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CASE NO.:

Appeal (civil) 2422-2459 of 2001

PETITIONER:

NATIONAL INSURANCE CO. LTD

RESPONDENT:

ANJANA SHYAM & ORS

DATE OF JUDGMENT: 20/08/2007

BENCH:

A.K. MATHUR & P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T

[with C.A. Nos. 5992-6026/2002, 4288/2006 and

C.A. No 3824/2007 @ SLP (C) No. 14167 of 2001]

P.K. BALASUBRAMANYAN, J.

1. Delay condoned and leave granted in SLP(C)

No.14167 of 2001.

2. A bus bearing registration No. HP-06-1245,

owned by the Tehsil Cooperative Union and insured with

the appellant met with an accident on 4.3.1996. The

vehicle had a carrying capacity of 42 passengers, one

driver and one conductor and in terms of Section

147(1)(b)(ii) of the Motor Vehicles Act (hereinafter "the

Act") was insured for the 42 passengers. It goes without

saying that the route permit of the vehicle was for

carrying 42 passengers other than the driver and the

conductor.

3. On the day of the accident, the materials

indicate that the bus was overloaded. There were at

least 90 passengers. The bus fell off the road into a

nullah leading to the death of 26 including the one who

was driving the vehicle and injuring 63 persons. The

legal representatives of the deceased and the injured, all

approached the Motor Accident Claims Tribunal claiming

compensation and seeking its adjudging on applications

made under Section 166 of the Motor Vehicles Act, 1988.

The claim was resisted by the owner, the insured and by

the insurance company. The insurance company mainly

contended that the bus was overloaded; that it was being

driven not by an authorized driver at the time of the

accident; and that the insurance company had no

liability. Alternatively, it was sought to be pleaded that

the owner having permitted the vehicle to be overloaded

had committed a fundamental breach of the contract of

insurance and therefore the insurance company could

repudiate the policy and hence was not liable for the

compensation that may be adjudged. The Tribunal had

brushed aside these objections and passed various

awards on the various claims and made the insurance

company liable for paying the amounts covered by all the

awards exceeding the 42 covered by the insurance.

Feeling aggrieved, the insurance company filed 38

appeals challenging the awards. In the appeals, an

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application was made seeking impleadment of the State

of Himachal Pradesh. This was on the basis that the

authorities under the State had failed to check the

overloading of the bus and it was due to the negligence of

the authorities of the State in not checking overloading

and adherence to the conditions of the permit by the

owner of the vehicle and the relevant provisions of the

Act that the accident had occurred and hence the State

must be found to be liable in contributory negligence and

for that purpose it was just and necessary to implead the

State as a party to the proceedings. An amendment of

the written statement of the company was also sought

for to introduce the plea that the bus carried 90

passengers at the time of the accident as against the

sitting capacity of 42 including the driver and the

conductor and in that situation the liability should be

apportioned between the insurance company, the owner

and the State and the insurance company could be

found liable only to the extent of the insurance it had

provided and it was bound to provide in terms of Section

147 of the Act and in terms of the conditions of the

permit held by the owner of the bus.

The Insurance Company also sought permission to raise

other contentions which were not normally open to it, by

invoking Section 170 of the Act. The High Court taking

the view that overloading of the bus which had a permit

to ply on the route with only 42 passengers, did not

amount to violation of the route permit or any other law

for which the State Government could be held to be

contributorily negligent and that the insurance company

was liable to pay the amounts as awarded by the

Tribunal since it could not also question the quantum of

compensation awarded. Thus, the High Court dismissed

the appeals filed by the insurance company. It also

dismissed the three appeals filed by three different

claimants seeking enhancement of compensation in their

respective cases. The insurance company has filed Civil

Appeal Nos.2422-2459 of 2001 challenging the decision

of the High Court.

4. In the accident giving rise to C.A. Nos.5992-

6026/2002, the vehicle had only the capacity to carry 42

passengers but at the time of the accident, there were 70

passengers in the bus. The stand of the insurance

company is that only 42 passengers were insured and

they cannot be compelled to meet the award beyond the

contract of insurance itself. The appeals actually

challenge only the interim awards made in respect of the

claims, even beyond the insured 42.

