Holding

The vehicle owner is liable for compensation when the driver does not possess a valid licence, and the insurer may recover that amount from the owner.

Summary

A taxi insured with National Insurance Co. was driven by a Khalasi who held only a Light Motor Vehicle licence, not a licence for a commercial vehicle. The vehicle met with an accident, resulting in the death of a 12‑year‑old girl. The claimants filed a petition under Sections 163A and 166 of the Motor Vehicles Act, and the insurer defended that the driver’s lack of a valid licence breached the policy, seeking to avoid liability. The Tribunal and the High Court held the insurer liable to pay compensation, but the Supreme Court clarified that the owner, not the insurer, is liable when the driver lacks an appropriate licence, and the insurer may recover the amount from the owner. While the Court found the High Court’s finding of insurer liability erroneous, it exercised its Article 136 jurisdiction to leave the award undisturbed and dismissed the appeal, directing the insurer to recover from the owner.

Issues considered

The insurer’s liability to pay third‑party compensation when the driver lacks a valid licence under the Motor Vehicles Act.
Whether the insurer can invoke the statutory defence under Section 149(2) of the Motor Vehicles Act for breach of policy conditions.
The extent of the vehicle owner’s liability and the insurer’s right to recover from the owner.
The propriety of interfering with the award under Article 136 of the Constitution.

Legislation cited

Motor Vehicles Act, 1988s. 10, s. 11, s. 149(2), s. 163A, s. 166, s. 170(2), s. 3, s. 4, s. 5

Subjects

Motor Vehicles Actinsurance liabilitydriver licencethird‑party compensationstatutory defenceArticle 136owner liabilityinsurance claim

Judgment

-- NATIONAL INSURANCE CO. LTD.
v.
A.

SMT. KUSUM RA! AND ORS.

MARCH 24, 2006

[S.B. SINHA AND P.K. BALASUBRAMANYAN, JJ.] B

Motor Vehicles Act, 1988:

ss. I 63-A and I 66-Driver having no valid licence-Liability ofInsurance
Company-Held, owner of vehicle would be liable, and not the insurance c
company, to pay the claimed amount-However, on facts, impugned award
against Insurance Company not interfered with, but insurer may recover the
amount from owner-Constitution of India-Article 136.

A taxi, which was insured with the appellant-Insurance Company,
met with an accident while it was being driven by its Khalasi who had a
D
licence for driving 'Light Motor Vehicle'. In the claim petition filed by
heirs of the passenger, in terms ofss. 163-A and 166 of the Motor Vehicle
Act, 1988, defence of the Insurance Company was that the condition of the

-
Insurance contract was violated as the driver of the taxi did not have a valid
and effective licence. The Tribunal held that the lnusrance Company could E
not get rid of its third party liability as the issue of invalid licence would
arise only between the owner of the vehicle and the Insurance Company. The
appeal of the Insurance Company was dismissed by the High Court Aggrieved,
the Insurance Company filed the present appeal.

Dismissing the appeal, the Court F
HELD: 1.1. The owner would be liable for payment of compensation
in a case where the driver was not having a valid licence. It was the obligation
on the part of the owner to take adequate care to see that the driver had an

.. appropriate licence to drive the vehicle. [393-B; 394-D)

National Insurance Co. Ltd. v. Swaran Singh and Ors., [2004) 3 SCC
297 and Malla Prakasarao v. Malla Janaki and Ors., [2004) 3 SCC 343,
relied on.
G

- 387 H
388 SUPREME COURT REPORTS [2006) 3 S.C.R.

A New lndiu Assurance Cu .. Shim/av. Kam/a and Urs .. 120011 4 SCC 342
and National Insurance Company ltd. Chandigarh v. .Vicolletta Rohtagi and
Ors., JT (2002) 7 SC 251, cited.

National Insurance Corporation ltd. v. Kanti Devi (Mrs.) and Ors.,
(20051 5 sec 789, referred to.
B
I. 2. However, in the instant case the owner has not appeared. The victim
was aged only 12 years. The claimants are from a poor background. They
must have suffered great mental agony. Therefore, it may not be appropriate
to push them into another round of litigation particularly when it may be
C difficult for them to secure the presence of the owner of the vehicle. (394-E]
1.3. Although, the appellant-Insurance Company was not liable to pay
the claimed amount as the driver was not possessing a valid licence and the
High Court was in error in holding otherwise, impugned award is not
interfered with, in the peculiar facts and circumstances of the case, in
D exercise of jurisdiction under Article 136 of the Constitution of India but
the appellant may recover the amount from the owner in the same manner as
was directed in Nanjappan 's case. 1395-DI

Oriental Insurance Co. Ltd. v. Nanjappan and Urs., 120051 SCC (Cri)
148, relied on.
E
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1731/2006.

