Vehicles  Act,  1988 absolves the  insurer  of its  liability  to  the  

insured.  Section  149(2)(a)(ii)  deals  with  the  conditions  

regarding  driving licence.  In  case  the  vehicle  at  the  time of  

accident is driven by a person who is not duly licensed or by a  

person who has been disqualified from holding or obtaining a  

driving licence during the period of disqualification, the insurer  

is not liable for the compensation.  In the instant case, we are  

called upon to deal with a situation where the driver allegedly  

possessing only a fake driving licence.   

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2. Widow and two minor sons of late Gurjinder Singh Modi are  

claimants  before  the  Motor  Accidents  Claims  Tribunal,  

Chandigarh in M.A.C.T. No. 63/481 filed in the year 2002.  

The allegation was that   Gurjinder Singh Modi died out of a  

motor accident on 04.10.2001 on account of the negligent  

driving  of  bus  no.  PB-11-K-8512  of  the  Pepsu  Road  

Transport  Corporation  (for  short,  ‘PRTC’),  Patiala,  the  

appellant  herein.  Rs.30,00,000/-  was  claimed  as  

compensation.  Negligence  was  proved.  The  Tribunal  

awarded  Rs.11,03,404/-  as  compensation.  However,  the  

insurance company was absolved of its liability since the  

licence  issued  to  the  driver  was  found  to  be  fake.  The  

insurance  company  took  the  Local  Commissioner  to  

licensing  authority,  Darjeeling,  West-Bengal  and,  on  

verification of the available records, it was reported that  

no  such  licence  as  possessed  by  the  driver  has  been  

issued by the said licensing Authority at Darjeeling. Thus,  

aggrieved, the owner of the vehicle, viz., PRTC, Patiala has  

come up in appeal.

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3. It  is  the  contention  of  the  appellant  that  they  had  

appointed the third respondent -  Nirmal  Singh as driver  

with PRTC in 1994, he was given proper training from the  

driving  school  at  Patiala  and,  thus,  having  taken  

reasonable  steps  in  verifying  the  driving  licence  and,  

thereafter,  having  trained  the  driver  by  the  employer  

himself, it cannot be said that the insurance company is  

not  liable.  There  is  no breach of  any  conditions  by  the  

insured. In other words, it  is contended that even if the  

licence  is  fake,  the  owner  having  taken  all  reasonable  

steps, the insurer is liable. The other contention on merits  

is that the insurer had not established before the Tribunal  

that the licence issued to Nirmal Singh was fake. In this  

context,  our  reference  has  been  invited  to  Annexure-2-

evidence of the licensing authority before the Tribunal. It is  

stated that as per the available office records, no driving  

licence  was  issued  to  Nirmal  Singh  on  12.06.1985  with  

no.12385 of 1985. Licence numbers of 1985 as per record  

start  from  22579  of  1985.  Photocopy  of  the  register  

maintained for  issuing the  licences was marked as  R-1.  

However, it was also stated that: -

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“…It  can  be  possible  that  other  licence  register  pertaining to year 1985 are not available today as it  might be misplaced during the shifting of our office…”  

Still further, it was stated:    

“… It is possible that the registers which are misplaced  might contain the name of Nirmal Singh.”

4. Though the appellant is entitled to succeed on the ground  

that the insurer had not proved beyond doubt that driver  

Nirmal Singh did not possess a valid driving licence, we  

shall also advert to the legal position regarding the liability  

of the insurance company when the driver of the offending  

vehicle possessed a fake driving licence.  

5. In United India Insurance Company Limited vs. Lehru  

and Others1, a two-Judge Bench of this Court has taken  

the view that the insurance company cannot be permitted  

to avoid its  liability only on the ground that  the person  

driving the vehicle at the time of accident was not duly  

licensed. It was further held that the wilful breach of the  

conditions of the policy should be established. Still further  

it was held that it  was not expected of the employer to  

verify the genuineness of a driving licence from the issuing  

1 (2003) 3 SCC 338

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authority at the time of employment. The employer needs  

to only test the capacity of the driver and if after such test,  

he has been appointed, there cannot be any liability on the  

employer.  The  situation  would  be  different  when  the  

employer was told that the driving licence of its employee  

is  fake  or  false  and  yet  the  employer  not  taking  

appropriate action to get the same duly verified from the  

issuing authority. We may extract the relevant paragraphs  

from the judgment:

“18. Now let us consider Section 149(2). Reliance  has been placed on Section  149(2)(a)(ii). As seen in  order to avoid liability under this provision it must be  shown that there is a "breach". As held in Skandia and  Sohan Lal Passi cases the breach must be on part of  the insured.  We are in  full  agreement  with that.  To  hold otherwise would lead to absurd results.  Just  to  take an example, suppose a vehicle is stolen. Whilst it  is being driven by the thief there is an accident. The  thief  is caught and it  is  ascertained that  he had no  licence. Can the Insurance Company disown liability?  The  answer  has  to  be  an  emphatic  "No".  To  hold  otherwise  would  be  to  negate  the  very  purpose  of  compulsory insurance. The injured or relatives of the  person killed in the accident may find that the decree  obtained by them is only a paper decree as the owner  is  a  man  of  straw.  The owner  himself  would  be  an  innocent  sufferer.  It  is  for  this  reason  that  the  Legislature,  in  its  wisdom,  has  made  insurance,  at  least third party insurance, compulsory. The aim and  purpose being that  an insurance company would be  available  to  pay.  The  business  of  the  company  is  insurance. In all businesses there is an element of risk.  All  persons  carrying  on  business  must  take  risks  

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6. The matter was subsequently considered by a three-Judge  

