Holding

The insurer is liable to satisfy the compensation award because the policy’s indemnity clause covers "any person", which includes gratuitous passengers, and the avoidance clause does not preclude third‑party recovery.

Summary

A motor accident involving a Fiat car insured by a comprehensive policy resulted in injury to a gratuitous passenger, Kishan Sarup Thapar. The Motor Accident Claims Tribunal awarded compensation against the car owners, drivers and the insurer. The High Court enhanced the award but held the insurer not liable, reasoning that the passenger was travelling gratuitously. On further appeal, the Supreme Court examined the policy terms and the Motor Vehicles Act, 1939, concluding that the indemnity clause covering "any person" includes gratuitous passengers and that the avoidance clause does not bar third‑party claims. Consequently, the Court held the insurer liable to satisfy the award, setting aside the High Court's exemption of the insurer. The appeal was partly allowed, making the award enforceable against the insurer.

Issues considered

Whether an insurer under a comprehensive motor vehicle policy is liable to pay compensation to a gratuitous passenger injured in an accident.
Whether the statutory provisions of the Motor Vehicles Act, 1939 limit the insurer's liability to only statutory third‑party coverage.

Legislation cited

Motor Vehicles Act, 1939s. 94, s. 95, s. 96

Subjects

motor vehicle insurancegratuitous passengercomprehensive policyindemnity clauseinsurer liabilityMotor Vehicles Actthird‑party claiminsurance contract interpretation

Judgment

A AMRIT LAL SOOD AND ANR.
v.
SMT. KAUSHALA YA DEVI THAPAR AND ORS. )- -
MARCH 17, 1998

B [M.M. PUNCH! CJ., K.T. THOMAS AND M. SRINIVASAN JJ.]

'>- -
Motor Vehicles Act, 1939-Sec 95,96-Person travelling gratuitously
in a car injured in cw accident-Liability of insurer to pay compensation
to injured-Held-Insurer liable to pay compensation-Vehicle insurance-
c Comprehensive po/icy-Indemnification clause in the policy-Construction-
No limitation regarding gratuitous passengers-Insurer agreeing to indemnify
insured against all sums, which insured becomes liable to pay in respect of
death or t ·dily injury to "any person"- "any person" includes person
travelling gratuitously in a car.
D An accident took place between a fiat car and a goods carrier. The car
was driven by the first appellant (a brother of the second appellant). The car
was insured with the fifth respondent (insurance company). An advocate
~
~
travelling in the car also got injured. He filed a claim for Rs. 1,25,000 before
the Motor Accident Claims Tribunal against the owners and drivers of both
the vehicles as well as the insurers. The Tribunal held that the accident
E occurred due to the negligence of the car driver and passed an award of Rs.
15,800 against the appellants and insurance Company. An appeal was
preferred by ·the claimant seeking enhancement of compensation. The
insurance company also preferred an appeal disputing its liability to satisfy
the claim. Single Judge of the High Court enhanced the compensation to Rs.
F 20,800. The appeal of the insurance company was allowed holding that since f-
the claimant was a gratuitous passenger travelling in the car, the insurer
was not liable. Two Letters patent appeals were filed, one by the legal
representatives of the claimant and another by the driver of the car (1st
appellant). The appeal filed by the 1st appellant was dismissed, holding that
the insurer was not liabfo as the claimant was only a passenger in the
G vehicle. In the other appeal the compensation was enchanced to Rs. 56,600.
The driver and the owner of the Car have preferred the present appeals.
The appellants contended that the compensation awarded by the High
;... -
Court was excessive.

H Partly allowing the appeal, this Court
284
A.L. SOOD v. K.D. THAPAR 285
HELD : I. The insurance company is also liable to meet the claim of A
the claimant and satisfy the award passed by the tribunal and modified by the
~-'( High Court. The award can be enforced as against the 5th respondent
(insurance company) also. [292-B-CI

2. The liability of the insurer depends on the terms of the contract
between the insured and the insurer as is evident from the policy. The B
statutory insurance does not cover injury suffered by the occupants M the
vehicle who are not carried for hire or reward and the insurer cannot be held
liable under the Act. But that does not prevent an insurer from entering into
a contract of insurance covering a risk wider than the minimum requirement
of the statute wberby the risk to gratuitous passengers could be covered. In C
such cases where the policy is not merely a statutory policy, the terms of
the policy have to be considered to determine the liability of the insurer.
[287-D-F-GJ

2.1. In the instant case the policy is a comprehensive policy. Under Sec
11 (a) of the Policy the insurer has agreed to indemnify the insured against D
all sums which the insured shall become legally liable to pay in respect of
death or bodily injury to 'any person' The expression 'any person' would
include an occupant of the car who is gratuitously travelling in the car. The
remaining part of the clause relates to cases of death or injury arising out
of and in the course of employment of such person by the insured. In the E
policy in the present case the clause for avoidance of certain terms and right
of recovery does not enable the insurance company to resist or avoid the
claim. [287-G-H; 289-C; 291-E-H]

New Asiatic Insurance Co. Ltd. v. Pessumal Dhanamal Aswani and F
Ors., [1964] 7 S.C.R. 867, relied on.