5. In the accident giving rise to C.A.

No.4288/2006 the vehicle was insured for 38 passengers

and two more including the driver and the conductor.

There were more than 70 passengers at the time of the

accident. The insurance company contends that its

liability is limited to the claim of 38 passengers.

6. In the civil appeal arising from SLP(C) 14167 of

2001, the claim was one arising out of the accident that

has given rise to Civil Appeal Nos.2422-2459/2001. The

appeal before the High Court was disposed of in the light

of the earlier judgment from out of which C.A. Nos.

2422-2459 have arisen.

7. Learned counsel for the insurance company

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did not pursue his argument before us that overloading

the bus was a breach of a specified condition of the

insurance in that it was a user of the insured vehicle for

a purpose not allowed by the permit under which the

vehicle is used where the vehicle is a transport vehicle.

His only contention in all these appeals was that the

insurance company having insured 42 passengers in two

of the cases and 38 passengers in another, the liability of

the insurance company cannot be enlarged and the

liability is confined only to the 42 passengers insured. It

was submitted that there is nothing in the Act which

justifies the imposing of the liability on the insurance

company in respect of persons who were not at all

covered by the insurance policy and in respect of whom

there was no obligation on the owner of the vehicle to

take coverage of insurance in terms of Section 147 of the

Act. Counsel submitted, however much we may keep in

mind that the relevant provisions of the Motor Vehicles

Act are for the benefit of third parties or passengers of a

transport vehicle injured in an accident, the same did

not contain any provision which could enlarge the

liability of the insurance company compelling it to cover

more persons than it had contracted to cover.

8. Counsel for the respondents in these appeals

submitted that the victims of an accidents are not to be

driven to chase the mirage of recovery of compensation

or damages from the owner of the vehicle and it is to

ensure that the victims are paid compensation, whatever

might be the inter se rights and obligations of the owner

of the vehicle and the insurance company, that the

relevant provisions are made. Counsel relied on Section

149 of the Act to contend that once an award is passed,

it was the duty of the insurer to satisfy the judgment and

award and viewed from that angle, the insurance

company was bound to pay the victims the entire

amount covered by the various awards.

9. Before us, there were attempts by learned

counsel for the insurance company to suggest the

adoption of a formula in cases of over-loaded vehicles

meeting with the accidents and more people than those

covered by the policy getting killed or injured. Counsel

for the respondent submitted that that was not an

acceptable formula and it was not practicable to adopt

the same. We shall consider that aspect at a later stage

if it becomes necessary.

9. Under Section 146 of the Motor Vehicles Act,

1988, no vehicle can be plied on the road without taking

out an insurance against third party risk. Section

147(1)(b)(ii) provides that in order to comply with the

requirements of Chapter XI of the Act, a policy of

insurance must be a policy which insures persons or

classes of persons, specified in the policy to the extent

specified in sub-section (2) of that Section 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. The limit in terms of Section

147(2)(a) of the Act is the amount of liability incurred.

Under Section 149(1) of the Act, the insurance company

has the obligation, subject to the provisions of that

Section, to satisfy the decree or award made by the

concerned court or Tribunal on claims by third parties.

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Section 149(2) of the Act provides that no sum shall be

payable by an insurer unless notice of the proceedings

had been given to the insurance company before the

commencement of the proceedings through the court or

the Claims Tribunal, and that it shall not be liable if

there has been a breach of a specified condition of the

policy as indicated in that sub-section. These cover use

of the vehicle for hire or reward where the vehicle is on

the date of the contract of insurance a vehicle not

covered by a permit to ply for hire or reward, or use for

organized racing and speed testing, or use for a purpose

not allowed by the permit under which the vehicle is

used where the vehicle is a transport vehicle, or use

without side-car being attached where the vehicle is a

motor cycle, or there is a breach of a condition excluding

driving by a named person or persons or by any person

who is not duly licensed, or by any person who has been

disqualified for holding or obtaining a driving licence

during the period of disqualification, or a condition

excluding liability for injury caused or contributed to by

conditions of war, civil war, riot or civil commotion, or

that the policy is void on the ground that it was obtained

by the non-disclosure of a material fact or by a

representation of fact which was false in some material

particular. Under sub-section (5), it is provided that if

the amount which an insurer becomes liable to pay

under this Section in respect of a liability incurred by a

person insured by a policy exceeds the amount for which

the insurer would, apart from the provisions of this

Section be liable under the policy in respect of that

liability, the insurer shall be entitled to recover the

excess from that person. Therefore, on the scheme of the

Act, the insurance company, if it is not able to establish

that there is a fundamental breach of a condition which

would enable it to disclaim liability, it may have to pay

the amount of compensation adjudged by a Claims

Tribunal subject of course to its rights to recover from

the insured, the owner of the vehicle such excess as it is

obliged to pay.

