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REPORTABLE

        IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

    Civil Appeal No(s). 5998  of  2019 (@SLP(C) No. 23604/2014)

M/s. Balwant Singh & Sons               Appellant(s)

                               Versus

National Insurance Company Ltd & Anr.     Respondent(s)

JUDGMENT

Dr Dhananjaya Y Chandrachud

Leave granted.

This appeal arises from a judgment of the National Consumer Disputes

Redressal Commission1 dated 11 March 2014 dismissing a revision petition filed

by the appellant. The NCDRC upheld the view of the District Consumer Disputes

Redressal  Forum,  Jalandhar2 and  of  the  State  Consumer  Disputes  Redressal

Commission,  Chandigarh3 that  the  insurer  was not  liable  on a  claim preferred

under a policy of insurance for the loss of a vehicle occasioned by theft.

1 “NCDRC” 2 “District Forum” 3 “SCDRC”

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The third respondent entered into a Hire Purchase Agreement with ICICI

Bank4,  the second respondent  through its  Branch at  Jalandhar in  respect  of  a

vehicle. Pursuant to the agreement, the third respondent paid a few instalments

but then committed a default upon which possession of the vehicle was taken by

the  Bank.  The  vehicle  was  put  up  for  auction  on  31  March  2006  and  was

purchased  by  the  appellant  for  a  consideration  of  Rs  2,42,000.  Besides  the

payment  of  an amount  of  Rs  5,000 as earnest  money,  the appellant  paid  the

balance by a cheque dated 31 March 2006 drawn on the State Bank of Bikaner &

Jaipur.  Possession of the vehicle was handed over to the appellant on 7 April

2006 after the cheque was encashed together with a certificate of possession of

the vehicle. The Bank issued a letter dated 19 April 2006 to the first respondent,

which had insured the vehicle, for the cancellation of the entry of hypothecation

from the registration certificate of the vehicle.  On 22 May 2006, the appellant got

the vehicle insured by the first respondent in the amount of Rs 3,28,100 against

payment of a premium in the amount of Rs 6,999.  An insurance policy was issued

by  the  first  respondent.  The  name  of  the  insured  was  reflected  as  the  third

respondent but significantly the address section in the policy document contained

the name of the appellant together with its business address.

According  to  the  appellant,  insurance  premium  was  collected  by  the

insurer from it but since the registration certificate was still to be transferred, the

insurance policy  continued to  reflect  the name of  the third  respondent  as the

insured.  

The appellant applied for and obtained a certificate of exemption from the

Regional  Transport  Authority  so  as  to  facilitate  the  transfer  of  the  registration

4 “Bank”

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certificate to its name. The certificate of exemption was on the ground that the

vehicle was exempted from obtaining a route permit.  

The vehicle was stolen on the intervening night between 13 and 14 June

2006. The appellant lodged a First Information Report about the incident on 14

June 2006 and the first respondent was informed on 4 July 2006.

On 12 October 2006, the police issued a certificate to the effect that the

vehicle was untraced. On 19 October 2006, the appellant lodged a claim for the

loss  of  the  vehicle  with  the  first  respondent  and  enclosed  the  registration

certificate,  FIR  and  the  certificate  of  the  police  stating  that  the  vehicle  was

untraced.

On  16  November  2006,  the  first  respondent  rejected  the  claim on  the

ground that the ownership of the vehicle and the insurance policy stood in the

name of the third respondent and on the ground that the bank had a financial

interest.  The first respondent stated that the vehicle must have been insured by

the Bank as well. The claim was also rejected on the ground that the appellant did

not  have  an  insurable  interest.  The  appellant  addressed  a  letter  dated  28

November 2006 to the first respondent. However, the claim was repudiated on 21

March 2007 by the insurer  on the ground that  the appellant  had no insurable

interest since the registration certificate was not transferred to it.  The rejection of

the claim led to the filing of a consumer complaint before the District Forum at

Jalandhar. The claim was dismissed on 30 April 2008. The order of the District

Forum was upheld by the State Commission on 22 March 2013 in appeal and, in

revision, by the NCDRC on 11 March 2014.