From the Final Judgment and Order dated 26.2.2003 of the Allahabad
High Court in FAFO No. 489 of 2003.

F Piyush Sharma and Pramod Dayal for the Appellant.

Mohan Pandey, V.N. Pandey and S.S. Bandopadhyay for the
Respondents.

The Judgment of the Court was delivered by
G S.B. SINHA, J. Leave granted.

Respondent No. 3 herein is owner of a jeep bearing registration No. BR
03 P 9011. The said vehicle admittedly was being used as a taxi and, thus,
a commercial vehicle. One Ram Lal was working as a Khalasi in the said
H taxi. He used to drive the said vehicle sometimes. He had a driving licence.
-
NA T!ONAL INSURANCE CO. LTD. v. SMT. KUSUM RA! [S.B. SINHA, J.] 389
Driving licence, however, was granted to him for driving a Light Motor A
Vehicle. The said taxi met with an accident on 14.8.2000 at about I p.m. as a
result whereof a girl aged about 12 years, Km. Anjali Rai, died.

On an allegation made in that behalf that the said taxi was being driven
rashly and negligently by the aforementioned Ram Lal, a claim petition in
terms of Sections 163A and 166 of the Motor Vehicles Act, 1988 (for short B
"the Act") was filed by the First and the Second Respondents herein. The
said taxi admittedly was insured with the Appellant herein. One of the issues
raised in the said proceeding was as to whether the driver of the said jeep was
having a valid and effective licence. Another question which arose was as to
whether the said Ram Lal was driving the said vehicle. C
The learned Tribunal did not go into the said question. It inter alia held
that the said Ram Lal had been driving the said vehicle having regard to the
fact that he had been shown as the accused in the criminal case. However,
as regard the question as to whether by permitting the said Ram Lal to drive
the said vehicle, the Respondent No. 3 herein violated the terms and conditions D
of contract of licence, the learned Tribunal relying on or on the basis of the
decision of this Court in New India Assurance Co., Shim/a v. Kanz/a and
Ors., (200 I] 4 SCC 342 held that the Insurance Company cannot get rid of
its third party liability as the said question arises only between the owner of
the vehicle and the insurance company. It was further held:
E
"Insurance Company can recover this amount from owner of vehicle.
This legal proposition .is fully applicable in this matter. So, Issue No.
3 is decided in favour of Petitioners."

The appeal preferred thereagainst by the Appellant herein before the
High Court was dismissed on the premise that no appeal was maintainable F
wherefor reliance was placed by the High Court on a decision of this Court
in National Insurance Company ltd. Chandigarh v. Nicolletta Rohtagi and
Ors., JT (2002) 7 SC 251. As regard the purported statutory liability of the
Appellant, it was held:

" ... the mere fact that there was violation of the terms and conditions G
subject to which the insurance policy had been issued, cannot have
the effect of exonerating the insurer from the statutory liability cast
upon him in this regard to pay the amount to the third party victim."

It was further held:
H
390 SUPREME COURT REPORTS [2006) 3 S.C.R.

A "It will, therefore, be open to the insurer appellant to initiate an
appropriate proceeding for the refund of the amount paid by it to the
claimants and establish the breach of the terms and conditions subject
to which the insurance policy had been issued."

Hence, this appeal.
B
The contention raised on behalf of the Appellant was that the High
Court was palpably in error as violation of the terms and conditions of the
contract of insurance is a matter which comes within the purview of any of
the 'statutory defences' which can be raised by an insurer under sub-section
(2) of Section 149 of the Act. The statutory bar as regards raising a defence
C on the part of the insurance company is confined to the quantum of damages
only.

The learned counsel appearing on behalf of tl:e Respondent conceded
that the appeal preferred by the Respondent was maintainable. However,
D relying on or on the basis of a decision of this Court in Oriental Insurance
Co. Ltd. v. Nanjappan and Ors., [2005] SCC (Cri) 148 he argued that the
insurance company may pay the awarded amount to the claimants and recover
the same from the owner of the vehicle.

In a proceeding arising out of a claim petition filed under Section 166
E of the Motor Vehicles Act, the insurance company is a necessary party as it
is required to indemnify the owner or driver of the vehicle. Even in a case
where the owner colludes with the claimants or is not otherwise represented,
the insurance company can contest the matter on merits of the claim petition
upon obtaining leave of the court as is provided under sub-section (2) of
Section 170 of the Act. However, there does not exist any embargo in raising
F a defence which comes within the purview of sub-section (2) of Section 149
of the Act which reads as under:

"149. Duty of insurers to satisfy judgments and award against persons
insured in respect of third party risks.

