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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5293 OF 2010

Managing Director, K.S.R.T.C. ... Appellant

Versus

New India Assurance Co.Ltd. & Ors.                               ... Respondents

With

Civil Appeal No.6641 of 2010

MD Karnataka Road Transport Corpn. & Anr. … Appellants

Versus

Thippamma & Ors. … Respondents

J U D G M E N T

ARUN  MISHRA, J.

1. The questions involved in the appeals are whether  in the wake of  

lease agreement entered into by registered owner with Karnataka State Road

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Transport  Corporation  (hereinafter  referred  to  as  the  ‘KSRTC’),  the  

registered owner and insurer along with KSRTC can be fastened with the  

liability to make payment to the claimants and whether KSRTC can recover  

the  amount  from  registered  owner  and  its  entitlement  to  seek  

indemnification from insurer?

2. The facts giving rise to Civil Appeal No.5293 of 2010 reflect that the  

accident  in  question was caused by the bus  which was driven under  the  

control of KSRTC.  The bus was owned by respondent no.2, T.M. Ganeshan,  

insured by the New India Assurance Co. Ltd.   Admittedly,  an agreement  

dated 28.2.2002 was entered into between the KSRTC and owner respondent  

no.2.   The  MACT,  Tumkur,  Karnataka  on  25.6.2007  allowed  the  claim  

petition preferred by the claimants and awarded a sum of Rs.4,09,000/- with  

interest @ 6% p.a.

3. In view of the agreement between KSRTC and the owner of the bus,  

the  liability  was  fastened upon the owner  and the  insurer  of  the  vehicle  

jointly and severally to make the payment of compensation, not on KSRTC.  

Aggrieved thereby, the insurer preferred an appeal before the High Court of  

Karnataka.   The same has  been allowed by the impugned judgment  and  

order dated 20.2.2009.  The High Court has allowed the appeal filed by the  

insurer and held that the liability to make the payment of compensation  is

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that of KSRTC alone.  Aggrieved thereby, the KSRTC has come up in the  

appeal before us.

4. In Civil Appeal No.6641 of 2010, the bus was plied similarly on hire  

agreement by the KSRTC.  The Claims Tribunal has fastened the liability  

jointly  and severally  upon the  KSRTC and upon Internal  Security  Fund,  

Bangalore.  Aggrieved thereby, the appeal was preferred in the High  Court  

and the same has been dismissed.  Hence, Civil  Appeal No.6641 of 2010  

has been filed  in this Court.

5. It was submitted by Shri S.N. Bhat, learned counsel for the appellant  

that the High Court has erred in fastening the liability  upon the KSRTC.  In  

view of the lease agreement for hire entered into between the KSRTC and  

the owner, the owner could not escape the liability to make the payment of  

compensation.  As such, the insurer was liable to indemnify the owner and to  

make  the  payment  of  compensation.   The  liability  could  not  have  been  

fastened  upon  the  KSRTC.   Learned counsel  has  placed  reliance  on  the  

decision of this Court in Uttar Pradesh State Road Transport Corporation v.   

Kulsum & Ors., (2011) 8 SCC 142.

6. Shri Vishnu Mehra, learned counsel appearing on behalf of New India  

Assurance Co. Ltd. contended that in view of the fact that the vehicle was

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plied  under  the  complete  control  and  supervision  of  KSRTC,  it  cannot  

escape from the liability to make the payment of  compensation.   He has  

relied upon the decision of this Court in  Rajasthan State Road Transport   

Corporation v. Kailash Nath Kothari & Ors.,  (1997) 7 SCC 481 and the  

definition of the owner under Section 2(30) of the Motor Vehicles Act, 1988  

(hereinafter referred to as the ‘Act’).  He has consequently submitted that  

owner and insurer have rightly been exonerated by the High Court.  

7. It was submitted on behalf of the claimants that they can recover the  

compensation from the KSRTC, owner and insurer jointly and severally.

8. The  owner  has  been  defined  under  Section  2(30)  of  the  Motor  

Vehicles  Act,  1988  (hereinafter  referred  to  as  the  Act  of  1988).  The  

definition in the Act of 1988 is extracted hereunder :  

“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,  and  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;”   

9. The definition of owner under Section 2(19) of  the Motor Vehicles  

Act, 1939 read as under:-    

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“2(19)  "owner"  means,  where the person,  in  possession of  a  motor vehicle is a minor, the guardian of such minor, and in  relation  to  a  motor  vehicle  which  is  the  subject  of  a  hire  purchase  agreement,  the  person  in  possession  of  the  vehicle  under that agreement.”

10. Under the Act of 1988, the owner means a registered owner and where  

the agreement on hire-purchase or an agreement of  hypothecation has been  

entered into or lease agreement, the person in possession of the vehicle is  

treated as an owner.     

