REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8144  OF 2018 [Arising out of SLP(C) No.26955 of 2017]

SHAMANNA AND ANOTHER    ...Appellants

Versus

THE DIVISIONAL MANAGER THE ORIENTAL INSURANCE CO. LTD. AND ORS.

       ...Respondents

J U D G M E N T

R. BANUMATHI, J.

Leave granted.

2. This  appeal  arises  out  of  the  judgment  dated  14.09.2016

passed by the High Court of Karnataka at Dharwad Bench in MFA

No.24534 of  2010 in  and by which the High Court  reversed the

award passed by the Tribunal for “pay and recover” holding that the

owner  of  the  vehicle  is  liable  to  pay  the  compensation  to  the

appellants/claimants.  The High Court enhanced the compensation

from Rs.3,55,500/- to Rs.4,94,700/- with interest at the rate of 6%

per annum.

3. On  14.04.2008,  Shankareppa  Pattar  son  of  the

appellants/claimants  was  travelling  in  a  jeep  bearing  Reg.No.KA-

22/M-3805.  The jeep was driven negligently due to which door of the

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jeep  suddenly  opened  and  Shankareppa  was  thrown  out  of  the

vehicle and sustained grievous injuries and died in the hospital.  In

the  claim  petition  filed  by  the  appellants/parents  of  the  deceased

Shankareppa, the Tribunal awarded compensation of Rs.3,55,500/-

with  interest  at  6% per  annum from the  date  of  claim petition  till

realisation.  Since the driver of the jeep had no valid driving licence at

the time of the accident and since there was violation of the terms of

the insurance policy, the Tribunal directed the insurance company to

pay the  compensation to  the claimants  and  granted  liberty  to  the

insurance  company  to  recover  the  same  from  the  owner  of  the

offending vehicle.

4. Being aggrieved by the award directing the insurer to pay the

compensation amount to the claimants and recover the same from

the owner of the vehicle, the insurance company filed appeal before

the  High  Court.   The  claimants  have  also  filed  appeal  seeking

enhancement of compensation.  The High Court referred to its own

judgment  in  the  case  of  Oriental  Insurance  Co.  Ltd.  v.  K.C.

Subramanyam MANU/KA/0945/2012  :  ILR 2012  KAR 5241 and

held  that  the Supreme Court  directed the insurance company to

make payment to the claimants and to recover the same from the

owner of  the vehicle in exercise of  its discretionary power under

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Article 142 of the Constitution of India.  The High Court observed

that power under Article 142 of the Constitution is vested only with

the Supreme Court  and such power is  not  vested with the High

Court  or  the  Tribunal  and  set  aside  the  award  passed  by  the

Tribunal directing the insurance company to pay compensation to

the claimants and recover the same from the owner of the vehicle is

not sustainable.  The High Court held that only the owner of the

offending vehicle is liable to make the payment of the compensation

amount awarded by the Tribunal.  The High Court has enhanced the

compensation  awarded  by  the  Tribunal  from  Rs.3,55,500/-  to

Rs.4,94,700/-. To determine the loss of dependency, the High Court

has taken into consideration the age of the deceased Shankareppa

and has adopted multiplier of ‘18’ instead of multiplier of ‘14’.  Being

aggrieved  by  the  judgment  of  the  High  Court  setting  aside  the

direction  to  the  insurance  company  to  “pay  and  recover”,  the

appellants/claimants have preferred this appeal.

5. We have heard the learned counsel for the parties.  We have

gone through the impugned judgment  and perused the materials

placed on record.

6. In the case of third party risks, as per the decision in National

Insurance Company Ltd. v. Swaran Singh and others (2004) 3

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SCC 297, the insurer had to indemnify the compensation amount

payable to the third party and the insurance company may recover

the  same from the  insured.   Doctrine  of  "pay  and  recover"  was

considered by the Supreme Court in  Swaran Singh case wherein

the Supreme Court examined the liability of the insurance company

in cases of breach of policy condition due to disqualifications of the

driver or invalid driving licence of the driver and held that in case of

third  party  risks,  the  insurer  has  to  indemnify  the  compensation

amount to the third party and the insurance company may recover

the same from the insured.  Elaborately considering the insurer's

contractual liability as well as statutory liability vis-a-vis the claims of

third parties,  the Supreme Court issued detailed guidelines as to

how and in what circumstances, “pay and recover” can be ordered.

In para (110), the Supreme Court summarised its conclusions as

under:-

“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 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.

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(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 vehicle; the burden of proof wherefore 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 fulfill 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 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

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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 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 there  under  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,” (Underlining added)

7. As per the decision in  Swaran Singh case, onus is always

upon the insurance company to prove that the driver had no valid

driving  licence  and  that  there  was  breach  of  policy  conditions.

Where the driver did not possess the valid driving licence and there

are breach of policy conditions, “pay and recover” can be ordered in

case of third party risks.  The Tribunal is required to consider as to

whether  the  owner  has  taken  reasonable  care  to  find  out  as  to

whether the driving licence produced by the driver, does not fulfill

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the requirements of law or not will have to be determined in each

case.