Bench  of  this  Court  in  National  Insurance  Company  

Limited vs.  Swaran Singh and Others2. The said Bench  

was  of  the  view  that  in  case  the  insured  did  not  take  

reasonable and adequate care and caution to verify the  

genuineness or otherwise of the licence, the liability would  

still be open-ended and will have to be determined on the  

basis of facts of each case. The relevant discussions are  

available at paragraphs 92, 99, 100 and 101, which are  

extracted below:  

“92. It  may be true as has been contended on  behalf of the petitioner that a fake or forged licence is  as  good  as  no  licence  but  the  question  herein,  as  noticed  hereinbefore,  is  whether  the  insurer  must  prove that the owner was guilty of the wilful breach of  the conditions of the insurance policy or the contract  of  insurance.  In  Lehru  case,  the  matter  has  been  considered  in  some  detail.  We  are  in  general  agreement  with  the  approach  of  the  Bench  but  we  intend to point out that the observations made therein  must be understood to have been made in the light of  the  requirements  of  the  law  in  terms  whereof  the  insurer is to establish wilful breach on the part of the  insured and not for the purpose of its disentitlement  from  raising  any  defence  or  for  the  owners  to  be  absolved from any liability whatsoever.”

“99. So  far  as  the  purported  conflict  in  the  judgments of Kamla and Lehru is concerned, we may  wish to point out that the defence to the effect that  the licence held by the person driving the vehicle was  

2 (2004) 3 SCC 297

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a  fake  one,  would  be  available  to  the  insurance  companies, but whether despite the same, the plea of  default on the part of the owner has been established  or  not  would  be  a  question  which  will  have  to  be  determined in each case.”

“100. This Court, however, in Lehru must not be  read to mean that an owner of a vehicle can under no  circumstances have any duty to make any enquiry in  this  respect.  The same,  however,  would again  be  a  question which would arise for consideration in each  individual case.”

“101. The submission of Mr. Salve that in Lehru  case, this Court has, for all intent and purport, taken  away the right of insurer to raise a defence that the  licence is  fake does not  appear  to  be correct.  Such  defence can certainly be raised but it will be for the  insurer  to  prove  that  the  insured  did  not  take  adequate care and caution to verify the genuineness  or otherwise of the licence held by the driver.”

7.  Swaran  Singh’s case  (supra)  was  subsequently  

considered by a two-Judge Bench of this Court in National  

Insurance Company Limited vs.  Laxmi Narain Dhut3.  

It was explained that:

“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 duly licensed driver or one who was not  disqualified to drive at the relevant time…”  

3 (2007) 3 SCC 700

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8. In  a  claim for  compensation,  it  is  certainly  open to the  

insurer under Section 149(2)(a)(ii) to take a defence that  

the driver of the vehicle involved in the accident was not  

duly licensed. Once such a defence is taken, the onus is on  

the insurer.  But  even after  it  is proved that  the licence  

possessed by the driver was a fake one, whether there is  

liability on the insurer is the moot question. As far as the  

owner of the vehicle is concerned, when he hires a driver,  

he  has  to check  whether  the  driver  has  a  valid  driving  

licence.  Thereafter  he  has  to  satisfy  himself  as  to  the  

competence of the driver. If satisfied in that regard also, it  

can be said that the owner had taken reasonable care in  

employing  a  person  who is  qualified  and  competent  to  

drive  the  vehicle.  The owner  cannot  be  expected to go  

beyond that, to the extent of verifying the genuineness of  

the  driving  licence  with  the  licensing  authority  before  

hiring the services of the  driver.  However,  the  situation  

would be different if at the time of insurance of the vehicle  

or thereafter the insurance company requires the owner of  

the  vehicle  to  have  the  licence  duly  verified  from  the  

licensing authority or if the attention of the owner of the  

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vehicle  is  otherwise  invited  to  the  allegation  that  the  

licence issued to the driver employed by him is a fake one  

and yet  the owner does not take appropriate action for  

verification of the matter regarding the genuineness of the  

licence  from  the  licensing  authority.  That  is  what  is  

explained in Swaran Singh’s case (supra). If despite such  

information with the owner that the licence possessed by  

his  driver  is  fake,  no action is  taken by the insured for  

appropriate verification, then the insured will be at fault  

and, in such circumstances, the insurance company is not  

liable for the compensation.  

9. On facts, in the instant case, the appellant employer had  

employed the third respondent Nirmal Singh as driver in  

1994. In the process of employment, he had been put to a  

driving test and he had been imparted training also. The  

accident took place only after six years of his service in  

PRTC as driver. In such circumstances, it cannot be said  

that the insured is at fault in having employed a person  

whose  licence  has  been  proved  to  be  fake  by  the  

insurance  company  before  the  Tribunal.  As  we  have  

already  noted  above,  on  scanning  the  evidence  of  the  

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licensing authority before the Tribunal, it cannot also be  

absolutely held that the licence to the driver had not been  

issued by the said authority and that the licence was fake.  

Though the appellant had also taken a contention that the  

compensation is on the higher side, no serious attempt has  

been made and according to us justifiably, to canvas that  

position.  

10. In  the  above circumstances,  the  appeal  is  allowed.  The  

fourth  respondent  -  insurance  company  is  liable  to  

indemnify  the  appellant  and,  hence,  there  can  be  no  

recovery  of  the  compensation  already  paid  to  the  

claimants.  

11. There is no order as to costs.

…………….…..…………J.            (GYAN SUDHA  

MISRA)

.……..……………………J.            (KURIAN JOSEPH)

New Delhi; August 26, 2013.  

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