REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5901 of 2011

      [Arising out of S.L.P. (C) No.1969 of 2008]  Uttar Pradesh State Road Transport Corporation ...Appellant  

Versus  Kulsum & Ors.   ...Respondents

W I T H C.A.No.5902/2011[Arising out of SLP(C) No.1964 of 2008]; C.A.No.5903/2011[Arising out of SLP(C) No.1966 of 2008]; C.A.No.5904/2011[Arising out of SLP(C) No.1970 of 2008]; C.A.No.5905/2011[Arising out of SLP(C) No.27075 of 2008]; C.A.No.5906/2011[Arising out of SLP(C) No.2746 of 2008];

A N D C.A.No.5907/2011[Arising out of SLP(C) No.3086 of 2008]

J U D G M E N T  Deepak Verma, J. 1. Leave granted. 2. Since common questions of law and facts are involved in  

this batch of appeals, six of which have been filed by  Uttar  Pradesh  State  Road  Transport  Corporation,

C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

(hereinafter referred to as 'Corporation'), and one has  been  preferred  by  Insurance  Company,  against  the  identical judgments and orders passed by High Court of  Allahabad, it is proposed to dispose of the same by this  common  judgment.   For  the  sake  of  brevity  and  convenience,  facts  of  appeal  arising  out  of  S.L.P.(C)No.1969  of  2008  have  been  taken  into  consideration.

3. The Appellant herein (UPSRTC) had challenged the award  passed by Motor Accident Claims Tribunal (hereinafter  referred to as the 'MACT'), Barabanki  in claim case  therein, holding the Appellant - Corporation along with  Ajai Vishen and Narottam, owner and driver of the mini  bus,  respectively,  liable  to  pay  compensation  to  the  claimants.

4. In appeal before the High Court of Allahabad, it awarded  compensation to the claimants vide impugned judgment and  order dated 12.04.2007, recording the findings against  the  Appellant.  The  question  of  law  that  arises  for  consideration in the instant and connected  appeals is  formulated as under:   

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If insured vehicle (in this case a mini bus) is plying  under an Agreement of Contract with the Corporation, on  the  route  as  per  permit  granted  in  favour  of  the  Corporation, in case of an accident, whether the Insurance  Company would be liable to pay compensation or would it be  the responsibility of the Corporation or the owner?    5. Since it is a vexed question, with no unanimity in the  judgments of various High Courts and as it has not been  considered directly so far by this Court, we deem it fit  and appropriate to do so. 6. Thumbnail  sketch  of  the  facts  is  mentioned  hereinbelow:-

Ajai  Vishen,  the  owner  of  mini  bus,  bearing  Registration No. UP 32T/7344 entered into an Agreement of  Contract with the Corporation on 07.08.1997 for allowing  it to ply mini bus, as per the permit issued in favour of  Corporation,  by  the  concerned  Road  Transport  Office  (R.T.O.). On account of State amendment incorporated in  Section 103 of  the Motor Vehicles Act, 1988 (hereinafter  called 'the Act')  vide Uttar Pradesh Amendment Act 5 of  1993; the Corporation is vested with right to take the  

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vehicles on hire as per the contract and to ply the same  on the routes as per the permit granted to it.  According  to the terms and conditions of the Agreement, the mini bus  was to be plied by the Corporation, on the routes as per  the permit issued by R.T.O. in its favour.   Except for  the services of the driver, which were to be provided by  the owner, all other rights of owner were to be exercised  by  the  Corporation  only.  The  conductor  was  to  be  an  employee  of  the  Corporation,  and  he  was  authorised  and  entitled  to  collect  money  after  issuing  tickets  to  the  passengers and had the duty to perform all the incidental  and connected activities as a conductor on behalf of the  Corporation.  The collection so made was to be deposited  with the Corporation. 7. While the mini bus was running on the specified route  on  13.06.1998,  at  about  9.00  a.m.,  Vijay  Pal  Singh  (deceased), along with his minor children namely, Km. Rupa  (deceased), Rohit (deceased) and Km. Laxmi (deceased), was  present near Gumti shop of a Barber at the side of National  Highway,  near  Swastic  Biscuit  Factory,  Police  Chauki  Mohammadpur, Post Safedabad, District Barabanki.  

