United India Insurance Co.Ltd vs K.M.Poonam & Ors

these Special Leave Petitions have entered appearance or

are represented today to contest the same. All these

Special

Leave

Petitions involve a common question of law as to whether

an Insurance Company can be held to be liable for payment

of compensation to passengers travelling in a public

transport in breach of the conditions of the permit

granted to the owner of the vehicle for operating the

same. They are, therefore, taken up for consideration

together. Delay, if any, in filing the Special Leave

3

Petitions is condoned.

2. Leave granted.

3. Since the facts in all these appeals are the same,

the facts in SLP(C)No.24188 of 2008, United Insurance

Company Ltd. Vs. K.M. Poonam & Ors., are referred to in

this judgment.

4. The

Respondent No.5, Shri Surdeep Gusain, obtained an

insurance policy insuring his Jeep No. UP-06-6244 with a

sitting capacity of six persons, including the driver,

for the period covering 23rd July, 2004 to 22nd July, 2005.

In other words, besides the driver, the vehicle was

entitled to carry a maximum number of five passengers.

4 5. On 18th August, 2004, the aforesaid vehicle carrying

fifteen passengers from Village Nansu to Dharkot Thapli,

while being driven by Bharat Singh Rawat, the father of

the respondents herein, fell into a ditch resulting in

his death and the death of the majority of the passengers

while causing serious injuries to the remaining

passengers. The Respondent Nos.1 to 4 as the legal

representatives of the deceased filed an application for

compensation before the Motor Accident Claims Tribunal,

Pauri. On the basis of the pleadings filed by the

parties, the following issues were framed :-

1 Whether on 18.8.2004 the deceased Bharat Singh was

driving the vehicle No.UP.-06/6244 on Jakheti-Nansu

5

Road and due to the mechanical fault in the vehicle

the jeep met an accident due to which Bharat Singh

died ?

1 Whether the aforesaid accident occurred due to the

negligence of the deceased?

1 Whether on the date of accident the alleged vehicle

was being plied according to the conditions of

insurance policy and permit?

1 Whether the complainants are entitled for any

relief? If yes, how much and from whom?

6. In order to support their claim, the claimants filed

the First Information Report, which was lodged by the

6

owner of the jeep, Shri Surdeep Singh, on 19th August,

2004, at Patti Patwari Kafolsue, wherein it was stated

that he had given the vehicle to Bharat Singh and that it

had met with an accident which killed seven persons on

the spot and caused injuries to the others. The jeep was

badly damaged, but the cause of the accident was not

known. On the basis of the said report, a case was

lodged

against

Bharat

Singh

under

Sections

279,

304-A,

337 and

338

Indian Penal Code. The witness of the Insurance Company,

who was examined as OPW.1, deposed that fifteen persons

were travelling in the jeep at the time of the accident,

but there was no negligence on the part of the driver.

7. The claimants also filed the driving licence of the

deceased, Bharat Singh, which showed that the licence was

7

valid till 12.3.2007. The photocopy of the registration

certificate of the vehicle was also filed by the owner of

the vehicle which established the fact that it was valid

on the date of the accident and that taxes had been paid

upto date and the fitness of the vehicle was valid from

13.8.2004 to 12.8.2005. In addition, a photocopy of the

Insurance Cover Note was also filed to indicate that the

vehicle

was duly

insured

from

23.7.2004 to 22.7.2005. Accordingly, on the date of the

accident, all the papers of the vehicle were valid, the

vehicle was legally insured and was being driven by

Bharat Singh holding a valid and effective driving

licence. However, on behalf of the Insurance Company,

the Appellant herein, it was stated that on the date of

the accident, passengers in excess of the number covered

8

by the insurance policy were being carried in the

vehicle.

8. On the basis of the aforesaid evidence, the Motor

Accident Claims Tribunal held that even if a larger

number of passengers than was permitted under the terms

of the insurance policy were being carried in the

vehicle,

it could

not be

said

that the

Appellant Insurance Company would stand exonerated from

its liability because the vehicle was insured for third

party coverage for unlimited liability. The learned

Tribunal, accordingly, answered Issue Nos.1 to 3 in

favour of the claimants observing that carrying a larger

number of passengers than was permitted in terms of the

Insurance Policy, did not amount to breach of the terms

9

and conditions of the Policy and the Insurance Company

would still be liable since the vehicle was legally

insured.