Assailing the view which has prevailed with the consumer fora, Mr Rohit

Sharma, learned counsel appearing on behalf of the appellant submitted that it is

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undisputed that the appellant purchased the vehicle in an auction sale conducted

by Bank following a default committed by the original owner in the payment of

instalments  under a Hire-Purchase Agreement.  The Bank handed over  to  the

appellant a certificate of possession upon receiving the full bid consideration at

the auction sale. The Bank also informed the insurer of its ceasing to have a

claim on the vehicle based on the deed of hypothecation entered into by it with

the  erstwhile  owner.  Following  this,  premium  for  the  insurance  cover  was

accepted by the insurer from the appellant. The insurance policy though issued in

the name of the third respondent, reflected the name of the appellant and this

was on the clear understanding of the insurer that the appellant had paid the

premium and obtained the cover of insurance as the owner of the vehicle. In the

circumstances, it was submitted that the insurer, having accepted the premium

from the appellant, has absolutely no ground to repudiate the policy.  It was urged

in support of the above submission that the decisions of this Court in the context

of third party liability, in view of the provisions of Chapter XI of the Motor Vehicles

Act,  19885,  more  particularly  Section  157,  stand on a  distinct  footing.  In  that

context, it has been held that the erstwhile owner of a vehicle would continue to

be jointly liable with the insurer even after the transfer of the vehicle, unless the

transfer is reflected in the registration certificate of the vehicle. Learned  counsel

submitted that this can have no application to a claim by the transferee against

the insurer in a case such as the present where the loss or damage is sustained

on account of a theft of the vehicle.

On the other hand, affirming the correctness of the view which has been

taken by the consumer fora, Ms. Nanita Sharma, learned counsel appearing on

5 Act of 1988

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behalf of the Respondents submitted that there is no privity of contract between

the appellant and the insurer. Learned counsel relied upon the decisions of this

Court in  Life Insurance Corporation of India vs Raja Vasireddy Komalavalli

Kamba6; (ii) Complete Insulations (P) Ltd vs New India Assurance Co Ltd7 ;

(iii) Prakash Chand Daga vs Saveta Sharma8 and  (iv) Naveen Kumar vs Vijay

Kumar9 in support  of  the submission that  until  the name of  the transferee is

reflected in the registration certificate, the insurance company would not be liable.

It  was urged that in the present case, the appellant had no insurable interest

since the vehicle was not transferred in its name and consequently the insurer

was within its rights in repudiating the claim under the policy.  

The basic facts are not in dispute. What is not in dispute is that:

(i) The appellant purchased the vehicle at an auction conducted by the Bank to

whom the vehicle was hypothecated in pursuance of a Hire-Purchase agreement;

(ii) The appellant paid full consideration for the sale which was conducted in an

auction to the Bank;

(iii) A certificate of possession was furnished to the appellant by the Bank;

(iv) The Bank intimated the insurer that it ceased to have a lien on the vehicle

consequent to the auction sale;

(v) The proposal for insurance was submitted by the appellant to the insurer;

(vi) Premium in respect of the insurance cover was paid by the appellant; and  

(vii) The policy of insurance was issued by the insurer in the name of the third

respondent but clearly reflecting the name of the appellant as well.  Evidently, in

6 1984 ACJ 345 (1) 7 (1996) 1 SCC 221 8 (2019) 1 SCALE 2 9 (2018) 3 SCC 1

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this background, the reference of the appellant was not just for the purposes of a

postal address.

Now it is in this background that it becomes necessary to determine the

correctness of the basis for the repudiation of the insurance claim by the insurer.

Essentially, the contention of the insurer is that unless the transfer is reflected in

the registration certificate issued by the Regional Transport Authority, the insurer

would not be liable and the ownership would continue to stand in the name of the

erstwhile owner.  In this context, it becomes necessary to analyse the provisions of

the Motor Vehicles Act, 1988 and the basis on which the decisions which were

relied  upon  by  the  insurer  have  been  rendered.  Section  2(30)  defines  the

expression “owner” in the following terms:

“Section 2(30) - “owner” means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, any in relation to a motor vehicle which is the  subject  of  a  hire-purchase agreement,  or  an  agreement  of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement;”

Section  50  provides  that  where  the  ownership  of  any  motor  vehicle

registered under Chapter IV is transferred, certain formalities have to be fulfilled.