11. Section 146 of the Act of 1988 prescribe the necessity for insurance  

against  third party risk.   Motor vehicle cannot  be used in a  public  place  

without policy of insurance complying with the requirement of Chapter X1.  

Exemption has been carved out to the vehicles owned by the Central or State  

Governments and used for government purposes.  Under sub-Section (3) of  

Section 146, it is open to the appropriate Government to exempt the vehicle  

owned by the Central or State Governments if  it  is used for Government  

purposes or any local authority or any State transport undertaking.

12. Section 147 of the Act of 1988 deals with the requirements of policy  

and limits of liability.  The statutory requirement under Section 147 is that  

policy of insurance must be a policy which is issued by authorised Insurer  

and insures  the person or  class  of  persons specified in  the policy  to  the

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extent  specified  in  sub-section  (2)(i)  against  any  liability  which  may  be  

incurred by him in respect of the death of or bodily injury to any person,  

including owner of the goods or his authorised  representative carried in the  

vehicle or damage to any property of a third party caused by or arising out of  

the use of the vehicle in a public place; and (ii) against the death of or bodily  

injury to any passenger of a public service vehicle caused by or arising out  

of the use of the vehicle in a public place.

13. Certain exception have been carved out in the proviso to sub-section  

(1) of section 147.  It is contained in proviso (ii) that the policy shall not be  

required to cover any contractual liability.  Limits of the liability have been  

provided in Section 147(2).  The liability under Section 147(2)(1)(b)  is the  

amount of liability incurred and with respect to any damage to any property  

of  a  third  party,  a  limit  of  Rs.6,000/-.   Section  147(5)  provides  that  

notwithstanding anything contained in any law for the time being in force,  

an insurer  shall  be liable to  indemnify  the person or  classes of  persons  

specified in the policy in respect of any liability which the policy purports to  

cover in the case of that person or those classes of persons.

14. Section  157  of  the  Act  1988  deals  with  the  deemed  transfer  of  

certificate of insurance.  Provisions of Section 157  are as under:

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“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.  

(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  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.”

It is apparent from Section 157(1) of the Act of 1988  that 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.  

Section 157(2) of the Act provides that the transferee to apply within 14 days  

from the date of transfer in the prescribed form to make necessary changes  

in the certificate of insurance.

15. Before dilating further, we deem it appropriate to advert to the certain  

clauses in the lease agreement on the basis of which vehicles are plied on

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hire by the KSRTC.  The owner of the private bus has to provide new bus to  

KSRTC for the purpose of hire.   

16. As per clause 6, the owner of the private bus to discharge statutory  

liability.  Clauses 6(i) and (ii) of lease agreement are quoted below:

“6(i)   In  case  the  owner  of  the  private  bus  defaults  in  the  discharge of any of his statutory liability, KSRTC reserves the  right to deduct such amounts from the amount payable to the  owner  as  it  is  sufficient  to  discharge the liability,  and if  the  liability is more than the amounts payable by KSRTC to the  owner, the owner alone shall be liable to discharge the liability  and/or to make good the amount to KSRTC, if discharged by  KSRTC.

6(ii)   If because of any default by the bus owner or by his/her  drivers/other  employees,  agent  representative,  any  liability  comes  on  KSRTC,  the  KSRTC has  the  right  to  recover  the  amount either from  the bills payable or the security deposit and  to  take further  steps  to  recover  the balance from the private  owner by any lawful means.”

17. The Conductor was to be provided under clause 7(iv) by the KSRTC  

and was entitled  to  collect  the  fare  and luggage charges  etc.  for  and on  

behalf of KSTRC.   

18. As per  clause  8,  Drivers  were to  be engaged and provided by the  

owner.  Salary etc. was also to be paid by the owner and is subject to other

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conditions such as they should not have been dismissed from the services of  

the Central Government etc. and should possess requisite licence.

19. Clause 14 of lease agreement with respect to insurance coverage is  

also relevant which is extracted as under:

“14. The owner of the private bus shall  keep  the hired bus  duly insured under a Motor Vehicle comprehensive insurance  police covering all risks and all such costs shall be born by the  owner of the private bus.  In case of failure to have a valid  comprehensive insurance policy.  The bus will not be used for  KSRTC’s operations and it will be deemed that the bus has not  been made available to KSRTC for scheduled operations, with  all  consequent  of  effects.   The  insurance  shall  cover  61passengers.”