9. As far as the fourth issue is concerned, the first

Respondent, Kumari Poonam, stated on oath that both her

parents had died in the same accident and that her father

as

driver

was

earning

Rs.4,000/- per month. Although, the claimants did not

file the income certificate of the deceased, the Tribunal

initially assessed his annual income at Rs.25,000/- and

applying the multiplier of 16 arrived at a figure of

Rs.4,03,200/- payable as compensation. After deductions,

the total amount of compensation was assessed as

Rs.1,86,200/-, along with interest @9% per annum. On the

10

claimants' cross-appeal being allowed, the Tribunal

assessed his income to be Rs.36,000/- per annum and since

the age of the deceased was taken as 43 years at the time

of the accident, applying the multiplier of 15 indicated

in the Table of Section 163A of the Motor Vehicles Act,

1980, the total compensation was re-assessed as

Rs.5,40,000/-. After deducting one-third of the amount

on

account

of

personal

expenses

of the

deceased

from the

amount

of the

compensation, a balance amount of Rs.3,60,000/- was

arrived at, from which a further one-third was deducted

so that the amount of compensation to which the claimants

were entitled was finally settled at Rs.2,40,000/-.

Certain other claims were also included so that the total

amount of compensation was assessed as Rs.2,47,000/-. In

11

keeping with its decision on the first three issues, the

Tribunal held that since the vehicle was insured with the

Appellant Insurance Company, it was liable to make

payment of the said compensation. The Tribunal directed

the Appellant Insurance Company to pay the aforesaid

amount to the claimants within two months, failing which

they would also be entitled to interest at the rate of 9%

per

annum

from the

date of

the

claim

petition.

10. The Insurance Company preferred different appeals

against the aforesaid judgment and awards dated 28.1.2006

of the Motor Accident Claims Tribunal, Pauri, which were

taken up for consideration together and were dismissed by

the High Court by a common judgment and order dated 25th

12

September, 2007. Endorsing the views expressed by the

Motor Accident Claims Tribunal, the High Court chose not

to interfere with the impugned judgment and awards and

confirmed the same. However, while doing so, the High

Court held that the claimants would be entitled to a sum

of Rs.2,75,800/- towards compensation in place of

Rs.1,86,200/- and the rate of interest was reduced from

9% per

annum to

7.5% per

annum.

The

other

parts of

the

impugned

judgment

and award were confirmed by the High Court. Aggrieved

thereby, the Insurance Company has filed these several

appeals.

11. Learned counsel appearing for the appellant submitted

that having regard to the provisions of Section 149 of

the Motor Vehicles Act, 1988, the liability, if any, of

13

the Insurance Company for payment of compensation would

have to be limited to the number of passengers validly

permitted to be carried in the vehicle covered by the

insurance policy and did not extend to the number of

passengers carried in excess of the permitted number.

Learned counsel submitted that the said question had been

considered by a two-Judge Bench of this Court in National

Insurance Co. Ltd. Vs. Anjana Shyam & Ors. [(2007) 7 SCC

445] decided on 20th August, 2007. While considering the

provisions of Section 147(1)(b)(ii) and (2) and Section

149(1)(2) and (5) of the 1988 Act in relation to an

insurer's liability, their Lordships came to the

conclusion that the insurer's liability was limited by

the insurance taken out for the number of permitted

14

passengers and did not extend to paying amounts decreed

in respect of other passengers. Taking recourse to a

harmonious construction of the relevant provisions, their

Lordships held that the total amount of compensation

payable should be deposited by the Insurance Company

which could be proportionately distributed to all the

claimants, who could recover the balance of the

compensation amounts awarded to them from the owner of

the vehicle.

12. Reliance was also placed on another two-Judge Bench

decision of this Court in National Insurance Co. Ltd. Vs.