The  formalities  require  the  transferor  to  report  the  transfer  to  the  registering

authority within whose jurisdiction the transfer has to be effected and to send a

copy of the report to the transferee. The transferee also has to report the transfer

to the registering authority  within whose jurisdiction he resides or  maintains a

place of business where the vehicle is normally kept.

The  transferee  has  to  forward  the  certificate  of  registration  to  the  registering

authority together with the prescribed fee and a copy of the report received from

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the transferor so that particulars of the transfer of ownership may be entered in

the certificate of registration.  Sub-section (1) of Section 50 provides as follows:

“Section 50 Transfer of  ownership – (1)  Where the ownership of any motor vehicle registered under this Chapter is transferred, -  

(a) the transferor shall, -

(i)  in  the  case  of  a  vehicle  registered  within  the  same  State,  within fourteen days of the transfer, report the fact of transfer, in such form with such  documents  and  in  such  manner,  as  may  be  prescribed  by  the Central Government to the registering authority within whose jurisdiction the transfer is to be effected and shall simultaneously send a copy of the said report to the transferee; and

(ii) in the case of a vehicle registered outside the State, within forty five days of the transfer, forward to the registering authority referred to in sub- clause (i) -

(A)  the no objection certificate obtained under section 48; or

(B) in a case where no such certificate has obtained, -

(I) the receipt obtained under sub-section (2) of section 48; or

(II)  the postal acknowledgment received by the transferee if  he has  sent  an  application  in  this  behalf  by  registered  post acknowledgment  due to  the  registering  authority  referred  to  in section 48,

together  with  a  declaration  that  he  ha  snot  received  any communication  from  such  authority  refusing  to  grant  such certificate or requiring him to comply with any direction subject to which such certificate may be granted;

(b)   the  transferee  shall,  within  thirty  days  of  the  transfer,  report  the transfer to the registering authority within whose jurisdiction he has the residence or place of business where the vehicle is normally kept as the case  may  be,  and  shall  forward  the  certificate  of  registration  to  that registering authority together with the prescribed fee and a copy of the report received by him from the transferor in order that particulars of the transfer of ownership may be entered in the certificate of registration.”

Sub-section (3) of Section 50 provides the consequence of a failure to fulfil the

obligation under sub-Section (1) in the following terms:

“(3)   If  the  transferor  or  the transferee fails  to  report  to  the registering  authority  the  fact  of  transfer  within  the  period specified in clause (a) or clause (b) of sub-section (1), as the

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case may be,  or  if  the  person who is  required  to  make an application  under  sub-section  (2)  (hereafter  in  this  section referred to as the other person) fails to make such application within  the  period  prescribed,  the  registering  authority  may, having regard to the circumstances of  the case,  require the transferor or the transferee, or the other person, as the case may be, to pay, in lieu of any action that may be taken against him  under  section  177  such  amount  not  exceeding  one hundred rupees as may be prescribed under sub-section (5):

Provided that action under section 177 shall be taken against the transferor or the transferee or the other person, as the case may be, where he fails to pay the said amount.”

Chapter XI provides for the insurance of motor vehicles against third party

risks. Section 146 prohibits the use of a motor vehicle in a public place unless

there is in force in relation to its use, a policy of insurance complying with the

requirements of the Chapter.  Section 147 specifies the requirements of such a

policy and the limits of liability. Section 149 imposes a duty on the insurer to satisfy

judgments and awards against persons insured against third party risks. Section

157 deals with the transfer of the certificate of insurance:

“157.  Transfer  of  certificate  of  insurance -  (1)  Where  a person in whose favour the certificate  of  insurance has been  issued  in  accordance  with  the  provisions  of  this Chapter transfers to another person the ownership of the motor  vehicle  in  respect  of  which  such  insurance  was taken together with the policy of insurance relating thereto, the certificate of insurance and the policy described in the certificate  shall  be deemed to  have been transferred in favour  of  the  person  to  whom  the  motor  vehicle  is transferred with effect from the date of its transfer.

