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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.

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  

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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  

endorsement in the licence to drive light motor vehicle used  

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  

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  

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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  

12%  p.a.  from  the  date  of  petition  –  to  be  paid  by  the  

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  

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.

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6. Per  contra,  on  behalf  of  the  claimant,  this  Court’s  

decisions  in  Ashok  Gangadhar  Maratha  v. Oriental  

Insurance  Co.  Ltd. AIR  1999  SC  3181  and  National  

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  

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,  

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which is  a  commercial  vehicle.   The  driver of the said vehicle was required  to  hold  an  appropriate  license  therefore.  The  third  respondent  herein,  who  was  driving  the  said  vehicle  at  the  relevant  time,  was  holder  of  a  license  to  drive  a  light  motor  vehicle  only.   He  did  not  possess  any  license  to  drive  a  commercial  vehicle.   In  the  present  case,  R.W.2  has  deposed  that  the  driver of the vehicle was not having  the  license  to  drive  a  commercial  vehicle  on  the  date  of  accident.  Therefore,  it  is  clear  that  the  driver  was not having the driving license to  drive commercial vehicle on the date  of  accident.   Evidently,  therefore,  there was a breach of the condition of  the  contract  of  insurance.   Having  tested the present case in the light of  the  Supreme  court  Judgment  in  the  case  of  Sardari  and  Others  v.  Sushil  Kumar  and  Others,   cited  supra, this court is of the considered  view  that,  since  the  driver  was  not  possessing the driving license to drive  a  commercial  vehicle,  the  Insurance  Company  is  not  liable  to  pay  any  compensation to the claimant and the  owner of the vehicle is alone liable to  pay  the  compensation  to  the  claimant.”

8. Time  and  again  this  Court  on  various  occasions  

considered  the  aim  and  object  of  making  the  insurance  

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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  

and protect the plight of a victim  of a road accident.   In  

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  

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community  travelling  in  vehicles  or  using the roads from the risk attendant  upon the user of motor vehicles on the  roads.  The  law  may  provide  for  compensation  to  victims  of  the  accidents  who  sustain  injuries  in  the  course  of  an  automobile  accident  or  compensation to the dependants of the  victims in the case of a fatal  accident.  However, such protection would remain  a protection on paper unless there is a  guarantee  that  the  compensation  awarded  by  the  courts  would  be  recoverable from the persons held liable  for the consequences of the accident. A  court  can  only  pass  an  award  or  a  decree.  It  cannot  ensure  that  such  an  award or decree results in the amount  awarded being actually recovered, from  the person held liable who may not have  the resources. The exercise undertaken  by  the  law  courts  would  then  be  an  exercise in futility. And the outcome of  the legal proceedings which by the very  nature  of  things  involve  the  time cost  and  money  cost  invested  from  the  scarce  resources  of  the  community  would  make  a  mockery  of  the  injured  victims,  or  the  dependants  of  the  deceased  victim  of  the  accident,  who  themselves  are  obliged  to  incur  not  inconsiderable  expenditure  of  time,  money  and  energy  in  litigation.  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. To use  the  vehicle  without  the  requisite  third  party insurance being in force is a penal  

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offence. The legislature was also faced  with  another  problem.  The  insurance  policy might provide for  liability walled  in by conditions which may be specified  in  the  contract  of  policy.  In  order  to  make the protection real, the legislature  has  also  provided  that  the  judgment  obtained  shall  not  be  defeated  by  the  incorporation of exclusion clauses other  than those authorised by Section 96 and  by providing that except and save to the  extent permitted by Section 96 it will be  the obligation of the insurance company  to satisfy the judgment obtained against  the persons insured against third party  risk  (vide  Section  96).  In  other  words,  the legislature has insisted and made it  incumbent  on  the  user  of  a  motor  vehicle to be armed with an insurance  policy covering third party risks which is  in  conformity  with  the  provisions  enacted  by  the  legislature.  It  is  so  provided  in  order  to  ensure  that  the  injured victims of automobile accidents  or the dependants of the victims of fatal  accidents  are  really  compensated  in  terms  of  money  and  not  in  terms  of  promise.  Such  a  benign  provision  enacted by the legislature having regard  to the fact that in the modern age the  use  of  motor  vehicles  notwithstanding  the attendant hazards, has become an  inescapable  fact  of  life,  has  to  be  interpreted  in  a  meaningful  manner  which  serves  rather  than  defeats  the  purpose of the legislation. The provision  has  therefore  to  be  interpreted  in  the  twilight of the aforesaid perspective.”