20. Clause 16 relating to liability as to accidents is also important for the  

purpose of decision of the case.  Clauses 16(a) (b) and (c) are extracted as  

under:-

“(a) The owner of the bus alone shall be solely liable for  any claim arising out of any accident, damages or loss or hurt  caused during the operation of the bus.  The KSRTC shall not  be liable  for  any claims arising  out  of  the use  of  the buses,  including claims made in connection with the impurities or loss  of life sustained by passengers, bus crew or any other road user  or to any property/person.  Besides, all tortuous liability if any,  shall  be  borne  by  the  owner  or  the  insurer  of  the  vehicle  themselves.  However the accidents should be reported to the  KSRTC office/Depot.

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(b) KSRTC may make payment of ex-gratia amount to  the  victims  in  event  of  accident  of  such  private  hired  buses  while  on  KSRTC operations  as  per  the  KSRTC’s  prevailing  norms which shall be recovered from any amounts due to the  owner  of  such  private  buses  or  from  security  Deposit  etc.  Further,  the  owner  of  such  private  bus  should  make prompt  payment of ‘no fault liability’ or any other claim under the law  for  such  accident  victims.   In  case  KSRTC is  compelled  to  make such payment on behalf of the owner of private buses, it  shall  be  recovered  from  any  amount  due  to  the  owner  by  KSRTC or receivable to him from Insurance Company or other  debtors etc.  In case of non-payment to non-recovery of such  amount by KSRTC within 15 days, interest at 15% per annum  shall also be recoverable.  For delays beyond  30 days KSRTC  may  amount  or  adjustment  thereof  towards  hire  charges  payable.

(c)  It  shall  be  the  responsibility  of  the  owner  of   the  private bus to produce at his own cost, the driver/bus before the  court  of  ………  and  before  the  police  authorities  whenever  required in case of accident or any other contingencies or on  order  or  directions  by  the  Judicial  Or  Executive  authorities  …….   charges shall be payable by KSRTC in such cases.”

It  is  apparent  from clause 16(a) that  in case of  accident claim, the  

KSRTC shall not be liable for any claim arising out of use of buses including  

loss  of  life  sustained  by  passengers  or  any  other  user  or  to  any  

property/person.   If  KSRTC makes any ex gratia  payment in the case of  

accident, the same shall be recovered from any amount due to the owner in  

case KSRTC is made liable to make payment of compensation on behalf of

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private buses it shall be recovered from any amount due to the owner by  

KSRTC or receivable to him from Insurance Company  etc.   

21. Clauses 17, 18, 19 and 20 are also relevant they are extracted below:

“17.  The KSRTC shall not be liable for any loss caused  to the buses hired,  at  any point  of time including during the  period of agitations, strikes, accidents, natural calamities etc.

18. The owner of the private bus shall be liable for shall  alone discharge or meet all claims including fines and penalties  arising  out  of  violation  of  traffic  Rules,  and  Regulations,  Statutes, Acts, Rules and Regulations etc.,  in force for act of  omissions or commissions committed either by his/her drivers  or by any other person not authorised to drive.  The owner of  the private bus shall be liable and shall meet and discharge any  claim  for  compensation  or  damages  on  account  of  tortuous  liability.

19(a)  The  owner  of  the  private  bus  shall  provide  and  make available bus/buses as per the contract to KSRTC on all  days or operation in time as per the schedule departing time and  also as so as to cover the entire schedule Kms. Duty.

(b) The owner of the private bus shall not withdraw any  bus from the operation except with advance notice before 24  hours  and  with  prior  written  consent  of  the  depot  manager  concerned of KSRTC to do so.  In case any violation of this  clause, the owner shall be liable for imposition of penalties by  the KSRTC.

20(1)(a)  The  KSRTC  on  its  part  agrees  to  pay  hire  charges to the owner at the rates inculcation in the hiring rate  charts at Annexure A1 and A2, subject to the rules, terms and  conditions of the contract.  The hiring rate applicable shall be

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based on the schedule Kms. of the route allotted to the hired  bus, except as otherwise provided herein.”      

22. The main question for consideration is whether the registered owner  

and insurer can escape the liability in view of the provisions contained in the  

Act  and  in  view  of  the  aforesaid  terms  and  conditions  of  the  lease  

agreement.  The question also arise whether claimants can also recover the  

amount from KSRTC.

23. The High Court has held that actual control of the bus was with the  

KSRTC and the driver was driving the bus under its control.  Relying upon  

the decisions in National Insurance Co. Ltd. V. Deepa Devi & Ors., (2008) 1  

SCC 414 and Rajasthan State Road Transport Corporation v. Kailash Nath   

Kothari & Ors., (1997) 7 SCC 481, it was held that KSRTC to be the owner  

under Section 2(30) of the Act.  There is no liability of the registered owner  

as such insurer cannot be saddled with liability to indemnify.  Hence, the  

registered owner and the insurer have been exonerated.  The KSRTC has  

been fastened with the liability.  