Explanation.—  For  the  removal  of  doubts,  it  is  hereby declared that such deemed transfer shall include transfer of rights and liabilities of the said certificate of insurance and policy of insurance.

(2) The transferee shall  apply within fourteen days from the date of transfer in the prescribed form to the insurer for making necessary changes in regard to the fact of transfer

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in the certificate of insurance and the policy described in the certificate in his favour and the insurer shall make the necessary  changes  in  the  certificate  and  the  policy  of insurance in regard to the transfer of insurance.”

As a result of the above provision, where a person in whose favour the

certificate of insurance has been issued in terms of the provisions of Chapter XI

transfers  the  ownership  of  the  vehicle  to  another  person,  the  certificate  of

insurance and the policy described in the certificate are deemed to have been

transferred in favour of the new owner to whom the motor vehicle is transferred,

with effect from the date of its transfer.

The above provisions have been the subject matter of several decisions of

this Court. In Complete Insulations (P) Ltd (supra), a request was made to the

insurer for the transfer of the certificate of insurance prior to the enforcement of

the Motor Vehicles Act, 1988 on 1 July 1989. The vehicle met with an accident but

the insurer repudiated the claim on the ground that the appellant had no insurable

interest. The claim was, allowed by the District Forum but the decision was set

aside by the NCDRC.

In that context, a three judge Bench of this Court held thus:

“10.  There  can  be  no  doubt  that  the  said  chapter  provides  for compulsory  insurance  of  vehicles  to  cover  third-party  risks. Section 146 forbids the use of a vehicle in a public place unless there is in force in relation to the use of that vehicle a policy of insurance complying with the requirements of that chapter.   Any breach of this provision may attract penal action.  In the case of property, the coverage extends to property of a third penal action. In the case of property, the coverage extends to property of a third party  i.e.  a  person  other  than  the  insured.   This  is  clear  from Section 147(1)(b)(i) which clearly refers to “damage to any property of a third party” is Rupees six thousand only as pointed out earlier. That  is why even the Claims Tribunal  constituted under Section 165  is  invested  with  jurisdiction  to  adjudicate  upon  claims  for compensation in respect of accidents involving death of or bodily injury  to  persons  arising  out  of  the  use  of  motor  vehicles,  or damage to any property of a third party so arising, or both.  Here also it is restricted to damage to third-party property and not the

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property of the insured.  Thus, the entire Chapter XI of the new Act concerns  third-party  risks  only.   It  is,  therefore,  obvious  that insurance is compulsory only in respect of third-party risks since Section 146 prohibits the use of a motor vehicle in a public  place  unless  there  is  in  relation  thereto  a  policy  of insurance  complying  with  the  requirements  of  Chapter  XI. Thus, the requirements of that chapter are in relation to third- party risks only and hence the fiction of Section 157 of the new Act must be limited thereto.  The certificate of insurance to be issued in the prescribed form (See Form 51 prescribed under Rule  141  of  the  Central  Motor  Vehicles  Rules,  1989)  must, therefore, relate to third party risks.  Since the provisions under the New Act and the Old Act in this behalf are substantially the same in relation to liability in regard to third parties, the National Consumer Disputes Redressal Commission was right in the view it took based on the decision in Kondaiah case because the transferee insured could  not  be  said  to  be  a  third  party  qua  the  vehicle  in question. It is only in respect of third party risks that Section 157 of the New Act provides that the certificate of insurance together with the policy of insurance described therein “shall be deemed to have been transferred in favour of the person to whom the motor vehicle is transferred”.  If the policy of insurance covers other risks  as  well,  e.g.,  damage  caused  to  the  vehicle  of  the insured himself, that would be a matter falling outside Chapter XI of the New Act and in the realm of contract for which there must be an agreement between the insurer and the transferee, the  former  undertaking  to  cover  the  risk  or  damage to  the vehicle.  In  the  present  case  since  there  was  no  such agreement  and  since  the  insurer  had  not  transferred  the policy of insurance in relation thereto to the transferee, the insurer  was  not  liable  to  make  good  the  damage  to  the vehicle.  The view taken by the National Commission is therefore correct.”