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8. The  Mini  Bus,  plying  under  the  contract  of  the  Corporation, driven by Narottam, suddenly rammed into the  Gumti causing injuries to Vijay Pal, his children and also  to the Barber- Majeed, owner of the Gumti shop. On account  of severe bodily injuries suffered by them, they died.  9. Smt. Lallan Devi, w/o deceased Vijay Pal Singh and  mother  of  the  three  deceased  children  filed  four  claim  petitions claiming compensation. Smt. Kulsum w/o deceased  Majeed,  filed  a  separate  claim  petition  for  awarding  compensation  for  death  of  Majeed  in  the  said  accident  before the aforesaid M.A.C.T. 10. Although,  all  the  above  five  claim  petitions  were  allowed  and  different  amounts  of  compensation   were  awarded by the Tribunal alongwith interest @ 12% per annum  but, relying on a judgment of this Court in the case of  Rajasthan State Road Transport Corporation Versus Kailash  Nath Kothari and others reported in (1997) 7 SCC 481, the  liability of  payment has been fastened on the Corporation  as, at the time of accident,  the offending vehicle, i.e.,  the mini bus was being run by it under the contract.  11. Feeling  aggrieved  by  the  awards  of  the  Tribunal,  

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Corporation preferred appeals and the owner of the bus,  Ajai Vishan, filed cross objection against the finding on  issue No. 4 recorded by the Tribunal, holding therein that  Insurance  Company  was  not  liable  to  make  payment  and  fastening the liability on the owner also, on account of  alleged breach of Insurance Policy.   However, it had a  caveat that  liability of the owner would arise only in  case  the  Corporation  fails  to  make  the  payment.   The  National Insurance Company Ltd., with which admittedly the  said bus was insured for the relevant period, has been  exonerated from  payment of any compensation. Hence, the  appeals. 12.  We have accordingly heard Ms. Garima Prashad, Mr.  Laxmibai  Leitanthem,  Mr.  Pradeep  Kumar,  and  Mr.  Shadab  Khan, learned counsel for Appellant, Mr. Kishore Rawat,  learned counsel for the Respondent  Insurance Company and  Mr. J.P. Dhanda,  Mr. Rajeev Mishra for Ajai Vishen, owner  of the Mini Bus and perused the records. 13. However,  before  we  proceed  to  decide  the  question  formulated hereinabove, it is necessary to look into some  of the provisions of the Act.  Section 2 (30) of the Act  

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defines the ‘owner’:  

“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.”

14. Section 103 of the Act deals with the provision of  issue of permits to State Transport Undertakings.  However,  vide Uttar Pradesh Amendment Act 5 of 1993,    following  sub-Section  (1A)  was  inserted  after  sub-section  (1)  thereof, w.e.f. 16.1.1993 reproduced hereinbelow:

“(1A) It shall be lawful for a State  transport undertaking to operate on any  route as stage carriage, under any permit  issued therefor to such undertaking under  sub-section  (1),  any  vehicle  placed  at  the  disposal  and  under  the  control  of  such  undertaking  by  the  owner  of  such  vehicle  under  any  arrangement  entered  into  between  such  owner  and  the  undertaking  for  the  use  of  the  said  vehicle by the undertaking.”

15. By virtue of the aforesaid incorporated sub-section  (1A) to Section 103 of the Act, the Corporation became  entitled to hire any vehicle which could be plied on any  

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route for which permit had been issued by the Transport  Authority in its favour.  16. Chapter XI of the Act deals with the provisions of  insurance  of  Motor  Vehicles  against  third  party  risks.  Relevant  Portions  of  sections  146  and  147  thereof  are  reproduced hereinbelow:

“146.  Necessity  for  insurance  against  third party risk.-(1) No person shall  use, except as a passenger, or cause or  allow any other person to use, a motor  vehicle in a public place, unless there  is in force in relation to the use of  the  vehicle  by  that  person  or  that  other  person,  as  the  case  may  be,  a  policy of insurance complying with the  requirements of this Chapter : ... ... ...”