In  our  opinion,  decision  of  High  Court  is  not  sustainable.   The  

provisions contained in the Act are clear.  No vehicle can be driven without  

insurance as provided in Section 147 whereas clause 14 of lease agreement

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between KSRTC and the owner clearly stipulate that it shall be the liability  

of the owner to provide the comprehensive insurance covers for all kind of  

accidental risks to the passengers, other persons/property.  The provisions of  

said clause of the agreement are not shown to be opposed to any provision in  

the Contract Act or any of the provisions contained under the Act of 1988.  

Hiring  of  public  service  vehicles  is  not  prohibited  under  any  of  the  

provisions of the aforesaid laws.  It could not be said to be inconsistent user  

by  KSRTC.  The  agreement  is  not  shown  to  be  illegal  in  any  manner  

whatsoever nor shown to be opposed to the public policy.

24. The policy of insurance is contractual obligation between the insured  

and the insurer.  It has not been shown that while entering into the aforesaid  

agreement of lease for hiring the buses, any of the provisions contained in  

the insurance policy has been violated. It has not been shown that owner  

could not have given bus on hire as per any provision of policy.  It was the  

liability of the registered owner to provide the bus regularly, to employ a  

driver, to make the payment of salary to the driver and the driver should be  

duly  licenced  and  not  disqualified  as  provided  in  the  agreement  though  

buses were to be plied  on the routes as specified by the KSRTC and hiring  

charges were required to be paid to the registered owner.  In the absence of  

any stipulation prohibiting such an arrangement in the insurance policy, we

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find that in view of agreement of lease the registered owner has owned the  

liability to pay. The insurer cannot also escape the liability.   

25. Apart from that what is provided under Section 157 of the Act of 1988  

is that 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.  

Even if there is a transfer of the vehicle by sale, the insurer cannot escape  

the liability  as there is deemed transfer of the certificate of insurance.  In the  

instant case it is not complete transfer of the vehicle it has been given on hire  

for which there is no prohibition and no condition/policy of insurance as  

shown to prohibit plying of vehicle on hire. The vehicle was not used for  

inconsistent purpose. Thus, in the absence of any legal prohibition and any  

violation of  terms and conditions of  the policy,  more  so,  in  view of  the  

provisions of Section 157 of the Act of 1988, we are of considered opinion  

that the insurer cannot escape the liability.

26. Now, we come to the question of  exclusion of  contractual  liability  

under  second  proviso  to  Section  147(1).   When  we  read  provisions  of  

Section 147 with Section 157 together, it leaves no room for any doubt that  

there is deemed transfer of policy in case of transfer of vehicle.  Hence,  

liability  of  insurer  continues  notwithstanding  the  contract  of  transfer  of

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vehicle, such contractual liability cannot be said to be excluded by virtue of  

second  proviso  to  Section  147(1)  of  Act  of  1988.  Higher  purchase  

agreement, an agreement for lease or an agreement for hypothecation are  

covered under Section 2(30) of the Act of 1988.  A person in possession is  

considered to be an owner of the vehicle under such agreements.    In case  

such contractual liability is excluded then anomalous results would occur  

and financer under higher purchase agreement would be held liable and so  

on.  In our view, an agreement for lease on hire cannot be said to be contract  

envisaged  for  exclusion  under  contractual  liability  in  second  proviso  to  

Section 147(1) of  the Act of 1988. The High Court has erred in holding  

otherwise.

27. The KSRTC can also be treated as owner for the purposes of Section  

2(30)  of  the  Act  of  1988 plying the  buses  under  lease  agreement.   The  

insurance  company  admittedly  has  insured  the  vehicle  and  taken  the  

requisite premium and it is not a case set up by the insurer that intimation  

was not given to the insurance company of the hiring arrangement .  Even if  

the intimation had not been given, in our opinion, the insurer cannot escape  

the liability  to indemnify as in the case of hiring of vehicle intimation is not  

required to be given.  It is only in the case of complete transfer of the vehicle  

when change of registration particulars are required under Section 157 of the

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Act, an intimation has to be given by the transferee for effecting necessary  

changes in the policy.  Even otherwise, that would be a ministerial act and  

the insurer cannot escape the liability for that reason.  When the KSRTC has  

become the owner of the vehicle during the period it was on hire with it for  

the purpose of Section 2(30) of the Act by  virtue of provisions contained in  

Section  157  of  the  Act,  the  insurance  policy  shall  be  deemed  to  be  

transferred.  As such, insurer is liable to make indemnification and cannot  

escape the liability so incurred by the KSRTC.