(emphasis supplied)

This Court dealt with the provisions of Chapter XI and explained that it concerns

only third party risks and as a result, the fiction contained in Section 157 must be

limited for that purpose. The above extract emphasises that if the policy covers

other risks, that would be a matter which falls outside Chapter XI and would rest in

the  domain  of  contract  for  which  there  has  to  be  an  agreement  between  the

insurer and the transferee. In that case the Court held that there was no such

agreement since the insurer had not transferred the policy of insurance in relation

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thereto to the transferee and was held therefore not to be liable to make good the

damage.

Another line of judgments specifically deals with the obligation to satisfy

third party claims with reference to the provisions contained in Chapter XI.  A three

judge Bench of this Court in Naveen Kumar (supra) adverted to the judgments of

this Court in T V Jose vs Chacko PM10 , P P Mohammed vs K. Rajappan11  and

Pushpa vs Shakuntala12  and held thus:   

“13.  The consistent thread of reasoning which emerges from the above decisions is that in view of the definition of the expression “owner” in Section 2(30), it is the person in whose name the motor vehicle stands registered who, for the purposes of the Act, would be treated as the “owner”.   However,  where a  person is  a minor,  the guardian of  the minor would be treated as the owner.  Where a motor vehicle is subject to an agreement of hire purchase, lease or hypothecation, the person in possession of the vehicle under that agreement is treated as the owner. In  a  situation  such  as  the  present  where  the  registered  owner  has purported to transfer the vehicle but continues to be reflected in the records of the Registering Authority as the owner of the vehicle,  he would  not  stand absolved of  liability.   Parliament has consciously introduced the  definition  of  the  expression  “owner”  in  Section 2(30), making a departure from the provisions of Section 2(19) in the earlier  1939 Act.  The principle  underlying the provisions of Section 2(30) is that the victim of a motor accident or, in the case of a death, the legal heirs of the deceased victim should not be left in a state of uncertainty.  A claimant for compensation ought not to  be  burdened  with  following  a  trail  of  successive  transfers, which are not registered with the Registering Authority.  To hold otherwise would be to defeat the salutary object and purpose of the Act.  Hence, the interpretation to be placed must facilitate the fulfilment of the object of the law.  In the present case, the first respondent  was  the  “owner”  of  the  vehicle  involved  in  the accident within the meaning of Section 2(30). The liability  to pay compensation stands fastened upon him.  Admittedly, the vehicle was uninsured. The High Court has proceeded upon a misconstruction of the judgments of this Court in Reshma and Purnya Kala Devi”

This position of law was subsequently followed by a two judge Bench in Prakash

Chand Daga (supra).

10 (2001) 8 SCC 748 11 (2008) 17 SCC 624  12 (2011) 2 SCC 240

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The principle that emerges from the precedents of this Court is that even

though in law there would be a transfer of ownership of the vehicle, that by itself

would  not  absolve  the  person  in  whose  name  the  vehicle  stands  in  the

registration certificate, from liability to a third party. So long as the name of the

registered owner continues in the certificate of registration in the records of the

RTO, that person as an owner would continue to be liable to a third party under

Chapter XI of the Motor Vehicles Act, 1986. The above decisions, therefore, deal

with the obligation of the registered owner to meet third party claims.

The principles which have been elucidated by this Court in the context of

the liability of the registered owner of the vehicle in satisfying third party claims

consequently has no application to the present case. For this reason, the three

judge Bench of  this  Court  in  Complete Insulations (P)  Ltd (supra)  carefully

noted that third party claims with reference to insurance policies issued under

Chapter XI stand on a different footing. Hence, it was held that if the policy of

insurance covers other risks, that would be a matter of the contract of insurance

between the insurer and the transferee in whose favour the risk is assumed.   