G (I) xxx xxx xxx

(2) No sum shall be payable by an insurer under sub-section (!) in
respect of any judgment or award unless, before the commencement
of the proceedings in which the judgment of award is given the
insurer had notice through the Court or, as the case may be, the
H Claims Tribunal of the bringing of the proceedings, or in respect of
-
NATIONALINSURANCE CO.LTD. v. SMT. KUSUM RAl[S.B. SINHA, l.] 39 J

such judgment or award so long as execution is stayed thereon A
pending an appeal; and an insurer to whom notice of the bringing of
any such proceedings is so given shall be entitled to be made a party
thereto and to defend the action on any of the following grounds,
namely:

(a) that there has been a breach of a specified condition of the policy, B
being one of the following conditions, namely:

(i) a condition excluding the use of the vehicle-

(a) for hire or reward, where the vehicle is on the date of
the contract of insurance a vehicle not covered by a C
permit to ply for hire or reward, or

(b) for organised racing and speed testing, or

(c) for a purpose not allowed by the permit under which the
vehicle is used, where the vehicle is a transport vehicle,
or D
(d) without side-car being attached where the vehicle is a
motor cycle; or

(ii) a condition excluding driving by a named person or persons
or by any person who is not duly licensed, or by any person E
who has been disqualified for holding or obtaining a driving
licence during the period of disqualification; or

(iii) a condition excluding liability for injury caused or contributed
to by conditions of war, civil war, riot or civil commotion;
or F
(b) that the policy is void on the ground that it was obtained
by the nondisclosure of a material fact or by a
representation of fact which was false in some material
particular."
G
It has not-been disputed before us that the vehicle was being used as
a taxi. It was, therefore, a commer~\a!..yehicle. The driver of the said vehicle,
thus, was required to hold an appropriate licence therefor. Ram Lal who
allegedly was driving the said vehicle at the relevant time, as noticed
hereinbefore, was holder ofa licence to drive a Light Motor Vehicle only. He
H
392 SUPREME COURT REPORTS (2006) 3 S.C.R.

A did not possess any ljcence to drive a commercial vehicle. Evidently, therefore,
there was a breach of condition of the contract of insurance. The Appellant,
therefore, could raise the said defence.

We have noticed hereinbefore that the Tribunal has not gone into the
said question. It proceeded on the basis that the case was covered by Kam/a
B (supra). The correctness of the said decision came up for consideration before
this Court in National Insurance Co. Ltd v. Swaran Singh and Ors.. [2004]
3 SCC 297 wherein this Court clearly held:

"The owner of a motor vehicle in terms of Section 5 of the Act has
a responsibility to see that no vehicle is driven except by a person
c who does not satisfy the provisions of Section 3 or 4 of the Act. In
a case, therefore, where the driver of the vehicle, admittedly, did not
hold any licence and the same was allowed consciously to be driven
by the owner of the whicle by such person, the insurer is entitled to
succeed in its defence and avoid liability. The matter, however, may
D be different where a disputed question of fact arises as to whether the
driver had a valid licence or where the owner of the vehicle committed
a breach of the terms of the contract of insurance as also the provisions
of the Act by consciously allowing any person to drive a vehicle who
did not have a valid driving licence. In a given case, the driver of the
vehicle may not have any hand in it at all e.g. a case where an
E accident takes place owing to a mechanical fault or vis major. (See
Jitendra Kumar)"

In Swaran Singh (supra), to which one of us was a party, this Court
noticed an earlier decision of this Court, namely, Malla Prakasarao v. Malla
Janaki and Ors.. (2004] 3 SCC 343 wherein one of the members of the
F Bench, V.N. Khare, J. (as the learned Chief Justice then was) was a member.
In that case, it was held:

"I. It is not disputed that the driving licence of the driver of the
vehicle had expired on 20-11-1982 and the driver did not apply for
renewal within 30 days of the expiry of the said licence, as required
G
under Section 11 of the Motor Vehicles Act, 1939. It is also not
disputed that the driver of the vehicle did not have driving licence
when the accident took place. According to the terms of the contract,
the Insurance Company has no liability to pay any compensation
where an accident takes place by a vehicle, driven by a driver without ..
H a driving licence. In that view of the matter, we do not find any merit
NATIONAL INSURANCE CO.LTD. v. SMT. KUSUM RA! [S.B. SINHA, J.] 393
in the appeal." A
This Court in Swaran Singh (supra) clearly laid down that the liability
of the insurance company vis-a-vis the owner would depend upon several
factors. The owner would be liable for payment of compensation in a case
where the driver was not having a licence at all. It was the obligation on the
part of the owner to take adequate care to see that the driver had an appropriate B
licence to drive the vehicle. The question as regards the liability of the owner
vis-a-vis the driver being not possessed of a valid licence was considered in
Swaran Singh (supra) stating:

"Section 3 of the Act casts an obligation on a driver to hold an
effective driving licence for the type of vehicle which he intends to C
drive. Sectiqn I 0 of the Act enables the Central Government to
prescribe forms of driving licences for various categories of vehicles
mentioned in sub-section (2) of the said section. The various types of
vehicles described for which a driver may obtain a licence for one or
more of them are: (a) motorcycle without gear, (b) motorcycle with D
gear, (c) invalid carriage, (d) light motor vehicle, (e) transport vehicle,
(f) road roller, and (g) motor vehicle of other specified description.
The definition clause in Section 2 of the Act defines various categories
of vehicles which are covered in broad types mentioned in sub-section
(2) of Section 10. They are "goods carriage", "heavy goods vehicle",
"heavy passenger motor vehicle", "invalid carriage", "light motor E
vehicle", "maxi-cab", "medium goods vehicle", "medium passenger
motor vehicle", "motor-cab", "motorcycle", "omnibus", "private
service vehicle", "sel!li-trailer", "tourist vehicle", "tractor", "trailer"
and "transport vehicle" .. In claims for compensation for accidents,
various kinds of breaches with regard to the conditions of driving F
licences arise for consideration before the Tribunal as a person
possessing a driving licence for "motorcycle without gear", [sic may
be driving a vehicle] for which he has no licence. Cases may also
arise where a holder of driving licence for "light motor vehicle" is
found to be driving a "maxi-cab", "motor-cab" or "omnibus" for
which he has no licence. In each case, on evidence led before the G
Tribunal, a decision has to be taken whether the fact of the driver
possessing licence for one type of vehicle but found driving another
type of vehicle, was the main or contributory cause of accident. If on
facts, it is found that the accident was caused solely because of some
other unforeseen or intervening causes like mechanical failures and H
394 SUPREME COURT REPORTS [2006~ 3 S.C.R.

A similar other causes h:IVing no nexus with the driver not possessing
requisite type of licence, the insurer will not be allowed to avoid its
liability merely for technical breach of conditions concerning driving
licence."

The matter came up for consideration again before a Division Bench of
B this Court in National Insurance Corporation Ltd. v. Kanti Devi (Mrs.) and
Ors., [2005] 5 SCC 789 wherein this Court upon consideration of the
observations made in Swaran Singh (supra) opined:

"12. The decision in Swaran Singh case was not before either MACT
or the High Court when the respective orders were passed. Therefore,
c we think it proper to remit the matter to MACT for fresh consideration.
It shall pennit the parties to lead such further evidence as they may
intend to lead. The matter shall be decided keeping in view the
principle enunciated by this Court in Swaran Singh case."

In a case of this nature, therefore, the owner ofa vehicle cannot contend
D that he has no liability to verify the fact as to whether the driver of the
vehicle possessed a valid licence or not.

However, in this case the owner has not appeared. The victim was aged
only 12 years. The claimants are from a poor background. They must have
E suffered great mental agony. Therefore, we are of the opinion that it may not
be appropriate to push them into another round of litigation particularly when
it may be difficult for them to secure the presence of the owner of the
vehicle.

In Nanjappan (supra), this Court opined:
F
"8. Therefore, while setting aside the judgment of the High court we
direct in term~ of what has been stated in Baljit Kaur 's case (supra)
that the insurer shall pay the quantum of compensation fixed by the
Tribunal, about which there was no dispute raised, to the respondents-
claimants within three months from today. The for the purpose of
G recovering the same from the insured, the insurer shall not be required
to file a suit. It may initiate a proceeding before the concerned Executing
Court as if the dispute between the insurer and the owner was the
subject matter of determination before the Tribunal and the issue is
decided against the owner and in favour of the insurer. Before release
of the amount to the insured, owner of the vehicle shall be issued a
H
.-- NATIONAL INSURANCE CO. LTD. v. SMT. KUSUM RAJ (S.B. SINHA, J.] 395
notice and he shall be required to furnish security for the entire A
amount which the insurer will pay to the claimants. The offending
vehicle shall be attached, as a part of the security. If necessity arises
the Executing Court shall take assistance of the concerned Regional
Transport authority. The Executing Court shall pass appropriate orders
in accordance with law as to the manner in which the insured, owner
of the vehicle shall make payment to the insurer. In case there 'is any B
default it shall be open to the Executing Court to direct realization by
disposal of the securities to be furnished or from any other property
or properties of the owner of the vehicle, the insured. The appeal is
disposed of in the aforesaid terms, with no order as to costs."

Although, thus, we are of the opinion that the Appellant was not liable
c
to pay the claimed amount as the driver was not possessing a valid licence
and the High Court was in error in holding otherwise, we decline to interfere
with the impugned award, in the peculiar facts and circumstances of the case,
in exercise of our jurisdiction under Article 136 of the Constitution of India
but we direct that the Appellant may recover the amount from the owner in D
the same manner as was directed in Nanjappan (supra).

For the reasons aforementioned, we decline to interfere with the impugned
judgment. The appeal is dismissed accordingly.

R.P. Appeal dismissed. E