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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  

is now Section 149 of the Act of 1988.  Section 149 of the  

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  

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respect of costs and any sum payable in  respect of interest on that sum by virtue  of any enactment relating to interest on  judgments.

(2)  No  sum  shall  be  payable  by  an  insurer under sub-section (1) in respect  of any judgment or award unless, before  the commencement of the proceedings  in which the judgment or award is given  the insurer had notice through the Court  or,  as  the  case  may  be,  the  Claims  Tribunal  of  the  bringing  of  the  proceedings,  or  in  respect  of  such  judgment or award so long as execution  is  stayed  thereon  pending  an  appeal;  and an  insurer  to  whom notice  of  the  bringing of any such proceedings is so  given  shall  be  entitled  to  be  made  a  party thereto and to defend the action  on any of the following grounds, namely: —

(a)  that  there has been a  breach of  a  specified condition of  the policy,  being  one of the following conditions, namely: —

(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

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(b)  for  organised  racing  and  speed testing, or

(c) for a purpose not allowed  by the permit under which the  vehicle  is  used,  where  the  vehicle is a transport vehicle,  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

(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  

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of  1908)  conclusive  as  to  any  matter  adjudicated  upon  by  it,  the  insurer  (being  an insurer  registered under  the  Insurance  Act,  1938  (4  of  1938)  and  whether  or  not  he  is  registered  under  the  corresponding  law  of  the  reciprocating country) shall be liable to  the person entitled to the benefit of the  decree in the manner and to the extent  specified  in  sub-section  (1),  as  if  the  judgment were given by a Court in India:

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).

(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:

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Provided  that  any  sum  paid  by  the  insurer  in  or  towards  the  discharge  of  any  liability  of  any  person  which  is  covered by the policy by virtue only of  this sub-section shall be recoverable by  the insurer from that person.

(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  

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:-

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“12. The defence built on the exclusion  clause  cannot  succeed  for  three  reasons, viz.:

(1) On  a  true  interpretation  of  the relevant clause which interpretation  is  at  peace  with  the  conscience  of  Section  96,  the  condition  excluding  driving by a person not duly licensed is  not  absolute  and  the  promisor  is  absolved once it is shown that he has  done everything in his power to keep,  honour  and  fulfil  the  promise  and  he  himself  is  not  guilty  of  a  deliberate  breach.

(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.”

11. To examine the correctness of the aforesaid view,  

the matter was referred to a 3-Judge Bench because of the  

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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  

should not be driven by a person who is not duly licensed  

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  

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attracted.  In  a  case  where  the  person  who has got insured the vehicle with the  insurance  company,  has  appointed  a  duly licensed driver and if the accident  takes  place  when  the  vehicle  is  being  driven by a person not duly licensed on  the basis of the authority of the driver  duly  authorised  to  drive  the  vehicle  whether the insurance company in that  event shall be absolved from its liability?  The  expression  ‘breach’  occurring  in  Section 96(2)(b) means infringement or  violation of a promise or obligation. As  such the insurance company will have to  establish that the insured was guilty of  an  infringement  or  violation  of  a  promise. The insurer has also to satisfy  the  Tribunal  or  the  Court  that  such  violation or infringement on the part of  the insured was wilful. If the insured has  taken  all  precautions  by  appointing  a  duly licensed driver to drive the vehicle  in  question  and  it  has  not  been  established that it was the insured who  allowed  the  vehicle  to  be  driven  by  a  person  not  duly  licensed,  then  the  insurance company cannot repudiate its  statutory liability  under sub-section (1)  of Section 96. ….”

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  

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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  

period of insurance, the truck met with an accident and got  

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  

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.  

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The whole case of the insurer has been  built on a wrong premise. It is itself the  case of the insurer that in the case of a  light  motor  vehicle  which  is  a  non- transport vehicle, there was no statutory  requirement  to  have  a  specific  authorisation on the licence of the driver  under  Form 6  under  the  rules.  It  has,  therefore,  to  be  held  that  Jadhav  was  holding an effective valid licence on the  date  of  the  accident  to  drive  a  light  motor  vehicle  bearing  Registration  No.  KA-28-567.”

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  

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  

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XI of the Act. This means, the insurer has to  pay to the third parties only on account of  the fact that a policy of insurance has been  issued  in  respect  of  the  vehicle,  but  the  insurer is entitled to recover any such sum  from  the  insured  if  the  insurer  were  not  otherwise  liable  to  pay  such  sum  to  the  insured  by  virtue  of  the  conditions  of  the  contract  of  insurance  indicated  by  the  policy.