28. In  RSRTC v.  Kailash Nath Kothari (supra),  question of  liability  of  

insurance company did not  come up for  consideration.   The vehicle was  

taken by RSRTC from its owner Sanjay Kumar and it was being plied on the  

route by RSRTC.  The case arose out of accident date 17.7.1981 under the  

Act of 1939.  The definition of second owner under section 2(19) of Act of  

1939 came up for consideration before this Court, and conditions 4 to 7 and  

15 of agreement between RSRTC and the owner, this Court held that vehicle  

in  question  was in  possession and actual  control  of   RSRTC as such it  

cannot  escape  from  liability.   Relevant  portion  of  decision  is  extracted  

below:-

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“15.  Conditions  4  to  7  and  15  of  the  agreement  executed  between the RSRTC and the owner read:

“4.  The  Corporation  shall  appoint  the  conductor  for  the  operation of the bus given on contract by the second party and  the conductor of the Corporation shall do the work of issuing  tickets  to  the  passengers,  to  receive  the  fare,  to  let  all  the  passengers get in and get out of the bus, to help the passengers  to load and unload their goods, to stop the bus at the stops fixed  by the Corporation and to operate the bus according to time- table.

5.  The  tickets,  waybills  and  other  stationery  shall  be  supplied  by  the  Corporation  to  the  said  conductor  of  the  Corporation.

6.  The  driver  of  the  bus  shall  have  to  follow  all  such  instructions of the conductor, which shall  be necessary under  the rules for the operation of the bus.

7. The driver of the bus shall comply with all the orders of  the Corporation or of the officers appointed by the Corporation.

15. Upon the accident of the bus taking place the owner of  the  bus  shall  be  liable  for  the  loss,  damages  and  for  the  liabilities  relating  to  the  safety  of  the  passengers.  The  Corporation  shall  not  be  liable  for  any  accident.  If  the  Corporation  is  required  to  make  any  payment  or  incur  any  expenses  through  some  court  or  under  some  mutual  compromise,  the  Corporation  shall  be  able  to  recover  such  amounts from the owner of the bus after deducting the same  from the amounts payable to him.”

16. The admitted facts unmistakably show that the vehicle in  question  was  in  possession  and  under  the  actual  control  of  RSRTC for the purpose of running on the specified route and  was being used for carrying, on hire, passengers by the RSRTC.  The driver was to carry out instructions, orders and directions  of the conductor and other officers of the RSRTC for operation  of the bus on the route specified by the RSRTC.

17. The definition of owner under Section 2(19) of the Act is  not  exhaustive.  It  has,  therefore  to  be  construed,  in  a  wider

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sense,  in  the  facts  and  circumstances  of  a  given  case.  The  expression owner must include, in a given case, the person who  has the actual possession and control of the vehicle and under  whose directions and commands the driver is obliged to operate  the bus. To confine the meaning of “owner” to the registered  owner only would in a case where the vehicle is in the actual  possession and control of the hirer not be proper for the purpose  of fastening of liability in case of an accident. The liability of  the “owner” is vicarious for the tort committed by its employee  during the course of his employment and it would be a question  of fact in each case as to on whom can vicarious liability be  fastened in the case of an accident.  In this case,  Shri Sanjay  Kumar,  the  owner  of  the  bus  could  not  ply  the  bus  on  the  particular route for which he had no permit and he in fact was  not plying the bus on that route. The services of the driver were  transferred  along  with  complete  “control”  to  RSRTC,  under  whose directions, instructions and command the driver was to  ply  or  not  to  ply  the  ill-fated  bus  on  the  fateful  day.  The  passengers  were  being  carried  by  RSRTC  on  receiving  fare  from them.  Shri  Sanjay  Kumar  was  therefore  not  concerned  with the passengers travelling in that bus on the particular route  on payment of fare to RSRTC. Driver of the bus, even though  an employee of the owner, was at the relevant time performing  his duties under the order and command of the conductor of  RSRTC for operation of the bus. So far as the passengers of the  ill-fated bus are concerned, their privity of contract was only  with the RSRTC to whom they had paid the fare for travelling  in that bus and their safety therefore became the responsibility  of the RSRTC while travelling in the bus. They had no privity  of contract with Shri Sanjay Kumar, the owner of the bus at all.  Had it been a case only of transfer of services of the driver and  not  of  transfer  of  control  of  the  driver  from  the  owner  to  RSRTC, the matter may have been somewhat different. But on  facts  in  this  case  and  in  view  of  Conditions  4  to  7  of  the  agreement (supra), the RSRTC must be held to be vicariously  liable for the tort committed by the driver while plying the bus  under contract of the RSRTC. The general proposition of law  and the presumption arising therefrom that an employer, that is  the person who has the right to hire and fire the employee, is  generally responsible vicariously for the tort committed by the