147. Requirement of policies and limits  of liability. –(1) In order to comply  with the requirements of this Chapter,  a policy of insurance must be a policy  which - (a) is issued by a person who is an  authorised insurer; and (b)  insures  the  person  or  classes  of  persons specified in the policy to the  extent specified in sub – section (2) –  (i)against any liability which may be  

incurred  by  him  in  respect  of  the  

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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;

(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;

Provided  that  a  policy  shall  not  be  required – (i)......  (ii)to cover any contractual liability. Explanation.  –  For  the  removal  of  doubts, it is hereby declared that the  death of or bodily injury to any person  or damage to any property of a third  party  shall  be  deemed  to  have  been  caused by or to have arisen out of, the  use  of  a  vehicle  in  a  public  place  notwithstanding that the person who is  dead or injured or the property which  is damaged was not in a public place at  the time of the accident, if the act or  omission  which  led  to  the  accident  occurred in a public place. (2)Subject  to  the  proviso  to  sub-

section  (1),  a  policy  of  insurance  referred to in sub-section (1), shall  cover  any  liability  incurred  in  respect of any accident, up to the  following limits, namely :-

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(a)  save  as  provided  in  clause  (b),  the amount of liability incurred. (b) in respect of damage to any property  of a third party, a limit of rupees six  thousand : ... ... ...”

17.Section 149 of the Act casts a duty on the insurer to  satisfy the judgment and award against persons insured  in respect of third party risks.  Section 157 of the Act  deals  with  Transfer  of  Certificate  of  Insurance,  reproduced hereinbelow:

"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  

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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  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.”

18. It is relevant to mention here that under Section 196  of  the  Act,  Insurance  of  vehicle  is  mandatory  and  compulsory, otherwise it exposes the driver and owner to  criminal liability.   19. In the light of the aforesaid provisions of the Act,  we shall now consider various judgments of this Court and  High Courts to reach our conclusion. 20. Even though several judgments have been cited by both  sides, but the question which arises in the instant case  is unique in nature and we would answer the same taking  cue and help of the various judgments of this Court and  High Courts. 21.  In  the  matter  of  Kailash  Nath  Kothari  and  others  (supra),  a  question  had  arisen  with  regard  to  the  

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liability of Insurance Company, where the bus plied as per  the  contract  with  Rajasthan  State  Road  Transport  Corporation.   However,  the  said  case  was  dealing  with  earlier  Motor  Vehicle  Act  of  1939.   Taking  into  consideration the definition of ‘owner’ as it existed then  in Section 2 (19) of the old Act, it has been held in para  17 as under:                     

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

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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 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  employee  concerned  during  the  course  of  his  employment  an  within the scope of his authority, is a  

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rebuttable presumption.”

22. In  the  light  of  the  aforesaid  judgment,  learned  counsel  for  Respondent  Insurance  Company,  Mr.  Kishore  Rawat, strenuously contended before us that the question  has  already  been  answered  against  the  Appellant  –  Corporation,  thus,  nothing  survives  in  this  and  the  connected appeals filed by the Corporation.  23. In our considered opinion, in the light of drastic  and distinct changes incorporated in the definition of  ‘owner’  in  the  old  Act  and  the  present  Act,  Kailash  Nath's case (supra) has no application to the facts of  this case. 24. However, we were unable to persuade ourselves with  the specific question which arose in this and  connected  appeals as the question projected in these appeals was  neither directly nor substantially in issue, in  Kailash  Nath's case (supra). Thus, reference to the same may not  be of much help to us.  Admittedly, in the said case,  this Court was dealing with regard to earlier definition  of owner as found in Section 2 (19) of the old Act.

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25.   Section 2 (19) of Motor Vehicles Act, 1939 is  reproduced hereinbelow:

“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.”

26. Critical examination of both the definitions of the  ‘owner’, would show that it underwent a drastic change in  the Act of 1988, already reproduced hereinabove. 27. In  our  considered  opinion,  in  the  light  of  the  distinct  changes  incorporated  in  the  definition  of  ‘owner’  in  the  old  Act  and  present  Act,  Kailash  Nath  Kothari's case shall have no application to the facts of  this case. 28.  Before we proceed further to decide the aforesaid  question of law, it is necessary to refer to some of the  relevant clauses in the Agreement entered into between  the Appellant and the owner of the vehicle on 07.08.1997.  In the said Agreement, the Appellant has been referred to  as  the  ‘First  Party'  and  owner  Ajay  Vishen  has  been  referred to as 'Second  Party'.