Madras Motor and General Insurance Co. Ltd. v. Katanareddi
Subbareddy and others (1975) A.C.J. 95; The Premier Insurance Co. Ltd.
and others v. Sambhirang Galabsing and others, AIR (1975) Guj 133;
Prahhudayal Agarwal v. Saraswati Bai and others, (1975) A.C.J 355, approved G
Pushpabai Purushottam Udeshi and others, v. Mis Ranjit Ginning and
Pressing Co. Ltd. & Ors., [1977] 2 SCC 745, distiguished and National
Insuarance Co Ltd. v. Jugal Kishore and Ors., AIR (1988) SC 719, referred
to. Black's Law Dictionary 5th edition, referred to.
3. The materials on record are sufficient to support the award of H
·-.·
./I /
,.-·-.'-.

-SUPREME COURT REPORTs-·· -c-· - (1998)-2 S.C.R.

A enhanced compensaHon as awarded by the.High Court.
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2195-
2196of1996.

From the Judgment and Order dated 28.6.93 of the Himachal Pradesh
B High Courtl!1.,L:P.A. No. 28/82 and L.P.A. No. 4of1983 .
• L__ - -
Ranjit Kumar a-nd Chandra Bhushan Prasad for the Appellants.

R.K. Kapoor, Deepak Thapar, (S.K. Srivastava) for Anis Ahmad Khan
C for the Respondent Nos. 1-2.

P.K. Seth and S.K. Gupta for the Respondent No. 6. _

S.C. Sharda, R. Narayanan and K.C. Dua for the Respondents Nos. 7
and 8
'
D The Judgment of the Court was delivered by -

SRINIVASAN,J. On August 25, 1970, the fiat car owned by the second
appellant collided with a goods carrier on Shimla-Kalka National Highway
near Kandaghat Post office. The car was being driven by the first appellant,
E a b!other of the Second appellant. Th.e car was insured with the fifth
respondent. Kishan Sarup Thapar, an advocate of Chandigarh who was
travelling in_the car got injured and was hospitalised for ~ome time. He
approached the Motor Acciden!S Claims Tribunal, Solan and Srimur Districts
claiming compensation of Rs: 1,25,000. The owners and drivers of both the ,,_.
F vehicles as well as the insurers were impleaded as parties. The Tribunal found
that the accident occurred due to negligence of the driver of the car and
passed an award for Rs. 15,800 against the appellants and the fifth respondent
herein. The claimant filed an appeal in the High Court claiming more
compensation while the insurer (5th respondent), filed an appeal disputing its
G liability to satisfy the claim. The claimant's appeal was allowed by a learned -
judge in part-and the compensation was enhanced to Rs. 20,800. The learned
judge held that the claimant was a gratuitous passenger travelling in the car ·-f. ·
· and the insurer was therefore not liable.

2. That judgment was assailed in two Letters Patent Appeals, one by
H the legal. representatives of the claimant and another by the driver of the
A.L. SOOD v. K.D. THAPAR [SRINIVASAN, J.] 287
vehicle who is the first appellant herein. A Division Bench of the High Court A
dismissed the appeal filed by the 1st appellant confirming the view of the
~~ single judge that the insurer is not liable as the claimant was only a passenger
in the vehicle. In the other appeal, the Bench enhanced the compensation to
Rs. 56,600. The driver and the owner of the car have preferred these appeals
on special leave. B
3. The question to be decided is whether the insurer, is liable to satisfy
- -<
the claim for compensation made by a person travelling gratuitously in the
car. The factual findings are not in dispute before us but for the contention
of the appellants that the amount of compensation awarded by the Division
Bench is excessive. We have no difficulty in repelling that contention as we
c
find the materials on record to be sufficient to support the award of enhanced
compensation.

