Holding

The insurance company, not UPSRTC, is liable to pay the compensation awarded by the MACT, and the contractual clause limiting UPSRTC’s liability does not affect the victim’s statutory right to compensation.

Summary

A 45‑year‑old cyclist was killed when a bus hired by the Uttar Pradesh State Road Transport Corporation (UPSRTC) struck him. The Motor Accident Claims Tribunal (MACT) held the accident resulted from the driver’s rash and negligent driving and awarded Rs 1.65 lakhs plus interest as compensation. The High Court, relying on Rajasthan State Road Transport Corporation v. Kailash Nath Kothari, held UPSRTC solely vicariously liable and ordered it to pay the award. On appeal, the Supreme Court distinguished the Kothari case because the insurance company’s liability there was capped at Rs 75,000, which had already been paid, and applied the later decision in UPSRTC v. Kulsum, holding that under the Motor Vehicles Act the insurer remains liable when the vehicle is insured, even if the corporation controls the bus. The Court further held that the contractual clause limiting UPSRTC’s liability does not affect the victim’s statutory right to compensation. Consequently, the compensation award is payable by the insurance company with interest, and the appeal was allowed.

Issues considered

Whether the insurance company is liable to pay compensation under the Motor Vehicles Act when the insured vehicle is hired and operated by a transport corporation.
Whether the transport corporation (UPSRTC) is vicariously liable despite a contractual clause purporting to limit its liability.
How the term ‘owner’ under Section 2(30) of the Motor Vehicles Act, 1988 (and the earlier definition under Section 2(19) of the 1939 Act) should be interpreted for purposes of liability.
Whether the precedent set in Rajasthan State Road Transport Corporation v. Kailash Nath Kothari is applicable to the present facts.

Legislation cited

Motor Vehicles Act, 1939s. 2(19)
Motor Vehicles Act, 1988s. 146, s. 2(30)

Subjects

Motor accident claimVicarious liabilityInsurance liabilityMotor Vehicles ActDefinition of ownerCompulsory insuranceContractual limitation of liabilityCompensation

Judgment

[2020] 4 S.C.R. 199 199

U.P. STATE ROAD TRANSPORT CORPORATION A
v.
RAJENDRI DEVI & ORS.
(Civil Appeal No. 2526 of 2020)
JUNE 08, 2020 B
[R. F. NARIMAN, NAVIN SINHA AND B. R. GAVAI, JJ.]
Motor Vehicle Accident – Claim under – Victim was hit by a
bus, consequent to which he died – The Motor Accident Claims
Tribunal found that it was a result of rash and negligent driving by
C
the driver of the bus, which was hired by the appellant-Uttar Pradesh
State Road Transport Corporation under an agreement between it
and the bus owner – The total quantification of compensation by
MACT was of Rs. 1.65 lakhs along with 8% interest and only the
appellant-Corporation was directed to pay this entire amount and
not the insurance Company – The High Court followed the judgment D
of Rajasthan State Road Transport Corporation v. Kailash Nath
Kothari and held that the appellant alone is vicariously liable to
pay the victim’s family the amount of compensation that was ordered
– On appeal, held: The judgment Kailash Nath Kothari is
distinguishable since in that case the Insurance Company’s liability
E
was limited only to Rs. 75,000/- which was paid, the Insurance
Company would, on the facts of that case, not liable to pay anything
more and on this count, the amount payable beyond Rs. 75,000/-
was mulcted on to the Corporation – In a subsequent Supreme court
judgment Uttar Pradesh State Road Transport Corporation v. Kulsum
and Ors. also distinguished Kailash Nath Kothari Case and held F
the insurance company was liable – In the said case, it was held
that once the vehicle is insured, the owner as well as any other
person, can use the vehicle with the consent of the owner – s. 146
of the Motor Vehicles Act, 1988 does not provide that any person
who uses the vehicle independently, a separate insurance policy
G
should be taken – The purpose of compulsory insurance in the Act
has been enacted with an object to advance social justice – In the
instant case, the law down in Kulsum’s Case squarely applies –
Besides, the clause 10 under the agreement between the Corporation
and bus owner, regarding ‘The Second Party (Bus Owner) shall
have full responsibility for any fault, negligence, accident, or other H
199
200 SUPREME COURT REPORTS [2020] 4 S.C.R.