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Relevant  clauses  2.1,  3.2,  4.2,  4.3  and  4.4  of  Annexure P-2 are reproduced hereinbelow:

“2.1  The Second Party shall be liable  and responsible to discharge all the legal  liabilities under the Motor Vehicle Act,  1988  or  any  other  Acts,  Registration,  payment  of  taxes  of  the  vehicle,  Comprehensive  Insurance  and  all  such  liabilities as may be fixed from time to  time by any law on the owner of vehicle  and  the  First  Party  shall  be  deemed  to  have no liability whatsoever. 3.2 The driver shall remain and shall  be  deemed  to  be  the  employee  of  Second  Party.  That  driver  shall  not  under  any  circumstances  be  treated  as  employee  of  First Party.  The Second Party shall be  fully liable to procure driving licence,  etc.  and  to  meet  all  other  legal  requirements under Motor Vehicle Act 1988  or any other Act. 4.2 The  driver  of  the  bus  under  contract will drive the bus carefully.  He  shall  stop  the  bus  at  every  designated  spot to enable passenger to board/get down  from the bus and shall get in-out entries  of  the  bus  recorded  wherever  required.  Driver of Bus shall ensure that tickets  are issued to all the passengers and only  after that would drive the bus at its next  destination. 4.3 Bus driver shall not himself sell  the tickets but this restriction shall not  be  applicable  in  the  circumstances  mentioned in clause-31 of the agreement.

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4.4 The  conductor  appointed  and  deputed  by  the  First  Party  shall  have  total  responsibility  for  issuing  tickets  to  the  passengers,  receiving  fare  and  completing various papers/ records in this  regard.   The  First  Party  shall  appoint/depute the conductors.”

29.   Critical examination thereof would show  that the  Appellant and the owner had specifically agreed  that the  vehicle will be insured and a driver would be provided by  owner of the vehicle but overall control, not only on the  vehicle but also on the driver, would be that of the  Corporation. Thus, the vehicle was given on hire by the  owner  of  the  vehicle  together  with  its  existing  and  running insurance policy.  In view of the aforesaid terms  and conditions, the Insurance Company cannot escape its  liability to pay the amount of compensation.  There is no  denial of the fact by the insurance company that at the  relevant  point  of  time  the  vehicle  in  question  was  insured with it and the policy was very much in force and  in existence.  It is also not the case of the insurance  company that the driver of the vehicle was not holding a  valid driving licence to drive the vehicle. The Tribunal  has also held that the driver had a valid driving licence  

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at the time of accident. It has also not been contended  by it that there has been violation of the terms and  conditions  of  the  policy  or  that  the  driver  was  not  entitled to drive the said vehicle. 30.  During  the  course  of  hearing,  we  had  asked  the  following  pertinent  questions  to  Mr.  Kishore  Rawat,  learned counsel for the Insurance Company:  i)  Since  the  Insurance  Company  had  admittedly  received the amount of premium for the period when the  mini bus had met with the accident then why should it not  be  made  liable  to  make  the  payment  of  compensation?  According to him, in normal circumstances, if the said  vehicle would not have been attached with the Corporation  for being plied by it on the route of permit granted to  it, then of course, the Insurance Company would have no  option but to make the payment.  ii) We had also enquired if there exists different  tariffs  of  premium  for  the  vehicle  insured  at  the  instance  of  owner  or  for  the  vehicle  which  is  being  attached with the Corporation for being plied by it.  He  categorically admitted  that there is no such difference  

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in the tariff in either of the aforesaid situation and it  is same for both.   

iii)  We  further  enquired  from  him  that  if  an  intimation would have been given to the Insurance Company  that the vehicle is being attached with the Corporation  then  what  would  have  been  the  position?   He  again  informed  us  that  in  that  case,  the  Insurance  Company  would have met the liability of compensation, in case of  an accident.