Challa Bharathamma & Ors., 2004 AIR SCW 5301, in which,

while taking note of the earlier decisions rendered by a

15

two-Judge Bench of this Court in New India Assurance

Company Vs. Satpal Singh & Ors. [(2000) 1 SCC 237] and a

three-Judge Bench in New India Assurance Co. Ltd. Vs.

Asha Rani & Ors., [(2003) 2 SCC 223], and also the

decision of another two-Judge Bench of this Court in

National Insurance Company Ltd. Vs. Nicolletta Rohtagi,

[(2002) 7 SCC 456], Their Lordships held that when an

insurer

proved

not to

be

liable

to pay

compensation in terms of Section 149(2) of the 1988 Act,

it could not be made liable for payment of the

compensation awarded. However, their Lordships also

observed that having regard to the beneficial object of

the Act, it would be proper for the insurer to satisfy

the award and to recover the amount from the owner,

without taking recourse to a separate suit, from the

16

Executing Court itself.

13. Learned counsel for the Insurance Company submitted

that having regard to the aforesaid decisions of this

Court, the liability of making payment of compensation

would be to the extent of six passengers only, though it

could be directed to pay the balance amount of the total

compensation awarded, with liberty to recover the balance

amount from the owner of the vehicle.

14. The law relating to the insurer's liability for

payment of compensation to gratuitous passengers in a

vehicle after the enactment of the Motor Vehicles Act,

1988, which replaced the Motor Vehicles Act, 1939,

17

initially came up for consideration in Satpal Singh's

case (supra) wherein this Court was called upon to

consider the change in the provisions relating to third

party risk, as was contained in Section 95 of the 1939

Act as against the provisions of Section 147 of the 1988

Act. Their Lordships held that as per the proviso to

Section 95(1) when read with its Clause (ii), it would be

clear

that the

policy

of

insurance was not required to cover the liability in

respect of the death of or bodily injury to persons who

were gratuitous passengers of that vehicle. In contrast,

under Section 147 of the 1988 Act, the insurance policy

was required to insure the person or classes of persons

specified in the policy to the extent specified in Sub-

section (2) against any liability which may be incurred

18

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

person, including owner of the goods or his authorized

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 also 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.

15. On

an

interpretation of the aforesaid provisions of Section 147

of the 1988 Act, it was held that under Sub-section (2)

there is no upper limit for the insurer regarding the

amount of compensation awarded in respect of death or

bodily injury of a victim of the accident. It was,

therefore, apparent that the limit contained in the old

Act having been removed the policy should insure the

19

liability incurred and cover injury to any person,

including the owner of the goods or his authorized

representative, carried in the vehicle. Their Lordships

concluded that as a result of the provisions of the new

Act, the earlier decisions rendered under the 1939 Act

were no longer relevant and an insurance policy covering

third party risk was not required to exclude gratuitous

passengers in a vehicle, no matter that the vehicle was

of any type or class.

16. The said view which had followed an earlier three-

Judge Bench decision of this Court in Mallawwa & Ors. Vs.

Oriental Insurance Co. Ltd. & Ors. [(1999) 1 SCC 403],

came up for consideration once again in a batch of

20

appeals filed by different insurance companies, including

the present Appellant Company, in the decision of this

Court reported in [(2001) 6 SCC 724] under the lead case

of New India Assurance Co. Ltd. Vs. Asha Rani & Ors.

Upon considering the various decisions which had preceded

the judgment in Satpal Singh's case (supra) the two-Judge

Bench was of the view that some of the striking features

of the

new Act

had not

been

brought

to the

notice

of the

Court

which

could have a bearing on the conclusion arrived at in

Satpal Singh's case, i.e., that on account of the

definition of "goods vehicle" and "goods carriage" under

the new Act, goods carriages were no longer used to carry

any passenger. Their Lordships were also of the view

that the defence available to the Insurance Company under

21 Section 149(2) of the 1988 Act would stand obliterated on

account of the law as declared in Satpal Singh's case.