A illegal acts of the driver....in case any payment is made by the First
Party (Corporation) in compliance of any order of any Court etc.,
the First Party shall be authorised to recover the same from the
Second Party ‘ is between Corporation and the Bus owner, it does
not bind anybody who is not privy to the agreement, least of all, the
victim – Therefore, the sum awarded by the MACT, now only be
B
payable by the Insurance Company with interest.
Rajasthan State Road Transport Corporation v. Kailash
Nath Kothari (1997) 7 SCC 481 : [1997] 3 Suppl. SCR
724 – distinguished.
C Uttar Pradesh State Road Transport Corporation v.
Kulsum and Ors. (2011) 8 SCC 142 : [2011] 15 SCR
618 – relied on.
Case Law Reference
[1997] 3 Suppl. SCR 724 distinguished Para 2
D
[2011] 15 SCR 618 relied on Para 5
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2526
of 2020.
From the Judgment and Order dated 27.09.2016 of the High Court
E of Judicature at Allahabad in FAFO No. 2157 of 2005.
Ms. Garima Prashad, Adv. for the Appellant.
Maibam N. Singh, Pramod Dayal, Advs. for the Respondents.
The Judgment of the Court was delivered by
F R. F. NARIMAN, J.
1. Leave granted.
2. In the present case, death occurred to a 45 year old who was
on a cycle and hit by a bus on 16.08.2001. The Motor Accident Claims
Tribunal (hereinafter referred to as ‘MACT’) found that it was as a
G
result of rash and negligent driving by the driver of the bus, which was
hired by the appellant-Uttar Pradesh State Road Transport Corporation
under an agreement between it and the bus owner. Ultimately finding
that the income would be Rs.18,000/- per year, minus one-third, and
with a multiplier of 13, Rs.1.65 lakhs + 8 per cent interest was awarded
H by the MACT, but it was held, following Rajasthan State Road
U.P. STATE ROAD TRANSPORT CORPORATION v. 201
RAJENDRI DEVI & ORS. [R. F. NARIMAN, J.]

Transport Corporation v. Kailash Nath Kothari (1997) 7 SCC 481 A
[“Kailash Nath Kothari”], that it is only for the appellant-Corporation to
pay this entire amount and not the insurance company. This was held as
follows:
“15. The bus is a private one. It ran under the control of the
UPSRTC. The ld. counsel for the Insurance Company has argued B
that the bus under the control of UPSRTC devolved the
responsibility of payment of any compensation upon UPSRTC
because it is not the owner who is in control of the bus but the
Corporation who controls the working of the driver. The ld. counsel
for the company cites Rajasthan State Road Transport Corporation
versus Kailash Nath Kothari 1997 ACT 1148. I find the case law C
referred to applies squarely to the present case at hand. The
UPSRTC O.P. No. 3, and not the O.P. No. 1 and 2, is responsible
to pay the award.”
3. In the High Court, by a judgment dated 27.09.2016, the same
judgment of Kailash Nath Kothari (supra) was referred to and followed, D
making it clear, therefore, that the appellant alone is vicariously liable to
pay the victim’s family the amount of compensation that has been ordered.
It was therefore also stated, referring to the agreement between the
Corporation and the owner of the vehicle, as follows:
“Much emphasis has been laid by learned counsel for the appellant E
on Clause 10 of the agreement between the appellant and the
owner to wriggle out of its responsibility to make payment of
compensation. There is no reference of the said agreement in
the impugned award. No such ground has been taken in the memo
of appeal that it was filed before the Tribunal but has not been F
considered. In any view of the matter, even if such a clause
exists in the agreement, it is between the appellant and the owner
and shall not affect the rights of the claimants to receive
compensation flowing from the provisions of the Act. Thus, the
first argument advanced by learned counsel for the appellant is
devoid of any force and not liable to be accepted.” G
4. Having heard learned counsel appearing for all the parties, we
are of the view that the judgment relied upon, viz., Kailash Nath Kothari
(supra), is itself distinguishable for the reason that the judgment itself
records as follows:
H
202 SUPREME COURT REPORTS [2020] 4 S.C.R.

A “3. . . . The insurance company took the plea, in its reply to the
claim petitions, that the bus at the time of the accident was under
the control of the RSRTC, therefore, it was the liability of the
RSRTC to pay compensation and the insurance company was
not liable. It was further pleaded by the insurance company that
the liability of the insurance company, in any event, was limited
B
and its liability could not exceed Rs.75000/- in respect of all the
claim petitions arising out of one accident. . . .
4. . . . Issue No. 2 was also decided in favour of the claim
petitioners but it was held that in the light of the terms of the
policy of insurance and relevant provisions of the Act, the liability
C of the insurance company was limited, in respect of the accident,
to a total amount of Rs.75,000/- only.”
xxx xxx xxx
“7. . . . Learned counsel appearing for the insurance company,
D did not question the finding on Issue No. 2 and submitted that the
specified amount had since been paid by the insurance company.
. . .”
In addition to this, the Court also held, relying upon the definition
of “owner” in Section 2(19) of the Motor Vehicles Act (as it then stood),
E as follows:
“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
F 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
G 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. . . .”
(emphasis in original)
H
U.P. STATE ROAD TRANSPORT CORPORATION v. 203
RAJENDRI DEVI & ORS. [R. F. NARIMAN, J.]