11. Section 149 of the Act speaks of the judgment

or award in respect of the liability as is required to be

covered by a policy under clause (b) of sub-section (1) of

Section 147 of the Act having to be satisfied. Section

147(1)(b) compels insuring the person or classes of

persons specified in the policy to the extent specified in

sub-section (ii) of that Section. The case on hand will

come under sub-clause (ii) of clause (b) of Section 147 (1)

of the Act which obliges the owner to take out insurance

compulsorily 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.

12. Section 58 of the Act makes special provisions

in regard to transport vehicles. Sub-Section (2) provides

that a registering authority, when registering a transport

vehicle, shall enter in the record of registration and in

the certificate of registration various particulars. Clause

(d) provides that if the vehicle is used or adapted to be

used for carriage of passengers, the number of

passengers for whom accommodation is provided. Thus

the registration of the vehicle, which alone makes it

usable on the road, records the number of passengers to

be carried and the certificate of registration also contains

that entry. So, an insurance company insuring the

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passengers carried in a vehicle in terms of Section

147(1)(b)(ii) of the Act, can only insure such number of

passengers as are shown in the certificate of registration.

The position is reinforced by Section 72 of the Act, which

deals with grant of stage carriage permits. Sub-Section

(2) provides that when a permit is decided to be granted

for a stage carriage, the Regional Transport Authority

can attach to the permit one or more of the conditions

specified therein. Clause (vii) is the condition regarding

the maximum number of passengers that may be carried

in a stage carriage. Overloading also invites a

consequence which can be termed penal. Section 86 of

the Act provides for cancellation of a permit if any

condition contained in the permit is breached.

Therefore, the apparent wide words of Section

147(1)(b)(ii) of the Act have to be construed harmoniously

with the other provisions of the Act, namely, Sections 58

and 72 of the Act. As early as in 1846, Dr. Lushington

in Queen V. Eduljee Byramjee [(1846) 3 MIA 468]

posited that to ascertain the true meaning of a clause in

a statute the court must look at the whole statute, at

what precedes and at what succeeds and not merely at

the clause itself. This Court has accepted this approach

in innumerable cases. Thus, the expression 'any

passenger' must be understood as passenger authorized

to be carried in the vehicle and 'use of the vehicle' as

permitted use of the vehicle. Affording of insurance for

more number of passengers than permitted, would be

illegal since in that case the manifest intention would be

the overloading of the vehicle, something not

contemplated by law. Thus, it is not possible to accept a

contention that the insurance can be taken to cover

more passengers than permitted by the certificate of

registration and the permit as a stage carriage and that

it will cover all the passengers overloaded. Of course, in

these cases, there is no dispute that the insurance cover

took in only the permitted number of passengers.

13. In this situation, the insurance taken out for

the number of permitted passengers can alone determine

the liability of the insurance company in respect of those

passengers. In terms of Section 149 of the Act, the duty

of the insurer is only to satisfy judgments and awards

against persons insured in respect of the third party

risk. Obviously, this is to the extent the third party risk

is coverable and is covered. Section 149 of the Act

speaks of judgment or award being obtained against any

person insured by the policy and the liability of the

insurer to pay to the person entitled to the benefit of the

decree any sum not exceeding the sum assured payable

thereunder subject to any claim the insurer may have

against the owner of the vehicle. Section 149 could not

be understood as compelling an insurance company to

make payment of amounts covered by decrees not only

in respect of the number of persons covered by the policy

itself but even in respect of those who are not covered by

the policy and who have been loaded into the vehicle

against the terms of the permit and against the terms of

the condition of registration of the vehicle and in terms

of violation of a statute.