8. The  Supreme  Court  considered  the  decision  of  Swaran

Singh case in subsequent decision in National Insurance Co. Ltd.

v. Laxmi Narain Dhut, (2007) 3 SCC 700, wherein this Court held

that  “the  decision  in  Swaran  Singh  case  has  no  application  to

cases other than third party risks and in case of third party risks the

insurer has to indemnify the amount and if so advised, to recover

the same from the insured”.  The same principle was reiterated in

Prem Kumari v. Prahlad Dev and others (2008) 3 SCC 193.

9. For the sake of completion, we may refer to few judgments

where  the  breach  of  policy  conditions  was  fundamental  and  the

Supreme Court taking contrary view that the insurance companies

were not liable to pay the compensation.  In  National Insurance

Co., Ltd. v. Bommithi Subbhayamma and others, (2005) 12 SCC

243, the Supreme Court reversed the judgment of Andhra Pradesh

High Court in making the insurance company liable for payment of

compensation  in  respect  of  gratuitous  passengers  carried  in  the

goods vehicle.

10. In  Oriental  Insurance Co. Ltd.  v.  Brij  Mohan and others

(2007) 7 SCC 56, the claimant was travelling in the trolley attached

to tractor carrying earth to brick kiln. It was found that the tractor

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and  the  trolley  were  not  used  for  “agricultural  works”,  the  only

purpose  for  which  the  tractor  was  insured,  when  the  claimant

sustained the injuries.   The Supreme Court  though held that  the

insurance  company  is  not  liable  to  pay  compensation,  however,

invoked the power vested in the Supreme Court under Article 142 of

the  Constitution  of  India  in  directing  the  insurance  company  to

satisfy the award by paying compensation to the insured/claimant

and realise the same from the owner of the tractor.   

11. In the present case, to deny the benefit of ‘pay and recover’,

what seems to have substantially weighed with the High Court is the

reference  to  larger  Bench  made  by  the  two-Judge  Bench  in

National Insurance Co. Ltd. v. Parvathneni and another (2009) 8

SCC 785 which doubted the correctness of the decisions which in

exercise of jurisdiction under Article 142 of the Constitution of India

directing insurance company to pay the compensation amount even

though insurance company has no liability to pay. In  Parvathneni

case,  the  Supreme  Court  pointed  out  that  Article  142  of  the

Constitution of India does not cover such type of cases and that “ if

the insurance company has no liability to pay at all, then, it cannot

be compelled by order  of  the court  in  exercise of  its  jurisdiction

under  Article  142  of  the  Constitution  of  India  to  pay  the

compensation amount and later on recover it from the owner of the

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vehicle”.   The  above  reference  in  Parvathneni  case has  been

disposed of on 17.09.2013 by the three-Judges Bench keeping the

questions of law open to be decided in an appropriate case.   

12. Since the reference to the larger bench in Parvathneni case

has been disposed of by keeping the questions of law open to be

decided in an appropriate case, presently the decision in  Swaran

Singh case followed in  Laxmi Narain Dhut and other cases hold

the field.  The award passed by the Tribunal directing the insurance

company  to  pay  the  compensation  amount  awarded  to  the

claimants and thereafter, recover the same from the owner of the

vehicle in question, is in accordance with the judgment passed by

this Court in Swaran Singh and Laxmi Narain Dhut cases.   While

so, in our view, the High Court ought not to have interfered with the

award passed by the Tribunal directing the first respondent to pay

and recover from the owner of the vehicle.  The impugned judgment

of  the  High  Court  exonerating  the  insurance  company  from  its

liability  and  directing  the  claimants  to  recover  the  compensation

from the owner of the vehicle is set aside and the award passed by

the Tribunal is restored.

13. So far as the recovery of the amount from the owner of the

vehicle, the insurance company shall recover as held in the decision

in  Oriental Insurance Co. Ltd. v. Nanjappan and others (2004)

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13 SCC 224 where this Court held that “….that for the purpose of

recovering  the  same  from  the  insured,  the  insurer  shall  not  be

required  to  file  a  suit.  It  may  initiate  a  proceeding  before  the

concerned Executing Court as if  the dispute between the insurer

and the owner was the subject matter of determination before the

Tribunal and the issue is decided against the owner and in favour of

the insurer.”   

14. In the result, the impugned judgment of the High Court insofar

as enhancement of the compensation to Rs.4,94,700/- is affirmed.

Insofar  as  direction  of  the  impugned  judgment  directing  the

appellants/claimants to recover the compensation from the owner of

the vehicle is set aside and the appeal is partly allowed.  The first

respondent  insurance  company  shall  pay  the  enhanced

compensation to  the appellants/claimants along with  the accrued

interest and the insurance company shall recover the same from the

owner of the vehicle.   No costs.

.…….…………...………J. [RANJAN GOGOI]

…………….……………J.   [R. BANUMATHI]

New Delhi; August 08, 2018

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