Their Lordships felt that under the new Act, it would be

a breach of condition in case the vehicle was used for a

purpose other than for which permit had been issued.

Apart from the above, the effect of the deletion of

Clause (ii) to the Proviso to Section 95(1)(b) in the new

Act also

required

reconsideration. The matter was, therefore, referred to

the Hon'ble Chief Justice to have the various issues

reconsidered by a larger Bench.

17. The aforesaid questions were, thereafter, gone into

by a Bench of three-Judges, where the issues decided in

Satpal Singh's case were revisited. In the decision

22

reported in New India Assurance Co. Ltd. Vs. Asha Rani &

Ors. [(2003) 2 SCC 223] the three-Judge Bench considered

the provisions of Section 95 of the 1939 Act and Section

147 of the 1988 Act in detail and also the amendments

effected to Section 147(1)(b)(i) by the Amendment Act 54

of 1994 and came to the conclusion that in Satpal Singh's

case (supra), this Court had proceeded on the assumption

that the

provisions of Section 95(1) of the Motor Vehicles Act,

1939, were identical to the provisions of Section 147(1)

of the Motor Vehicles Act, 1988 as it stood before its

amendment. It was held that Section 147 of the new Act

deals with the requirements of the policy and limits of

liability incurred to third party risks, but the Proviso

thereto makes an exception to the main provision, which

23

reads as follows :

"Provided that a policy shall not be required--

(i) to cover liability in respect of the death, arising

out of and in the course of his employment, of the

employee of a person insured by the policy or in respect

of bodily injury sustained by such an employee arising

out of and in the course of his employment other than a

liability arising under the Workmen's Compensation Act,

1923 (8 of 1923), in respect of the death of, or bodily

injury to, any such employee--

(a)

engaged

in

driving

the

vehicle,

or

(b) if

it is a

public

service

vehicle

engaged

as

conductor of the vehicle or in examining tickets on the

vehicle, or

(c) if it is a goods carriage, being carried in the

vehicle, or

(ii) to cover any contractual liability."

It was also noticed that as far as employees of the

owner of the motor vehicle were concerned, an insurance

24

policy was not required to be taken in relation to their

liability, other than arising in terms of the provisions

of the Workmen's Compensation Act, 1923. On the other

hand, Proviso (ii), included under Section 95 of the 1939

Act, imposed a liability upon the owner of the vehicle to

take out an insurance policy to cover the liability in

respect of a person who was travelling in a vehicle

pursuant

to a

contract

of

employment. The same was consciously omitted from the

provisions of the 1988 Act. It was further held that the

applicability of the decision in Mallawwa's case (supra)

to the facts of the case before Their Lordships would

have to be considered keeping that aspect of the matter

in view. Proceeding further, their Lordships observed

that Section 2(35) of the 1988 Act does not include

25

passengers in goods carriages whereas Section 2(25) of

the 1939 Act did, since even passengers could be carried

in a goods vehicle. Noting the difference in the

definitions of "goods vehicle" in the 1939 Act and "goods

carriage" in the 1988 Act, Their Lordships held that

carrying of passengers in a goods carriage was not

contemplated under the 1988 Act. On the basis of the

aforesaid findings, the three-Judge Bench over-ruled the

decision of this Court in Satpal Singh's case, holding

that the law had not been laid down correctly therein.

18. The aforesaid issue once again surfaced in the case

of National Insurance Co. Ltd. Vs. Swaran Singh [(2004) 3

SCC 297], where the provisions of Section 149 and also

26 Section 147 fell for consideration. While considering

the liability cast upon an insurer under Section 149(1)

and the limited grounds of liability in the insurance

contract and third party claims as envisaged in the

Proviso to Section 149(4), this Court also had occasion

to refer to Section 147 relating to the statutory

liability and any contractual liability under the

insurance contract and whether the contractual exclusion

of liability in respect of third party claim was

permissible. The three-Judge Bench held that such a

condition in the insurance policy, whereby the right of

the third party is taken away would be void and that

except under the situation provided for by Section

149(2)(b), the insurer would not be entitled to avoid its

27

statutory liability, since its rights of recovery were

preserved against the insured under the Proviso to

Section 149(4) of the 1988 Act.