14. It is true that the provisions in Chapter XI of

the Act are intended for the benefit of third parties with a

view to ensure that they receive the fruits of the awards

obtained by them straightaway with an element of

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certainty and not to make them wait for a prolonged

recovery proceeding as against the owner of the vehicle.

But from that, it would not be possible to take the next

step and find that the insurance company is bound to

cover liabilities not covered by the contract of insurance

itself. The Act only imposes an obligation to take out

insurance to cover third party risks and in the case of

stage carriages, the passengers to be carried in the

vehicle and the passengers to be carried in the vehicle

can be understood only as passengers authorized or

permitted to be carried in the vehicle.

15. In spite of the relevant provisions of the

statute, insurance still remains a contract between the

owner and the insurer and the parties are governed by

the terms of their contract. The statute has made

insurance obligatory in public interest and by way of

social security and it has also provided that the insurer

would be obliged to fulfil his obligations as imposed by

the contract and as overseen by the statute

notwithstanding any claim he may have against the

other contracting party, the owner, and meet the claims

of third parties subject to the exceptions provided in

Section 149(2) of the Act. But that does not mean that

an insurer is bound to pay amounts outside the contract

of insurance itself or in respect of persons not covered by

the contract at all. In other words, the insured is

covered only to the extent of the passengers permitted to

be insured or directed to be insured by the statute and

actually covered by the contract. The High Court has

considered only the aspect whether by overloading the

vehicle, the owner had put the vehicle to a use not

allowed by the permit under which the vehicle is used.

This aspect is different from the aspect of determining

the extent of the liability of the insurance company in

respect of the passengers of a stage carriage insured in

terms of Section 147(1)(b)(ii) of the Act. We are of the

view that the insurance company can be made liable

only in respect of the number of passengers for whom

insurance can be taken under the Act and for whom

insurance has been taken as a fact and not in respect of

the other passengers involved in the accident in a case of

overloading.

16. Then arises the question, how to determine the

compensation payable or how to quantify the

compensation since there is no means of ascertaining

who out of the overloaded passengers constitute the

passengers covered by the insurance policy as permitted

to be carried by the permit itself. As this Court has

indicated, the purpose of the Act is to bring benefit to the

third parties who are either injured or dead in an

accident. It serves a social purpose. Keeping that in

mind, we think that the practical and proper course

would be to hold that the insurance company, in such a

case, would be bound to cover the higher of the various

awards and will be compelled to deposit the higher of the

amounts of compensation awarded to the extent of the

number of passengers covered by the insurance policy.

Illustratively, we may put it like this. In the case on

hand, 42 passengers were the permitted passengers and

they are the ones who have been insured by the

insurance company. 90 persons have either died or got

injured in the accident. Awards have been passed for

varied sums. The Tribunal should take into account, the

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higher of the 42 awards made, add them up and direct

the insurance company to deposit that lump sum. Thus,

the liability of the insurance company would be to pay

the compensation awarded to 42 out of the 90

passengers. It is to ensure that the maximum benefit is

derived by the insurance taken for the passengers of the

vehicle, that we hold that the 42 awards to be satisfied

by the insurance company would be the 42 awards in

the descending order starting from the highest of the

awards. In other words, the higher of the 42 awards will

be taken into account and it would be the sum total of

those higher 42 awards that would be the amount that

the insurance company would be liable to deposit. It will

be for the Tribunal thereafter to direct distribution of the

money so deposited by the insurance company

proportionately to all the claimants, here all the 90, and

leave all the claimants to recover the balance from the

owner of the vehicle. In such cases, it will be necessary

for the Tribunal, even at the initial stage, to make

appropriate orders to ensure that the amount could be

recovered from the owner by ordering attachment or by

passing other restrictive orders against the owner so as

to ensure the satisfaction in full of the awards that may

be passed ultimately.

17. In these cases, we find that this Court has not

issued notices to the claimants. We are therefore not in

a position to vary the decision of the High Court as

regards the claimants. But, we have clarified the law on

the question and we grant the insurance company a

decree to recover the excess amount that it has

deposited, from the owner, who has been issued notice

and who has contested these appeals. Obviously, the

principle indicated by us here will have to be applied by

the Tribunal in the case from which the appeal against

the interim award has been filed by the insurance

company.

18. Thus, the appeals are allowed to the extent

indicated above. There will be no order as to costs.