(iv)  Lastly, we enquired from him as to under which  provision of the Act or the Rule, any statutory duty or  otherwise is cast on the owner to seek permission or give  an  intimation  to  the  Insurance  Company  in  case  the  vehicle is attached with the Corporation for being plied  by it?   He candidly conceded that there is neither any  statutory duty cast on the owner under the Act or under  any Rules to seek permission from the Insurance Company  nor it is under any of the orders issued by the Company.  According to him, it would have been desirable for the  insured to have informed about such a contract.  31. Thus, in the light of the aforesaid, it is clear  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

that Insurance Company is trying to evade its liability  on flimsy grounds or under misconception of law.  32. On  account  of  the  aforesaid  discussions,  it  is  crystal clear that actual possession of the vehicle was  with  the  Corporation.   The  vehicle,   driver  and  the  conductor were under the direct control and supervision  of the Corporation. 33.  Black’s  Law  Dictionary  defines  “Vicarious  Liability” as follows:  

    “Liability that a supervisory party  (such  as  an  employer)  bears  for  the  actionable  conduct  of  a  subordinate  or  associate (such as an employee) because  of  the  relationship  between  the  two  parties”.  (Page  927,  Black’s  Law  Dictionary, 7th Edition).”

34. So, through the above  definition, it can be inferred  that  the  person  supervising  the  driver  through  the  principle of  Respondeat Superior  should pay for the  damages of the victim. 35. In the instant case, the driver was employed by Ajay  Vishen, the owner of the bus but evidently through Clause  4.4. of the Agreement, reproduced hereinabove, driver was  supposed  to  drive  the  bus  under  the  instructions  of  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

conductor who was appointed by the Corporation.  The said  driver was also bound by all orders of the Corporation.  Thus, it can safely be inferred that effective control  and command of the bus was that of the Appellant.  36.  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 Insurance Company would not be able  to  escape  its  liability  to  pay  the  amount  of  compensation. 37.  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  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

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. 38. Third  Party  rights  have  been  considered  by  this  Court  in  several  judgments  and  the  law  on  the  said  point is now fairly well settled.    39.  The  Apex  Court  in  the  case  of  Guru  Govekar  v.  Filomena F. Lobo and Ors. (1988 ACJ 585), 1988 AIR 1332  

has held that:    

“8. ...Thus,  if  a  policy  is  taken  in  respect of a motor vehicle from an insurer  in  compliance  with  the  requirements  of  Chapter VIII of the Act, the insurer is  under  an  obligation  to  pay  the  compensation payable to a third party on  account of any injury to his/her person or  property  or  payable  to  the  legal  representatives of the third party in case  of death of the third party caused by or  arising out of the use of the vehicle at a  public  place.  The  liability  to  pay  compensation  in  respect  of  death  of  or  injury caused to the person or property of  a third party undoubtedly arises when such  injury is caused when the insured is using  the vehicle in a public place. It also  arises  when  the  insured  has  caused  or  allowed  any  other  person  (including  an  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

independent contractor) to use his vehicle  in  a  public  place  and  the  death  of  or  injury  to  the  person  or  property  of  a  third party is caused on account of the  use  of  the  said  vehicle  during  such  period,  unless  such  other  person  has  himself taken out a policy of insurance to  cover the liability arising out of such an  accident.  

13. ...This meant that once the insurer  had issued a certificate of insurance in  accordance  with  sub-section  (4)  of  Section 95 of the Act the insurer had to  satisfy  any  decree  which  a  person  receiving  injuries  from  the  use  of  the  vehicle insured had obtained against any  person  insured  by  the  policy.  He  was  liable to satisfy the decree when he had  been  served  with  a  notice  under  sub- section  (2)  of  Section  96  of  the  Act  about  the  proceedings  in  which  the  judgment was delivered.    14. ...Any other view will expose innocent  third parties to go without compensation  when they suffer injury on account of such  motor accidents and will defeat the very  object  of  introducing  the  necessity  for  taking  out  insurance  policy  under  the  Act.”  

40.  In a recent judgment of this Court, in the case of  United India Insurance Company Limited v. Santro Devi and  

Ors. (2009) 1 SCC 558 it has been held as under :-

“16.The provisions of compulsory insurance  have  been  framed  to  advance  a  social  object. It is in a way part of the social  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

justice  doctrine.  When  a  certificate  of  insurance is issued, in law, the insurance  company is bound to reimburse the owner.  There cannot be any doubt whatsoever that  a contract of insurance must fulfil the  statutory requirements of formation of a  valid  contract  but  in  case  of  a  third- party  risk,  the  question  has  to  be  considered from a different angle.