In this view of the matter, it was therefore held that since the A
insurance company’s liability was limited only to Rs.75,000/- which had
been paid, the insurance company would, on the facts of that case, not
be liable to pay anything more. On this count, therefore, the amount
payable beyond Rs.75,000/- was mulcted on to the Corporation in that
case.
B
5. In a subsequent judgment, viz., Uttar Pradesh State Road
Transport Corporation v. Kulsum and Ors. (2011) 8 SCC 142
[“Kulsum”], this Court stated the question of law that arose for
consideration as follows:
“3. The question of law that arises for consideration in the instant C
and connected appeals is formulated as under: if an 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?” D

It then referred to the definition of “owner” under Section 2(30) 1
of the Motor Vehicles Act, 1988 and contrasted it with the definition of
“owner” in Section 2(19)2 of the 1939 Act.
It then went on to distinguish Kailash Nath Kothari (supra) as E
follows:
“16. In Kailash Nath Kothari [Rajasthan State Road Transport
Corporation v. Kailash Nath Kothari (1997) 7 SCC 481], a
question had arisen with regard to theliability of the insurance
company, where the bus plied as per the contract with Rajasthan F
State Road Transport Corporation. However, the said case was
dealing with the earlier Motor Vehicles Act of 1939. Taking into
consideration the definition of “owner” as it existed then in Section

1
“2(30) ‘owner’ means a person in whose name a motor vehicle stands registered, and
where such person is a minor, the guardian of such minor, and in relation to a motor
G
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;”
2
“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;” H
204 SUPREME COURT REPORTS [2020] 4 S.C.R.

A 2(19) of the old Act, it has been held in para 17 as under: (SCC
pp.487-88)
“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
B ‘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
C 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
D could not ply the bus on the particular route for which he had no
permit and he in fact was not plying the bus on that route. The
services of the driver were transferred along with complete
‘control’ to RSRTC, under whose directions, instructions and
command the driver was to ply or not to ply the ill-fated bus on
the fateful day. The passengers were being carried by RSRTC on
E 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
F 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
G the bus at all. Had it been a case only of transfer of services of
the driver and not of transfer of control of the driver from the
owner to RSRTC, the matter may have been somewhat different.
But on facts in this case and in view of Conditions 4 to 7 of the
agreement (supra), the RSRTC must be held to be vicariously
H liable for the tort committed by the driver while plying the bus
U.P. STATE ROAD TRANSPORT CORPORATION v. 205
RAJENDRI DEVI & ORS. [R. F. NARIMAN, J.]

under contract of the RSRTC. The general proposition of law and A
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 and within the
scope of his authority, is a rebuttable presumption.”
B
(emphasis in original)
xxx xxx xxx
“18. In our considered opinion, in the light of the drastic and distinct
changes incorporated in the definition of “owner” in the old Act
and the present Act, Kailash Nath’s case [Rajasthan State Road C
Transport Corporation v. Kailash Nath Kothari (1997) 7 SCC
481] has no application to the facts of this case. 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 D
Nath’s case [Rajasthan State Road Transport Corporation v.
Kailash Nath Kothari (1997) 7 SCC 481]. 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.”
E
Finally, the insurance company was held liable stating:
“29. 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 the conductor who was appointed F
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.
30. Thus, for all practical purposes, for the relevant period, the
Corporation had become the owner of the vehicle for the specific
G
period. If the Corporation had become the owner even for the
specific period and the vehicle having been insured at the instance
of original owner, it will be deemed that the vehicle was transferred
along with the insurance policy in existence to the Corporation
and thus the Insurance Company would not be able to escape its
liability to pay the amount of compensation. H
206 SUPREME COURT REPORTS [2020] 4 S.C.R.

A 31. The liability to pay compensation is based on a statutory
provision. Compulsory insurance of the vehicle is meant for the
benefit of the third parties. The liability of the owner to have
compulsory insurance is only in regard to third party and not to
the property. Once the vehicle is insured, the owner as well as
any other person can use the vehicle with the consent of the owner.
B
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.”
6. The law laid down in Kulsum’s case (supra) squarely applies
C to the facts of the present case. Also, the argument based on Clause 10,
which states as follows,
“CLAUSE 10: The second party (Bus owner) shall have full liability
for any fault, negligence, accident, or other illegal acts of the driver
and liability for payment of any compensation or other dues
D whatsoever in this regard shall be that of the owner of the bus or
Insurance Company under the Acts. In no case, the First party
(Petitioner Corporation) shall have any liability for fault, negligence,
accident, or other illegal acts of the driver. In case any payment
is made by the First Party in compliance of any order of any
E Court, etc., the First Party shall be authorized to recover the same.”
is only between the Corporation and the bus owner and does not
bind anybody who is not privy to the aforesaid agreement, least of all,
the victim.
7. In this view of the matter, the appeal is allowed and the sum
F awarded by the MACT will now be payable only by the Insurance
Company with interest at the stated rate, within a period of three months
from today.

Ankit Gyan Appeal allowed.
G

H