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employee concerned during the course of his employment and  within the scope of his authority, is a rebuttable presumption. If  the original employer is able to establish that when the servant  was lent, the effective control over him was also transferred to  the  hirer,  the  original  owner  can  avoid  his  liability  and  the  temporary employer or the hirer, as the case may be, must be  held vicariously liable for the tort committed by the employee  concerned  in  the  course  of  his  employment  while  under  the  command and control of the hirer notwithstanding the fact that  the driver would continue to be on the payroll of the original  owner.  The  proposition  based  on  the  general  principle  as  noticed above is adequately rebutted in this case not only on the  basis of the evidence led by the parties but also on the basis of  Conditions 6 and 7 (supra), which go to show that the  owner  had  not  merely  transferred  the  services  of  the  driver  to  the  RSRTC but actual control and the driver was to act under the  instructions, control and  command of the conductor and other  officers of the RSRTC.

18. Reliance placed by learned counsel for the appellant on  Condition  No.  15  of  the  agreement  (supra)  in  our  view  is  misconceived.  Apart  from  the  fact  that  this  clause  in  the  agreement between the owner and the RSRTC, to the extent it  shifts  the  liability  for  the  accident  from  the  RSRTC  to  the  owner, may be against the public policy as opined by the High  Court, though we are not inclined to test the correctness of that  proposition of law because on facts, we find that RSRTC cannot  escape  its  liability  to  pay  compensation.  The  second  part  of  Condition No. 15 makes it abundantly clear that the RSRTC did  not completely shift the liability to the owner of the bus because  it  provided  for  reimbursement  to  it  in  case  it  has  to  pay  compensation  arising  out  of  an  accident.  The  words  “if  the  Corporation  is  required  to  make  any  payment  or  incur  any  expenses  through  some  court  or  under  some  mutual  compromise,  the  Corporation  shall  be  able  to  recover  such  amounts from the owner of the bus after deducting the same  from the amounts payable to him” in the later part of Condition  No. 15 leave no ambiguity in that behalf and clearly go to show  the  intention  of  the  parties.  Thus,  RSRTC cannot  escape  its  liability under Condition No. 15 of the agreement either. Thus,

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both on facts and in law the liability to pay compensation for  the accident must fall on the RSRTC.”

   It is apparent that question of the liability of the insurer did not come up  

for consideration and also the relevant statutory provisions relating thereto in  

aforesaid  decision.   This  Court,  considering  clause  16  of  the  agreement  

entered into by RSRTC and owner,  held that  RSRTC did not completely  

shift the liability to the owner of the bus in case it has to pay compensation  

arising out of an accident.  In the instant cases also there are certain clauses  

referred  to  above  which  indicate  that  if  the  KSRTC  has  to  make  the  

payment, it can recover the same from the owner out of the amount payable  

by it  or  from the  amount  payable  by the  insurer  to  the  owner.   On the  

strength of decision in RSRTC v. Kailash Nath Kothari (supra), the KSRTC  

being  in  actual  control  of  the  vehicle  would  also  be  liable  to  make  the  

compensation, however, in our opinion it can recover the amount from the  

registered owner or insurer, as the case may be.  In fact of the case, vis-à-vis,  

the  claimants’  liability  would  be  joint  and  several  upon  the  KSRTC,  

registered owner and the insurer.

29. In  National Insurance Co. v. Deepa Devi (supra), vehicle was under  

requisition by the State Government and that possession on requisition was  

not covered by the definition of the owner under section 2(30) in the Act of

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1988 or the Act of 1939.  It was held by this Court as the Motor Vehicles Act  

did not envisage such a situation.  Owner in such a case has to be understood  

from common sense point of view.  Thus, the State was held liable to make  

the payment of compensation.  The question was altogether different in the  

aforesaid case.   

30. In Godavari Finance Company v. Degala Satyanarayanamma & Ors.,  

(2008) 5 SCC 107, definition of owner came up for consideration.  It was  

held that the name of the financer was incorporated in the registration book  

as owner.  The respondent was held to be owner of the vehicle which was  

purchased by him on being financed by Godavari Finance Company.  The  

financer could not be held liable to make the payment of compensation as  

definition of the owner in the Act of 1939 is a comprehensive one as vehicle  

which  is  the  subject  matter  of  hire  purchase  agreement,  the  person  in  

possession of the vehicle under that agreement shall be the owner.  Thus, the  

name  of  the  financer  in  the  certificate  would  not  be  decisive  for  

determination as to who was the owner of the vehicle.  In the case of hire  

purchase agreement, financer cannot ordinarily be treated to be the owner  

and  the  person  in  possession  is  liable   to  pay  damages  for  the  motor  

accident.  This Court has held thus:

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“15. An  application  for  payment  of  compensation  is  filed  before the Tribunal constituted under Section 165 of the Act for  adjudicating  upon  the  claim  for  compensation  in  respect  of  accident  involving the  death  of,  or  bodily  injury  to,  persons  arising out  of  the use  of  motor  vehicles,  or  damages to  any  property of a third party so arising, or both. Use of the motor  vehicle  is  a  sine  qua  non  for  entertaining  a  claim  for  compensation. Ordinarily if driver of the vehicle would use the  same, he remains in possession or control thereof. Owner of the  vehicle, although may not have anything to do with the use of  vehicle at the time of the accident, actually he may be held to  be constructively liable as the employer of the driver. What is,  therefore,  essential  for  passing  an  award  is  to  find  out  the  liabilities  of  the  persons  who are  involved in  the use  of  the  vehicle or the persons who are vicariously liable. The insurance  company becomes a necessary party to such claims as in the   event the owner of the vehicle is found to be liable, it would   have  to  reimburse  the  owner  inasmuch  as  a  vehicle  is   compulsorily insurable so far as a third party is concerned, as   contemplated  under  Section  147  thereof.  Therefore,  there   cannot be any doubt whatsoever that the possession or control   of a vehicle plays a vital role.”

                (emphasis supplied by us)

This  Court  has  observed  in  Godavari  Finance  Company (supra)  that  

insurance company in such a case becomes a necessary party as it would  

have to reimburse the owner.

31. In  Uttar  Pradesh  State  Road  Transport  Corporation  v.  Kulsum &   

Ors., (2011) 8 SCC 142, this Court has considered the question of vehicle  

given on hire  by owner of  the vehicle  to UPSRTC with its  existing and  

running insurance policy.  It was held that the UPSRTC have become the  

owner of the vehicle during the specified period and vehicle having been

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insured at the instance of the original owner, it would be deemed that vehicle  

was transferred alongwith insurance policy to UPSRTC.  The insurer cannot  

escape  the  liability  to  pay  the  compensation.   The  appeal  preferred  by  

UPSRTC was allowed.  The instant cases are more or less the same and the  

decision  of  this  Court  in  UPSRTC  v.  Kulsum  (supra)  also  buttress  the  

submission raised by KSRTC.  This Court has held as under:

“30. Thus, for all practical purposes, for the relevant period,  the Corporation had become the owner of the vehicle for the  specific period. If the Corporation had become the owner even  for the specific period and the vehicle having been insured at  the instance of original owner, it will be deemed that the vehicle  was transferred along with the insurance policy in existence to  the Corporation and thus the Insurance Company would not be  able to escape its liability to pay the amount of compensation.

31. The liability to pay compensation is based on a statutory  provision. Compulsory insurance of the vehicle is meant for the  benefit of the third parties. The liability of the owner to have  compulsory insurance is only in regard to third party and not to  the property. Once the vehicle is insured, the owner as well as  any other person can use the vehicle with the consent of the  owner. Section 146 of the Act does not provide that any person  who uses the vehicle independently, a separate insurance policy  should be taken. The purpose of compulsory insurance in the  Act has been enacted with an object to advance social justice.”

32. In  HDFC  Bank  Limited  v.  Reshma  &  Ors.,  (2015)  3  SCC  679,  

definition of owner under the provisions of Section 2(30) of the Act of 1988  

came up for consideration before a bench of 3 judges of this Court.  This

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Court referred to the decisions of  Godavari Finance Company (supra) and  

Pushpa alias Leela & Ors. v. Shakuntala & Ors., (2011) 2 SCC 240 etc. in  

which the question arose whether the liability to pay compensation amount  

as determined by the Tribunal was of the purchaser of the vehicle alone or  

whether the liability of the recorded owner of the vehicle was co-extensive.  

This Court in HDFC Bank Limited v. Reshma & Ors.(supra) held thus:

“22. In the present case, as the facts have been unfurled, the  appellant  Bank  had  financed  the  owner  for  purchase  of  the  vehicle  and  the  owner  had  entered  into  a  hypothecation  agreement  with  the  Bank.  The  borrower  had  the  initial  obligation to insure the vehicle, but without insurance he plied  the vehicle on the road and the accident took place. Had the  vehicle been insured, the insurance company would have been  liable and not the owner. There is no cavil over the fact that the  vehicle was the subject of an agreement of hypothecation and  was in possession and control of Respondent 2. The High Court  has  proceeded  both  in  the  main  judgment  as  well  as  in  the  review that  the  financier  steps  into  the  shoes  of  the  owner.  Reliance  placed  on  Mohan  Benefit  (P)  Ltd.  V.  Kachraji   Raymalji  (1997)  9 SCC 103,  in  our  considered opinion,  was  inappropriate because in the instant case all the documents were  filed by the Bank. In the said case, the two-Judge Bench of this  Court had doubted the relationship between the appellant and  the respondent  therein from the  hire-purchase  agreement.  Be  that  as  it  may,  the  said  case  rested  on its  own facts.  In  the  decision in  Rajasthan SRTC v.  Kailash Nath Kothari,(1997) 7  SCC 481 the Court  fastened the liability  on the Corporation  regard being had to the definition of the “owner” who was in  control and possession of the vehicle. Similar to the effect is the  judgment in National Insurance Co. Ltd. V. Deepa Devi, (2008)  1 SCC 414. Be it stated, in the said case the Court ruled that the  State shall be liable to pay the amount of compensation to the  claimant and not the registered owner of the vehicle and the