17.Section  146  provides  for  statutory  insurance. An insurance is mandatorily  required to be obtained by the person in  charge  of  or  in  possession  of  the  vehicle. There is no provision in the  Motor  Vehicles  Act  that  unless  the  name(s) of the heirs of the owner of a  vehicle  is/are  substituted  on  the  certificate  of  insurance  or  in  the  certificate of registration in place of  the original owner (since deceased), the  motor vehicle cannot be allowed to be  used in a public place. Thus, in a case  where the owner of a motor vehicle has  expired, although there does not exist  any statutory interdict for the person  in possession of the vehicle to ply the  same  on  road;  but  there  being  a  statutory  injunction  that  the  same  cannot  be  plied  unless  a  policy  of  insurance  is  obtained,  we  are  of  the  opinion that the contract of insurance  would be enforceable. It would be so in  a case of this nature as for the purpose  of renewal of insurance policy only the  premium  is  to  be  paid.  It  is  not  in  dispute that quantum of premium paid for  renewal of the policy is in terms of the  provisions of the Insurance Act, 1938.”

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

41. Perusal of the ratio of aforesaid judgments of this  Court, shows that Section 146 of the Act gives complete  protection to Third Party in respect of death or bodily  injury or damage to the property while using the vehicle  in  public  place.   For  that  purpose,  insurance  of  the  vehicle has been made compulsory to the vehicles or to the  owners.  This  would  further  reflect  that  compulsory  insurance is obviously for the benefit of Third Parties. 42. Certificate of Insurance, between the owner and the  Insurance Company contemplates, under what circumstances  Insurance Company would be liable to pay the amount of  compensation.   The  relevant  conditions  are  reproduced  hereinbelow :

“Rules with respect to use of the Vehicle Use only for carriage of passengers  

in  accordance  with  permit  (contract  carriage or stage carriage) issued within  the  meaning  of  the  Motor  Vehicles  Act,  1988. This policy does not cover: 1. Use for organised racing pace making  reliability trial speed testing. 2. Use whilst drawing a trailer except the  

towing (other than to reward) of any one  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

disabled mechanically propellor vehicle. Persons  who  are  qualified  to  use  the  Vehicle:  Any  person  including  the  insured  provided  that  person  driving  holds  an  effective driving licence at the time of  the accident and is not disqualified from  holding  or  obtaining  such  licence.  Provided  also  that  a  person  holding  an  effective learner's licence may also drive  the vehicle when non used for transport of  passenger at the time of the accident and  such a person satisfies the requirement of  rule No. 3 of this Central Motor Vehicle  Rule, 1989.”

43. Perusal thereof would show that there has not been any  violation of the aforesaid terms and conditions of the  policy.  Respondent-Insurance Company has also failed to  point out violation of any Act, Rules or conditions of the  Insurance. Insurance Company has no legal justification to  deny the payment of compensation to the claimants. 44. In the light of the foregoing discussions, the Appeal  filed  by  Insurance  Company  fails,  wherein  it  has  been  directed  that  the  amount  would  first  be  paid  by  the  Company, with right to it to recover the same from owner  of the vehicle.  This we hold so, as the liability of the  Insurance Company is exclusive and absolute.  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

45. Thus, looking to the matter from every angle, we are  of the considered opinion that Insurance Company cannot  escape its liability of payment of compensation to Third  Parties or claimants.  Admittedly, owner of the vehicle has  not violated any of the terms and conditions of the policy  or  provisions  of  the  Act.   The  owner  had  taken  the  insurance so as to meet such type of liability which may  arise on account of use of the vehicle.   46. Apart from the above, learned counsel for Insurance  Company could not point out any legal embargo which may  give  right  to  it  to  deny  the  payment  of  compensation.  Thus, legally or otherwise liability has to be fastened on  the Insurance Company only. 47.  In the light of the aforesaid discussion, the Appeals  of the Corporation are allowed.  The impugned judgment and  order passed by High Court qua the Corporation are hereby  set  aside  and  quashed  and  we  hold  that  the  Insurance  Company would be liable to pay the amount of compensation  to the claimants.   48.  Appeals filed by the Corporation thus stand allowed  and  the  Appeal  filed  by  the  Insurance  Company  stands  

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C.A. @ SLP(C)No.1969 of 2008 etc. ...(contd.)

dismissed  with  costs.   Counsel's  fee  quantified  at  Rs.  10,000/- in each Appeal.

.........................J.      [DALVEER BHANDARI]

      .........................J.

    [DEEPAK VERMA] New Delhi July 25, 2011  

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