4. The liability of the insurer in this case depends on the terms of the
contract between the insured and the insurer as evident from the policy. D
Section 94 of the Motor 'khicles Act, 1939 compels the owner of a motor
vehicle to insure the vehicle in compliance with the requirements of Chapter
VIII of the Act. Section 95 of the Act provides that a policy of insurance must
be one which insures the person against any liability which may be incurred
by him in respect of death or bodily injury to any person or damage to any E
property of third party caused by or arising out of the use of the vehicle in
a public place. The section does not however require a policy to cover the
risk to passengers who are not carried for hire or reward. The statutory
insurance does not cover injury suffered by occupants of the vehicle who are
not carried for hire or reward and the insurer cannot be held liable under the
F
... Act. But that does not prevent an insurer from entering into a contract of
insurance covering a risk wider than the minimum requirement of the statute
whereby the risk to gratuitous passengers could also be covered. In such
cases where the policy is not merely a statutory policy, the terms of the policy
have to be considered to determine the liability of the insurer.
G
5. In the present case, the policy is admittedly a 'comprehensive Policy'.
Comprehensive insurance' has been defined in Black's Law Dictionary 5th
edition as 'All risk insurance' which in turn is defined as follows:-

"Type of insurance policy which ordinarily covers every loss that may H
p
288 SUPREME COURT REPORTS [1998] 2 S.C.R.

A happen, except by fraudulent acts of the insured. Miller v. Boston Ins.
Co. 218 A. 2d 275, 278, 420 Pa. 566. Type of policy which protects
against all risks and. perils except those specifically enumerated."

6. The relevant clauses in the policy before us are found in 'SECTION
B - II LIABILITY TO THIRD PARTIES'. They are:-
" 1. The Company will indemnify the Insured in the event of accident
caused by or arising out of the use of the Motor Car against all sums
including claimant's costs and expenses which the Insured shall become
legally liable to pay in respect of
c (a) death of or bodily injury to any person but except so far as is
necessary to meet the requirements of Section 95 of the Motor
Vehicles Act, 1939, the Company shall not be liable where such
death or injury arises out of and in the course of the employment
of such person by the insured.
D
(b) damage to property other than property belonging to the Insured -<.
or held in trust by or in the custody or control of the insured.

2. The Company will pay all costs and expenses incurred with its
written consent.
E
3. In terms of and subject to the limitations of the indemnity which
is granted by this Section to the insured the Company will indemnify
any Driver who is driving the Motor Car on the Insured order or with
his permission provided that such Driver

F (a) is not entitled indemnity under any other Policy

(b) shall as though he were the Insured observe fulfil and be subject
to the terms exceptions conditions and limitations of this policy
in so far as they can apply."

G 7. Under the heading General Exceptions, the company's liability is
excluded inter alia in respect of any accident occurred whilst the car is being
used otherwise than in accordance with the limitations as to use or being
driven by any person other than a Driver. The Limitations as to use set out
in the policy are not relevant in this case as it is not the case of the insurer
H that there is a violation thereof. The term 'Driver' is expressly defined in the
A.L. SOOD v. K.D. THAPAR [SRINIVASAN, J.] 289
policy as any of the following: A
·'(a) Any person,

(b) The insured may also drive a Motor car belonging to him and not
hired to him under a Hire Purchase Agreement. Provided that the
person driving holds a licence to drive the Motor car or has held and B
is not disqualified for holding or obtaining such a licence".

8. Thus under Section 11 J(a) of the policy the insurer has agreed to
indemnify the insured against all sums which the insured shall become legally
liable to pay in respect of death of or bodily injury to 'any person.' The C
expression 'any person' would undoubtedly include an occupant of the car
who is gratuitously travelling in the car. The remaining part of clause (a)
relates to cases of death or injury arising out of and in the course of
employment of such person by the insured. In such cases the liability of the
insurer is only to the extent necessary to meet the requirements of Section D
95 of the Act. In so far as gratuitous passengers are concerned there is no
limitation in the policy as such. Hence under the terms of the policy, the
insurer is liable to satisfy the award passed in favour of the claimant. We are
unable to agree with the view expressed by the High Court in this case as
the terms of the policy are unambiguous.
E
9. Learned counsel of the appellants has drawn our attention to the
following judgments in which similar clauses in insurance policy have been
considered and a similar view has been expressed:

(i) Madras Motor and General Insurance Co. Ltd. v. Katanreddi
Subbareddy and others, (1975) A.CJ. 95, F
(ii) The Premier Insurance Co. Ltd. and others v. Gambhirsing
Galabsing and others, AIR (1975) Gujarat 133,
(iii) Prabhudayal Agamal v. Saraswati Bai and another (1975) A.C.J..
355. We approve of the reasoning in the above judgments. G
IO. The High Court has placed reliance on the judgment of this Court
in Pushpabai Purshottam Udeshi & Ors. v. Mis. Ranjit Ginning & Pressing
Co. (P.) Ltd. & Anr. [ 1977] 2 SCC 745. That judgment was based upon the
relevant clause in the. insurance policy in that case which restricted the legal
liability of the insurer to the statutory requirement under Section 95 of Motor H
290 SUPREME COURT REPORTS [1998] 2 S.C.R.