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  

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protect the members of the community who  become  sufferers  on  account  of  accidents  arising from the use of motor vehicles. It  is  pointed  out  in  the  decision  that  such  protection would have remained only a paper  protection  if  the  compensation  awarded  by  the  courts  were  not  recoverable  by  the  victims (or dependants of the victims) of the  accident.  This  is  the  raison  d'être  for  the  legislature  making  it  prohibitory  for  motor  vehicles being used in public places without  covering  third-party  risks  by  a  policy  of  insurance.      24.   The  principle  laid  down  in  the  said  decision has been followed by a three-Judge  Bench of this Court with approval  in  Sohan  Lal Passi v. P. Sesh Reddy (1996) 5 SCC 21.

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  

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that contention it  is  open to the insured to  raise  it  before  the  Claims  Tribunal.  In  the  present  case,  if  the  Insurance  Company  succeeds  in  establishing  that  there  was  breach  of  the  policy  condition,  the  Claims  Tribunal shall direct the insured to pay that  amount to the insurer. In default the insurer  shall  be  allowed  to  recover  that  amount  (which the insurer is directed to pay to the  claimant  third  parties)  from  the  insured  person.”

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.

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  

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the  insured.  By  reason  of  the  provisions  contained in the 1988 Act, a more extensive  remedy has been conferred upon those who  have obtained judgment against the user of a  vehicle and after a certificate of insurance is  delivered in terms of Section 147(3). After a  third party has obtained a judgment against  any person insured by the policy in respect of  a liability required to be covered by Section  145,  the  same  must  be  satisfied  by  the  insurer, notwithstanding that the insurer may  be entitled to avoid or to cancel the policy or  may  in  fact  have  done  so.  The  same  obligation  applies  in  respect  of  a  judgment  against a person not insured by the policy in  respect  of  such  a  liability,  but  who  would  have been covered if the policy had covered  the  liability  of  all  persons,  except  that  in  respect of liability for death or bodily injury.

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.

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  

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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.

(ii) An insurer is entitled to raise a defence in  a claim petition filed under Section 163-A or  Section 166 of the Motor Vehicles Act, 1988,  inter alia, in terms of Section 149(2)(a)(ii) of  the said Act.

(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.

(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  

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vehicle; the burden of proof wherefor would  be on them.

(v) The court cannot lay down any criteria as  to how the said burden would be discharged,  inasmuch as  the  same would  depend upon  the facts and circumstances of each case.

(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.

(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  

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empowered to adjudicate all claims in respect  of the accidents involving death or of bodily  injury or  damage to property of  third party  arising  in  use  of  motor  vehicle.  The  said  power  of  the  Tribunal  is  not  restricted  to  decide the claims inter se between claimant  or claimants on one side and insured, insurer  and  driver  on  the  other.  In  the  course  of  adjudicating the claim for compensation and  to  decide  the  availability  of  defence  or  defences  to  the  insurer,  the  Tribunal  has  necessarily  the  power  and  jurisdiction  to  decide disputes inter se between the insurer  and  the  insured.  The  decision  rendered  on  the claims and disputes inter se between the  insurer  and  insured  in  the  course  of  adjudication of claim for compensation by the  claimants  and  the  award  made  thereon  is  enforceable  and  executable  in  the  same  manner as provided in Section 174 of the Act  for enforcement and execution of the award  in favour of the claimants.

(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  

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174 of  the  Act  as  arrears  of  land revenue.  The certificate will be issued for the recovery  as arrears of land revenue only if, as required  by sub-section (3) of Section 168 of the Act  the  insured  fails  to  deposit  the  amount  awarded in favour of the insurer within thirty  days from the date of announcement of the  award by the Tribunal.

(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.  

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  

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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  

decision  of  this  Court  in  New  India  Assurance  Co. v.  

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  

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  

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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  

the driver was having a valid driving licence and allowed the  

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  

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  

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motor vehicle continued, at the relevant  point  of  time  to  cover  both  “light  passenger  carriage  vehicle”  and  “light  goods carriage vehicle”.   A driver  who  had a valid licence to drive a light motor  vehicle,  therefore,  was  authorized  to  drive a light goods vehicle as well.”

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  

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  

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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  

proceed against the insured for recovery of the amount.  Under  

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  

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.

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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  

place, was Mahindra Maxi Cab.  Merely because the driver did not  

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  

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)

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…………………………….J. (M.Y. Eqbal)

New Delhi, July 1, 2013.

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