In Raja Vasireddy (supra), a two judge Bench of this Court has observed

that  the  mere  receipt  and  retention  of  premium  until  after  the  death  of  the

applicant for insurance or the mere preparation of a policy document does not

constitute acceptance and that acceptance must be signified by by some act or

acts agreed on by the parties or from which the law may raise a presumption. It

has been further held:

“15. Though in certain human relationships silence to a proposal  might  convey  acceptance  but  in  the  case  of insurance proposal silence does not denote consent and no binding contract arises until the person to whom an offer is made  says  or  does  something  to  signify  his  acceptance. Mere delay in giving an answer cannot be construed as an

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acceptance,  as,  prima  facie,  acceptance  must  be communicated  to  the  offeror.  The  general  rule  is  that  the contract of insurance will be concluded only when the party to whom an offer has been made accepts it unconditionally and communicates  his  acceptance  to  the  person  making  the offer…..

*****             *****               *****

17.  Having  regard  to  the  clear  position  in  law  about acceptance  of  insurance  proposal  and  the  evidence  on record in this case, we are, therefore, of the opinion that the High  Court  was  in  error  in  coming  to  the  conclusion  that there  was a concluded contract  of  insurance between the deceased and the Life  Insurance Corporation and on that basis reversing the judgment and the decision of the learned Subordinate Judge.”

In the present case, not only was there an acceptance of premium but the

issuance of a policy document.  The insurer had knowledge of the transfer when

the Bank informed it of the lifting of the lien.

In the present case, the Court is dealing with a situation where following

the transfer  of  the vehicle,  the insurer  was specifically  informed by the Bank

which held a lien on the insurance policy, of the lifting of its lien following the

termination  of  the  agreement  of  hypothecation.  Following  this,  a  policy  of

insurance was issued by the insurer. Admittedly the payment of premium was

made by the appellant. The third respondent did not set up any claim in respect

of the loss of the vehicle since the vehicle had already been repossessed and

sold by the bank on account of its default in the payment of dues. The insurer

cannot repudiate the claim of the appellant holding that its liability is to the third

respondent who has no subsisting interest in the ownership in the vehicle.  The

appellant has undertaken to furnish an indemnity to the insurer against any claim

at the behest of the third respondent.  

The transfer of the vehicle is not in dispute.

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The insurer  adopted a basis  which was unsustainable  to  repudiate  the

insurance claim.  The loss of the vehicle took place in close proximity to the date

of auction purchase.  We allow the claim in the amount of Rs 2,42,000 on which

the appellant shall be entitled to interest at the rate of 9% per annum from the

date on which the claim was lodged until payment.

The appeal is allowed in the above terms. There shall be no order as to

costs.

…..…………................................J.           (Dr Dhananjaya Y Chandrachud)

.…………………………...............J.             ( Indira Banerjee)

New Delhi July 31 2019

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ITEM NO.13               COURT NO.9               SECTION XVII

              S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C)  No(s).  23604/2014

(Arising out of impugned final judgment and order dated  11-03-2014 in  RP  No.  2809/2013  passed  by  the  National  Consumers  Disputes Redressal Commission, New Delhi)

M/S BALWANT SINGH & SONS                          Petitioner(s)

                               VERSUS

NATIONAL INSURANCE COMPANY LTD  & ANR.            Respondent(s)   Date : 31-07-2019 This petition was called on for hearing today.

CORAM :           HON'BLE DR. JUSTICE D.Y. CHANDRACHUD          HON'BLE MS. JUSTICE INDIRA BANERJEE

For Petitioner(s) Mr. Rohit Sharma, Adv. Mr. Raunak Nayak, Adv. Mr. Atul Agarwal, Adv. Mr. Anshul Chowdhary, Adv.

                   Mr. Kumar Dushyant Singh, AOR                     For Respondent(s)                     Mrs. Nanita Sharma, AOR

Mr. Vivek Sharma, Adv. Mr. Amardeep Sharma, Adv. Mr. Bajrang Lal Jat, Adv.

         UPON hearing the counsel the Court made the following                              O R D E R

Leave granted.

The  appeal  is  allowed  in  terms  of  the  signed  reportable

judgment.

Pending application(s), if any, shall stand disposed of.

(MANISH SETHI)                                  (SAROJ KUMARI GAUR) COURT MASTER (SH)                                  BRANCH OFFICER

(Signed reportable judgment is placed on the file)