A Vehicles Act. That decision will have no bearing in the present case in as
much as the terms of the policy here arc wide enough to cover a gratuitous
occupant of the vehicle.

11. Our attention has also been drawn to the judgment of this Court in
B National Insurance Co. Ltd., New Delhi v. .fugal Kishore and others, AIR
(1988) SC 719. It is held in that case that though it is not permissible to use
a vehicle unless it is covered at least under an '·act only" policy, it is not >- _
obligatory for the owner of a vehicle to get it comprehensively insured, but
it is open to the insurer to take a policy covering a higher risk.

C 12. Learned counsel for the appellants has placed reliance on the
Judgment in New Asiatic Insurance Co. Ltd. v. Pessumal Dhanamal Aswani
and Ors. [ 1964] 7 SCR 867, in support of the claim of the first appellant. In
that case, the insurer pern1itted another person to drive his car and while the
said person was driving the car, it met with an accident. The driver of the car
D faced an action for damages. The q11estion was whether the insurance policy
would enable the said driver to claim indemnity from the insurance company.
On a consideration of the terms of the policy, the court held that the company
would be liable to indemnify him. In the course of the judgment, the court
said:
E
"The Act contemplates the possibility of the policy of insurance
undertaking liability to third parties providing such a contract between
the insurer and insured, that is, the person who effected the policy,
as would make the company entitled to recover the whole or part of
the amount it has paid to the third party from the insured. The insurer
F thus acts as security for the third party with respect to its realising
damages for the injuries suffered, but vis a vis the insured. the
company does not undertake that liability or undertakes it to a limited
extent. It is in view of such a possibility that various conditions are
laid down in the policy. Such conditions, however, are effective only
between the insured and the company and have to be ignored when
G
considering the liability of the company to third parties. This is
mentioned prominently in the policy itself and is mentioned under the
heading 'Avoidance of certain terms and rights of recovery', as well
as in the form of 'An Important Notice' in the schedule to the policy.
The avoidance clause says that nothing in the policy or any
H endorsement thereon shall affect the right of any person indemnified
A.L. SOOD v. K.D. THAPAR [SRINIVASAN, J.] 291

by the policy or any other person to recover an amount under or by A
virtue of the provisions of the Act. It also provides that the insured
, -..:: will repay to the company all sums paid by it which the company
would not have been liable to pay but for the said provisions of the
Act. The ·important Notice' mentions that any payment made by the
company by reason of wider terms appearing in the certificate in order
to comply with the Act is recoverable from the insured, and refers to
B
- "' the avoidance clause.

Thus the contract between the insured and the company may not
provide for all the liabilities which the company has to undertake vis
a vis the third parties, in view of the provisions of the Act. We are
of opinion that once the company had undertaken liability to third
c
parties incurred by the persons specified in the policy, the third
parties' right to recover any amount under or by virtue of the
provisions of the Act is not affected by any condition in the policy.
Considering this aspect of the terms of the policy, it is reasonable to
conclude that proviso (a) of para 3 of Section II is a mere condition D
~
affecting the rights of the insured who efteL:led the policy and the
.~

persons to whom the cover of the policy was e:-.1ended by the company,
and does not come in the way of third parties, claim against the
company on account of its claim against a person specified in para
3 as one to whom cover of the policy was extended".
E
13. In the policy in the present case also, there is a clause under the
heading:

"AVOIDANCE OF CERTAIN TERMS AND RIGHT OF RECOVERY -
which reads thus: "Nothing in this Policy or any endorsement hereon
... shall affect the right of any person indemnified by this policy or any F
other person to recover an amount under or by virtue of the provisions
of the Motor Vehicles Act. 1939; Section 96. But the Insured shall
repay to the Company all sums paid by the Company which the
Company would not have been liable to pay but for the said
provisions".
G
14. The above clause does not enable the insurance company to resist
-~
or avoid the claim made by the claimant. The clause will arise for consideration
only in a dispute between the insurer and insured. The question whether
under the said clause the insurer can claim repayment from the insured is left
open. The circumstance that the owner of the vehicle did not file an appeal H
292 SUPREME COURT REPORTS [1998] 2 S.C.R.

A against the judgment of single judge of the High Court under the Letters
Patent may also be relevant in the event of a claim by the insurance company
against the insured for repayment of the amount. We are not concerned with
that question here.

15. In the result, we hold that the insurance company is also liable to
B meet the claim of the claimant and satisfy the award passed by the Tribunal
and modified by the High Court. The judgment of the High Court in so far
as it exonerates the insurance company (5th respondent herein) from the
liability, is set aside. The award passed by the Division Bench of the High
Court can be enforced against the 5th respondent also. The appeal is allowed
C · to the extent indicated above. The parties will bear their respective costs.
S.N. Appeal partly allowed.