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insurance company. In  Pushpa v.  Shakuntala case,   (2011) 2  SCC 240 the learned Judges distinguished the ratio in  Deepa  Devi on  the  ground  that  it  hinged  on  its  special  facts  and  fastened  the  liability  on  the  insurer.  In  UPSRTC v.  Kulsum,  (2011) 8 SCC 142,  the principle stated in Kailash Nath Kothari  was distinguished and taking note of the fact that at the relevant  time, the vehicle in question was insured with it and the policy  was very much in force and hence,  the insurer was liable to  indemnify the owner.

23. On  a  careful  analysis  of  the  principles  stated  in  the  foregoing cases, it is found that there is a common thread that  the person in possession of the vehicle under the hypothecation  agreement  has  been  treated  as  the  owner.  Needless  to  emphasise,  if  the  vehicle  is  insured,  the  insurer  is  bound to  indemnify unless there is violation of the terms of the policy  under which the insurer can seek exoneration.

24. In Purnya Kala Devi v. State of Assam, (2014) 14 SCC  142, a three-Judge Bench has categorically held that the person  in control and possession of the vehicle under an agreement of  hypothecation should be construed as the owner and not alone  the registered owner and thereafter the Court has adverted to  the legislative intention, and ruled that the registered owner of  the vehicle should not be held liable if the vehicle is not in his  possession and control. There is reference to Section 146 of the  Act that no person shall use or cause or allow any other person  to use a motor vehicle in a public place without insurance as  that is the mandatory statutory requirement under the 1988 Act.  In the instant case, the predecessor-in-interest of the appellant,  Centurion  Bank,  was  the  registered  owner  along  with  Respondent 2. Respondent 2 was in control and possession of  the vehicle. He had taken the vehicle from the dealer without  paying the full premium to the insurance company and thereby  getting  the  vehicle  insured.  The High Court  has  erroneously  opined  that  the  financier  had  the  responsibility  to  get  the  vehicle insured, if the borrower failed to insure it. The said term  in  the  hypothecation  agreement  does  not  convey  that  the  appellant financier had become the owner and was in control

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and  possession  of  the  vehicle.  It  was  the  absolute  fault  of  Respondent 2 to take the vehicle from the dealer without full  payment of the insurance. Nothing has been brought on record  that  this fact  was known to the appellant  financier  or  it  was  done in collusion with the financier. When the intention of the  legislature is quite clear to the effect, a registered owner of the  vehicle  should not  be held liable if  the vehicle  is  not  in his  possession  and  control  and  there  is  evidence  on  record  that  Respondent  2,  without  the  insurance  plied  the  vehicle  in  violation of the statutory provision contained in Section 146 of  the  1988  Act,  the  High  Court  could  not  have  mulcted  the  liability on the financier. The appreciation by the learned Single  Judge in appeal, both in fact and law, is wholly unsustainable.”

This Court has held that even when there was an agreement of  and  

vehicle  has been insured and  agreement  holder  is  treated an owner,  the  

insurer cannot escape the liability to make indemnification.

33. In view of the decision in  HDFC Bank Limited v. Reshma & Ors.

(supra), the insurer cannot escape the liability, when ownership changes due  

to the hypothecation agreement.  In the case of hire also, it cannot escape the  

liability, even if the ownership changes.  Even though, KSRTC is treated as  

owner  under  Section  2(30)  of  the  Act  of  1988,  the  registered  owner  

continues to remain liable as per terms and conditions of lease agreement  

lawfully entered into with KSRTC.    

34. In view of the aforesaid discussion,  we hold that registered owner,  

insurer  as  well  as  KSRTC  would  be  liable  to  make  the  payment  of

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compensation jointly and severally to the claimants and the KSRTC in terms  

of  the  lease  agreement  entered  into  with  the  registered  owner  would  be  

entitled  to  recover  the  amount  paid  to  the  claimants  from the  owner  as  

stipulated in the agreement or from the insurer.

35. The appeals are, accordingly, allowed.  Parties to bear their own costs.

........................................CJI. (H.L. Dattu)

New Delhi; ….......................................J. October 27, 2015. (Arun Mishra)