19. While the aforesaid judgment was delivered on 5th

January, 2004, on the very next day, another three-Judge

Bench of this Court rendered a decision in National

Insurance Co. Ltd. Vs. Baljit Kaur [(2004) 2 SCC 1], in

the context of the provisions of Section 147(1)(b) of the

1988 Act after its amendment in 1994. While referring to

the earlier decision in the reference decided in Asha

Rani's case (supra), their Lordships held that inspite of

the amendment effected to Section 147(1)(b) in 1994, the

position remained the same in respect of persons other

28

than the owner of the goods and his authorized

representative being carried in the goods vehicle. It

was held that it was not the intention of the legislature

to provide for the liability of the insurer with respect

to passengers, especially gratuitous passengers who were

neither contemplated at the time the contract of

insurance was entered into, nor was any premium paid to

the

extent

of the

benefit

of

insurance to such category of people. It was, therefore,

felt that the interest of justice would be subserved if

the Insurance Company satisfied the awarded amount and

recovered the same from the owner of the vehicle and for

the said purpose it would not be necessary for the

Insurance Company to file a separate suit, but to

initiate a proceeding before the executing Court as if

29

the dispute between insurer and the owner was the subject

matter of the determination before the Tribunal which had

decided in favour of the insurer and against the owner of

the vehicle.

20. The law as regards the liability of insurers towards

third parties killed or injured in accidents involving

different types of motor vehicles, has been crystallized

in the several decisions of this court referred to

hereinabove. The kind of third party risk that we are

concerned with in this case involves purported breach of

the conditions contained in the insurance agreement

executed by and between the insurer and the insured.

30 21. From the decision in Baljit Kaur's case (supra),

which was later also articulated in Anjana Shyam's case

(supra) what emerges is that a policy of insurance, in

order to be valid, would have to comply with the

requirements of Chapter XI of the Motor Vehicles Act,

1988, which deals with insurance of motor vehicles

against third party risks. Section 146 of the Act

stipulates that 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 a valid

policy of insurance in relation to the use of the vehicle

complying with the requirements of the said Chapter.

Section 147 of the Act is an extension of the provisions

of Section 146 and sets out the requirements of policies

31

and the limit of their liability. Section 147(1)(a)

provides that a policy of insurance must be issued by a

person who is an authorized insurer. Section 147(1)(b)

provides that a policy of insurance must be a policy

which insures the person or class of persons specified in

the policy to the extent specified in sub-section (2).

Sub-section (2) of Section 147 indicates that subject to

the

proviso

to sub-

section

(1)

which

excludes

the

liability of the insurer in certain specific cases, a

policy of insurance referred to therein must cover any

liability incurred in respect of any accident, inter

alia, for the amount of liability incurred.

22. However, in order to fix the liability of the

insurer, the provisions of Section 147 have to be read

32

with Section 149 of the Act which deals with the duty of

the insurer to satisfy judgments and awards against

persons insured in respect of third party risks.

Although, on behalf of the Insurance Company it has been

sought to be contended that no third party risks were

involved in the accident and that the persons travelling

in the ill-fated vehicle were gratuitous passengers, the

Insurance Company cannot get away from the fact that the

vehicle was insured for carrying six persons and the

liability of the Insurance Company was to pay

compensation to the extent of at least six of the

occupants of the vehicle, including the driver.

23. Sub-section (1) of Section 149 of the Motor Vehicles

33

Act, 1988, makes it amply clear that once a certificate

of insurance is issued under sub-section (3) of Section

147, then notwithstanding that the insurer may be

entitled to avoid or cancel the policy, it shall pay to

the person entitled to the benefit of the decree any sum

not exceeding the sum assured, payable thereunder, as if

he was the judgment debtor, in respect of the liability,

together

with any

amount

payable

in

respect

of costs

and any

sum

payable

in respect of interest on that sum by virtue of any

enactment relating to interest on judgments. Sub-section

(2), however, places a fetter on the payment of any sum

by the insurer under sub-section (1) in respect of any

judgment or award unless, the insurer had notice of the

proceedings in which the said judgment or award is given

34

and an insurer to whom such notice is given shall be

entitled to be made a party thereto and to defend the

action on the grounds enumerated therein involving a

breach of a specified condition of the policy.

24. The liability of the insurer, therefore, is confined

to the number of persons covered by the insurance policy

and not

beyond

the

same.

In other

words,

as in

the

present

case, since the insurance policy of the owner of the

vehicle covered six occupants of the vehicle in question,

including the driver, the liability of the insurer would

be confined to six persons only, notwithstanding the

larger number of persons carried in the vehicle. Such

excess number of persons would have to be treated as

third parties, but since no premium had been paid in the

35

policy for them, the insurer would not be liable to make

payment of the compensation amount as far as they are

concerned. However, the liability of the Insurance

Company to make payment even in respect of persons not

covered by the insurance policy continues under the

provisions of sub-section (1) of Section 149 of the Act,

as it would be entitled to recover the same if it could

prove

that one

of the

conditions of the policy had been breached by the owner

of the vehicle. In the instant case, any of the persons

travelling in the vehicle in excess of the permitted

number of six passengers, though entitled to be

compensated by the owner of the vehicle, would still be

entitled to receive the compensation amount from the

insurer, who could then recover it from the insured owner

36

of the vehicle.

25. As mentioned hereinbefore, in the instant case, the

insurance policy taken out by the owner of the vehicle

was in respect of six passengers, including the driver,

travelling in the vehicle in question. The liability for

payment of the other passengers in excess of six

passengers would be that of the owner of the vehicle who

would be required to compensate the injured or the family

of the deceased to the extent of compensation awarded by

the Tribunal.

26. Having arrived at the conclusion that the liability

of the Insurance Company to pay compensation was limited

37

to six persons travelling inside the vehicle only and

that the liability to pay the others was that of the

owner, we, in this case, are faced with the same problem

as had surfaced in Anjana Shyam's case (supra). The

number of persons to be compensated being in excess of

the number of persons who could validly be carried in the

vehicle, the question which arises is one of

apportionment of the amounts to be paid. Since there can

be no pick and choose method to identify the five

passengers, excluding the driver, in respect of whom

compensation would be payable by the Insurance Company,

to meet the ends of justice we may apply the procedure

adopted in Baljit Kaur's case (supra) and direct that the

Insurance Company should deposit the total amount of

38

compensation awarded to all the claimants and the amounts

so deposited be disbursed to the claimants in respect to

their claims, with liberty to the Insurance Company to

recover the amounts paid by it over and above the

compensation amounts payable in respect of the persons

covered by the Insurance Policy from the owner of the

vehicle, as was directed in Baljit Kaur's case.

27. In

other

words,

the

Appellant Insurance Company shall deposit with the

Tribunal the total amount of the amounts awarded in

favour of the awardees within two months from the date of

this order and the same is to be utilized to satisfy the

claims of those claimants not covered by the Insurance

Policy along with the persons so covered. The Insurance

Company will be entitled to recover the amounts paid by

39

it, in excess of its liability, from the owner of the

vehicle, by putting the decree into execution. For the

aforesaid purpose, the total amount of the six Awards

which are the highest shall be construed as the liability

of the Insurance Company. After deducting the said

amount from the total amount of all the Awards deposited

in terms of this order, the Insurance Company will be

entitled

to

recover

the

balance

amount

from the

owner of

the

vehicle

as if it is an amount decreed by the Tribunal in favour

of the Insurance Company. The Insurance Company will not

be required to file a separate suit in this regard in

order to recover the amounts paid in excess of its

liability from the owner of the vehicle.

28. The Appeals are, accordingly, disposed of. Having

40

regard to the nature of the case, the parties shall bear

their own costs.

................................................J.

(ALTAMAS KABIR)

................................................J.

(CYRIAC

JOSEPH)

New

Delhi

Dated:

18.2.2011